Enforcement Of Security Over An Aircraft

Author:Mr Andrew Lawless
Profession:Dillon Eustace


In the current economic climate the possibility of defaults under loans secured on aircraft is an increasing concern for aircraft financiers. It is of course important to note that a security package will vary depending on the context of the particular aircraft financing transaction, and may include security documents such as an aircraft mortgage, a charge over the aircraft's maintenance reserves, a charge over shares in the borrower, a charge over shares in the guarantor for the borrower, an assignment of airframe and engine warranties in favour of the financier and an assignment of insurances to the benefit of the financier.

This paper provides a brief overview of some important considerations in the context of a financier with a security interest as mortgagee acknowledging the challenges posed by the multi-jurisdictional nature of the aviation industry to the enforcement of a financier's security over an aircraft. A financier wishing to enforce its security following such a default will typically need to consider the following:

Review of the loan agreement and aircraft mortgage Notice of default, locating the aircraft and repossession Liens and other prior interests Sale of the aircraft and deregistration Foreign jurisdictions The Cape Town Convention Review of the Loan Agreement and Aircraft Mortgage

The first step will be to review the loan and security documents to ensure that an event of default has occurred and to identify which relevant clause(s) can be relied upon by the financier to enforce its security. The 'Events of Default' clause(s) will describe the circumstances in which a financier can terminate its loan early and enforce its security and will typically include circumstances such as (a) a failure by the borrower to pay principal and interest under the loan, (b) breach of representation or warranty by the borrower, (c) breach of covenant by the borrower, (d) insolvency of the borrower or any guarantor, (e) failure by the borrower to pay airport charges or other operational costs when due, (f) arrest, confiscation or seizure of the aircraft, (g) failure to maintain or insure the aircraft and (h) occurrence of a materially adverse change in the business, operations or financial condition of the borrower or in the value of the aircraft.

It is important to ensure that the loan and security documentation fully and accurately describe the 'aircraft', and refer to the airframe, engines, manuals and technical records. The aircraft mortgage should also be reviewed to confirm that the mortgage is enforceable following a demand for repayment of the loan...

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