The Cape Town Convention and Spain

The Cape Town Convention on International Interests in Mobile Equipment (the “Cape Town Convention”) and its associated Aircraft Protocolprovide a uniform legal framework for securing financial interests in aircraft, engines and related equipment.

Designed to facilitate asset-based financing and leasing of high-value mobile equipment, the Cape Town Convention has been adopted by countries seeking to attract international investment in aviation.

Spain became a contracting state to the Cape Town Convention on 26 June 2013, and to the Aircraft Protocol on 1 March 2016, making it one of the few European civil law jurisdictions to implement this system. The decision to join the Cape Town system was driven by the need to enhance aircraft financing opportunities amid financial turbulence, supporting Spanish airlines in securing international funding. Additionally, the global aviation industry increasingly relies on uniform legal mechanisms to ensure predictability and stability in cross-border transactions. However, the application of the Cape Town Convention in Spain has presented legal challenges due to inconsistencies with Spanish domestic law, particularly in areas related to the taking of security, enforcement mechanisms and judicial intervention regarding specific performance. These discrepancies raise questions about the practical effectiveness of the Cape Town system in Spain and its interaction with Spanish legal principles.

Both the Cape Town Convention and the Aircraft Protocol form what is known as the “Cape Town system,” which governs the creation of security interests over aircraft and engines. This system simplifies the taking of security over aircraft by implementing uniform international rules, thereby overcoming the challenge of the change of applicable laws whenever an aircraft flies to a new location (lex situs) or changes its country of registration (lex registrii). These rules facilitate the financing of valuable, high-mobility assets but also introduce challenges in harmonising with national legal frameworks.

The Cape Town system is largely influenced by common law principles, making its application more difficult in civil law jurisdictions. In this regard, Spain stands as an exception among European civil law countries, as Germany, France, Italy, Switzerland, Poland and Portugal have opted to stay outside the system.

Inconsistencies Between the Cape Town System and Spanish Law

The Cape Town system does not fully match with the Spanish existing rules on the creation and enforcement of security. A few examples illustrate this.

• Registration of security interests: Under the Cape Town system, the registration of an “International Interest” in the International Registry (IR) run by Aviareto has a declarative value and it is not a condition for the valid creation of a security right (this is repeatedly stated in Cape Town opinions delivered by lawyers), whereas under Spanish law, the perfection and validity of the security with respect to third parties requires the due registration in the Registry of Goods and Chattels. This is why the role of the Spanish Registers is very important as it consists in the review of the conformity of the legal documents with Spanish law. In plain words, Spanish Registers do not simply accept documents for filing or deposit without carrying out a detailed legal analysis of them.
• Types of security interests: While Article 2 of the Cape Town Convention contemplates three types of “guarantees”: (i) a security agreement; (ii) a title reservation agreement; and (iii) a leasing agreement, Spanish law only recognises as a true security the first one, which can take the form of a mortgage (over an airframe or an aircraft) or a pledge without delivery of possession (over engines or other bankable aircraft parts). Agreements (ii) and (iii) are considered a source of contractual rights which are valid only “inter partes”. Contrary to the Cape Town system, a Spanish mortgage or pledge are perfected upon the execution and registration of a notarial deed between the creditor and the aircraft or engine owner, without the consent or approval of the lessor, unless the lessor is the owner.
• Enforcement of International Interests: The enforcement of International Interests under Spanish law faces significant hurdles. Spanish law prohibits secured creditors from appropriating the secured asset without a public sale (a principle derived from Roman law and codified in the Napoleonic Code, known as pacte commissaire). However, this prohibition may be bypassed if the debtor agrees to waive the public sale requirement and an objective evaluation process is established, consistent with Article 9.3 of the Cape Town Convention.

Additionally, Spanish procedural law does not currently provide for expedited judicial intervention in the physical repossession of aircraft, as required under the Cape Town system. Self-help remedies are not permitted, and court intervention is required under Spanish law (Declaración de España conforme al Artículo 54.2 del Convenio y al Protocolo Aeronáutico). Some scholars argue that Spanish courts may refuse to enforce repossession orders under the Cape Town system, raising doubts about the system’s practical viability in Spain. No legal precedent has yet been established on this matter, leaving the issue open to debate.

Despite the aforementioned legal difficulties, the provisions contained in international treaties ratified by Spain must be directly applied in Spain once they have become part of its domestic law as a result of their publication in the State Gazette (BOE). This is the case of the Cape Town Convention and the Aircraft Protocol, which are therefore Spanish law, without a requirement for the approval of any further enabling legislation. It is also worth noting that in the event of the registration in Spain of court decisions about the legal effectiveness of deeds granted in other countries containing actions or rights unknown in Spanish law, Law 29/2015 on international legal co-operation obliges local registers to convert them, to the extent possible, into rights or measures having equal effects and a similar purpose in Spanish law as those sought in foreign laws. This provision relates to the registration of foreign documents and does not deal with decisions of local courts in litigious claims, but it may influence judges in their efforts to apply the rules of the Cape Town system, which are not consistent with Spanish law. Moreover, Article 3 of the Spanish Civil Code will also assist local judges, because it orders that legal provisions be interpreted in accordance with the circumstances of the time when they have to be applied, taking in account their spirit and purpose. This article allows with certain reasonable limits a creative application by Spanish judges of the Cape Town system to fill in the aforementioned legal vacuums. 

Importance of IDERA in Spain

The importance of the IDERA in Spain should also be an area of focus in the context of a troubled aircraft repossession. The IDERA, or the authorisation to deregister an aircraft from the Spanish Aircraft Register does not need any action by local courts and can be directly actioned by the Spanish Aircraft Register, provided the IDERA has been properly registered in such Registry. The requirements are light as the Spanish Aircraft Registry only requests that the notice of default under the lease has been properly served to the lessee and based on that, the Spanish Aircraft Register will send a deregistration notice (usually an email) to the country of new registration, pursuant to the ICAO convention which does not permit that an aircraft is registered at the same time in two different countries. The Cape Town Convention is flexible as to what can be considered as “default”. That definition is wide in the absence of a specific contractual provision on the matter between the lessor and the lessee: “ a default means a default which substantially deprives the creditor of what it is entitled to expect under the agreement”. In this regard, the Cape Town Convention includes its own definition of default, which is autonomous from the definition contained in the laws of member countries.

It has been argued in certain quarters that in Spanish law, there is a risk that an IDERA could be recharacterised as a power of attorney and that it will not survive in an insolvency of the lessee. However, an IDERA under the Cape Town system should be considered as a new type of security rather than as a power of attorney, because of its function to facilitate the repossession of an aircraft. However, there is no doubt this risk does exist, and it is good practice to enforce the IDERA before the issue of an insolvency order.

AEP Codes and the Spanish Registry System

The Cape Town Convention permits any state to appoint an entity within its jurisdiction as the entry point (EP) for transmitting information to the IR. If a Contracting State designates such an entity, any registration that attempts to bypass the designated EP will be deemed invalid.

The Spanish Declaration pursuant to Article XIX of the Protocol states that  the Registro de Bienes Muebles will be the entry point which will authorise the transmission to the IR of the information required for registration in respect of airframes and helicopters registered in the Kingdom of Spain or, in the process of registration, authorise the transmission of such information to the register in respect of aircraft engines. The IR does not require AEP codes for documents relating to engines because the Cape Town system was created for airframes and helicopters. Therefore, AEP codes for airframes and helicopters must be requested in the Registro de Bienes Muebles. 

The Spanish Registro de Bienes Muebles is run by highly qualified law officers and, as discussed, a Spanish law security cannot be perfected after is has been accepted for registration by the Registro. In addition, the Spanish Registro is extremely concerned with the co-ordination of its entries with those existing in the IR. For this reason, once it has been granted an AEP code, there are only five days after which a re-application is absolutely required unless in the meantime the applicant has filed confirmation of its use. If no re-application is filed within five days, Spanish Registro will charge additional charges. This is a way to ensure co-ordination between registers; ie, interests are created by way of its registration in the IR, but the Spanish Registro is aware of such filings in the latter register.

Spain’s adherence to the Cape Town Convention and the Aircraft Protocol has introduced a modernised system for securing interests in aircraft, aligning Spanish aviation finance with international standards. However, as discussed, significant discrepancies between the Cape Town system and Spanish law create challenges in implementation.

Mechanisms such as IDERA play a crucial role in aircraft repossession, offering an efficient pathway for deregistration without court intervention. However, concerns remain regarding potential recharacterisation of IDERA in insolvency cases. Despite the aforementioned discrepancies which may involve legal issues regarding the enforcement of an international security, the IDERA has, so far, been working without any legal challenges and the Spanish Aviation Authority has been enforcing it in a timely fashion and without raising obstacles. In practical terms, the Cape Town system has created a practical alternative to the taking of Spanish mortgages (or pledges without displacement in the case of engines) because it is quick and not costly. Spanish security requires intervention of notaries and registers and the payment of high stamp duty. Such costs make it impractical from a business point of view in the case of short- to medium-term transactions.

Ultimately, while the Cape Town Convention offers clear advantages for the Spanish aviation industry by attracting international investment and simplifying cross-border transactions, the friction with Spanish legal traditions necessitates ongoing legal adaptation and judicial clarity. The successful implementation of the Cape Town Convention in Spain will depend on how courts and regulators reconcile these differences, ensuring that the Cape Town system remains functional and effective within the Spanish legal landscape. Future judicial precedents and legislative developments will likely play a critical role in shaping the Cape Town Convention’s long-term viability in Spain.

Given Spain’s unique position as a civil law jurisdiction implementing a largely common law-based system, further legal adaptation may be necessary to ensure smoother integration. This could involve legislative reforms to better harmonise Spanish procedural and substantive law with the Cape Town system’s requirements. Increased judicial training and expertise in international aviation finance law may also facilitate more consistent and predictable application of Cape Town provisions within the Spanish legal framework.