What Is the Cape Town Convention? An Aviation Attorney's Guide

The Convention on International Interests in Mobile Equipment, commonly known as the Cape Town Convention, together with its Protocol on Matters Specific to Aircraft Equipment, is one of the most important international treaties affecting aviation finance and leasing. Adopted in Cape Town, South Africa in 2001, the Convention has been ratified by over 80 countries and fundamentally changed how security interests in aircraft and engines are created, registered, and enforced across borders. For anyone involved in aircraft transactions, understanding the Cape Town Convention is essential.

Purpose of the Convention

Before the Cape Town Convention, there was no uniform international framework for recognizing security interests in aircraft. A creditor who financed an aircraft in one country had no assurance that its security interest would be recognized if the aircraft was moved to another jurisdiction. This uncertainty increased the cost of aircraft financing, particularly in developing countries. The Convention was designed to solve this problem by creating a standardized, internationally recognized system for registering and enforcing interests in aircraft objects (airframes, aircraft engines, and helicopters). By reducing legal risk for creditors, the Convention has lowered the cost of aviation finance globally.

The International Registry

At the heart of the Cape Town Convention is the International Registry, an internet-based registration system operated by Aviareto, an Irish company appointed by ICAO. The International Registry is accessible 24/7 and allows parties to register various types of interests in aircraft objects. Unlike national registries (such as the FAA Aircraft Registry), the International Registry is object-based rather than owner-based, meaning interests are registered against specific airframes and engines identified by manufacturer, model, and serial number.

The types of registrable interests include International Interests (security interests, title reservation agreements, and leasing agreements), Prospective International Interests (interests that will become International Interests upon a future event, such as delivery of an aircraft under construction), assignments of International Interests, and subordinations of interests.

Key Concepts Every Aviation Professional Should Know

Several key concepts under the Cape Town Convention are critical to aircraft transactions:

• International Interest: A security interest, a right under a conditional sale agreement, or a right under a leasing agreement that qualifies for registration on the International Registry. Once registered, it has priority over subsequently registered interests and over unregistered interests.

• Priority: The Convention establishes a first-to-file priority system. A registered interest has priority over a subsequently registered interest and over an unregistered interest, regardless of when the underlying agreement was created.

• Associated Rights: Rights associated with an International Interest, such as the right to receive payment under a loan agreement secured by the aircraft. These rights can be assigned together with the International Interest.

• Non-Consensual Rights and Interests (NRCIs): Certain categories of liens or claims that a Contracting State may declare to have priority over registered International Interests, such as mechanics' liens or tax liens.

IDERA: The Irrevocable De-Registration and Export Request Authorization

One of the most practically significant innovations of the Cape Town Convention is the IDERA. An IDERA is a document, signed by the registered owner (the debtor) and filed with the national aviation authority, that irrevocably authorizes a designated "authorized party" (typically the lessor or secured creditor) to request de-registration and export of the aircraft without the owner's further cooperation.

The IDERA is a critical self-help remedy for creditors. In a default scenario, particularly in jurisdictions where court proceedings may be slow or uncertain, the ability to de-register and export the aircraft without court intervention provides creditors with a powerful tool to recover their asset. Virtually all aircraft lessors and many secured lenders require an IDERA as a condition of the transaction. In the United States, the FAA accepts and processes IDERAs in accordance with 14 CFR Part 47.

Remedies Under the Convention

The Convention provides a framework of remedies available to creditors upon default. These include taking possession or control of the aircraft, selling or granting a lease of the aircraft, and collecting income arising from the management or use of the aircraft. Under the Aircraft Protocol, Contracting States may declare which of three remedial options they will apply in insolvency proceedings. The most creditor-friendly option, known as "Alternative A," requires the insolvency administrator to either cure all defaults and agree to perform future obligations within a specified waiting period (typically 60 days), or give possession of the aircraft to the creditor. The United States has adopted Alternative A with a 60-day waiting period, which is consistent with the protections already available under Section 1110 of the U.S. Bankruptcy Code.

Practical Implications for Aircraft Transactions

For attorneys and transaction professionals, the Cape Town Convention affects nearly every aspect of aircraft deal documentation. During due diligence, parties must search the International Registry to identify any registered interests against the aircraft and its engines. At closing, existing interests must be properly discharged and new interests registered. The priority of interests must be carefully analyzed, particularly in multi-creditor transactions. IDERAs must be filed with the appropriate aviation authority. And in cross-border transactions, the declarations made by each Contracting State must be reviewed to understand the remedies available in the relevant jurisdictions.

How It Interacts with U.S. National Law

In the United States, the Cape Town Convention operates alongside the existing FAA registration system and the Uniform Commercial Code. The FAA Aircraft Registry remains the primary system for recording aircraft ownership and liens under domestic law, while the International Registry provides an additional layer of protection for cross-border transactions. Creditors in U.S. aircraft transactions typically file in both systems to maximize their protection. The interaction between the two systems can be complex, particularly regarding priority disputes and the effect of non-consensual rights and interests.

Why This Matters for Your Next Transaction

At Aviation Transaction Advisors, we advise on International Registry filings and Cape Town Convention compliance as part of every aircraft transaction we handle. Our team ensures that your interests are properly registered, that priority is established, and that the full range of Convention protections is available to you. Whether you are a lessor requiring an IDERA, a lender perfecting a security interest, or a buyer conducting due diligence, we can guide you through the complexities of the Cape Town Convention framework. Contact us to discuss your transaction.