Aviation Finance & Leasing 2026 Comparisons

The execution of an aircraft or engine sale agreement does not, by itself, trigger any US federal or state tax or duty, including where an original or copy enters the United States physically or electronically. However, consummating the sale (ie, transfer of title or delivery of the asset) may give rise to state-level sales or use tax, as described in 1.2.5 Taxes/Duties Payable Upon Execution of a Bill of Sale.

It is not necessary for a sale agreement to be translated, certified, notarised or legalised to be enforceable against a domestic party. English-language agreements are routinely enforced by US courts, and no general authentication formalities apply to render a commercial sale agreement effective.

For US-registered aircraft, title is transferred by a Federal Aviation Administration (FAA) form bill of sale (AC Form 8050-2), which shall be recorded with the FAA on transfer of title. Due to the limited information contained in such FAA form, it is customarily accompanied by a warranty bill of sale setting out the seller’s representations and warranties; for non-US-registered aircraft, a warranty bill of sale is sufficient to transfer title, subject to the requirements of the relevant state of registration of the aircraft. A transfer of title to an airframe would generally carry installed parts such as an auxiliary power unit (APU), subject to the documentation and any third-party interests in those parts.

The sale of the ownership interest in an entity that owns an aircraft or engine is not ordinarily treated as a sale of the aircraft or engine itself, although exceptions may arise for tax and registration purposes.

The transfer of title to an aircraft or engine physically delivered in the United States will be recognised even if the bill of sale is governed by English or New York law. There are no minimum substantive requirements that must be satisfied for such a bill of sale to be recognised, although for US-registered aircraft the FAA recording requirements (and US citizenship rules) described in 1.2.4 Registration, Filing and/or Consent From Government Entities will apply.

A warranty bill of sale does not need to be translated, certified, notarised or legalised to be enforceable against a domestic party. For US-registered aircraft, the relevant formality is recording the bill of sale with the FAA.

For US-registered aircraft, title transfer is effected through the FAA bill of sale (AC Form 8050-2), which must be recorded with the FAA. US-registered aircraft may only be owned by US citizens; non-citizen ownership is commonly accommodated through a voting trust or owner trust structure. No prior government consent is required as a prerequisite to executing and delivering a bill of sale; the FAA recording process is generally completed within a short period once a complete submission (now capable of electronic filing through the Civil Aircraft Registry Electronic Services (CARES) platform) is received by the FAA.

Upon the sale of an aircraft physically located in a state of the United States, most states will require that the seller collect from the buyer and remit a sales tax on the gross sale proceeds, typically calculated as a percentage of the gross sale proceeds, which varies by state. Exemptions to such tax are frequently available, including, in many states, for sales to air carriers operating in interstate or foreign commerce or where the aircraft is acquired for resale. Delivering an aircraft over international waters or in a state that imposes no sales tax (or offers an exemption) can be an effective way to eliminate sales tax. The seller should ensure that the buyer delivers any required tax exemption certificate to evidence the availability of any such exemption.

US law does not prohibit or fail to recognise operating, wet, finance or engine/parts-only leases. Each of these structures is commonly used in the United States, although a finance or capital lease may cause the lessee to be characterised as the owner of the relevant equipment for FAA registration and certain tax purposes.

A lease involving a domestic party or an asset situated in the United States may be governed by a foreign law. US courts will generally give effect to a bona fide choice of foreign governing law, subject to limited public-policy exceptions.

There are no material restrictions on domestic lessees making rent payments to foreign lessors in US dollars, though the US Department of the Treasury’s Office of Foreign Assets Control (OFAC) prohibits payment in US dollars to sanctioned individuals and countries.

There are no exchange controls that would prevent rent payments under a lease or the repatriation of realisation proceeds, including where the lease is enforced by a foreign lessor. Payments may, however, be subject to US economic sanctions administered by OFAC (see 2.1.3 Office of Foreign Assets) and to withholding tax considerations (see 2.4.1 Tax Requirements for a Foreign Lessor).

No taxes or duties are payable merely for executing a lease physically in the United States or for bringing an original or copy into the jurisdiction physically or electronically. State use tax may, however, apply to lease rentals where the aircraft is based or operated in a state subject to such use tax. Such states will require that the lessor collect from the lessee and remit to the state’s tax authorities a use tax on the gross rentals under a lease when based or operated in such state.

There are often exemptions available, including in many staters an exemption for leases of aircraft to air carriers for use in foreign or interstate commerce. The lessor should ensure that the lessee delivers any required tax exemption certificate to evidence the availability of any tax exemption.

A lessor is not required to be licensed or otherwise qualified to do business with a domestic lessee. A foreign lessor carrying on a leasing business at a place of business within a state may, however, have tax registration or filing obligations in that state (see 2.4.1 Tax Requirements for a Foreign Lessor).

There are no mandatory terms required to be included in a lease (or its ancillary documents) governed by New York law that would not already be found in a market-standard aircraft lease. Parties should, however, consider FAA registration eligibility, insurance and (where applicable) Cape Town Convention matters under such lease.

Tax and other withholding gross-up provisions are permissible and enforceable under US law. They are standard in cross-border leases to protect the lessor against US withholding tax on rental payments (see 2.4.1 Tax Requirements for a Foreign Lessor).

A lease can cover parts installed or replaced on an aircraft or engine after execution. To ensure such parts are subject to the lease, the lease should include forward-looking, after-acquired property language and title-vesting provisions to preserve the lessor’s interest in such parts.

There is no risk of title annexation in respect of aircraft engines installed on an airframe owned by another party, as US law treats engines as separately owned assets. Nonetheless, as a best practice, parties should consider a recognition of rights agreement (RORA) in the case of permitted pooling or substitution arrangements under a lease.

The concept of a trust and the role of an owner trustee under a lease are recognised in the United States. Owner trust structures are commonly used, including to accommodate the US citizenship requirements for aircraft registration in the United States (see 1.2.4 Registration, Filing and/or Consent From Government Entities).

The FAA operates an owner registry, and therefore there is no registration of a lessee’s interest under a lease of an FAA-registered aircraft or engine, unless the lease is a finance or capital lease (in which case the lessee would be characterised as the owner). To record a lease for an eligible aircraft, the owner/applicant must submit an Aircraft Registration Application (AC Form 8050-1) together with evidence of ownership, evidence that any prior foreign registration has ended (and, if applicable, that recorded interests ranking in priority have been discharged or the holders of the interests have consented to the deregistration) and a registration fee (currently USD5).

The application must include:

• the typed or printed name and signature of each signatory, with their title and authority to sign on behalf of the applicant;
• identification of the aircraft by model, serial number and US registration mark;
• the applicant’s name (including trade name) and a physical and mailing address; and
• a certification that the applicant qualifies as an “owner”.

Upon receipt of a completed registration application that meets such requirements, the FAA issues a Certificate of Aircraft Registration (AC Form 8050-3). Such certificate is valid for seven years and is renewable thereafter.

Please see 2.3.1 Notation of Owner’s/Lessor’s Interests on Aircraft Register. Because the FAA is an owner registry, an aircraft is registered in the name of the owner; under an operating lease the lessor/owner is the registrant, whereas under a finance or capital lease the lessee may be treated as the owner for registration purposes.

Please see 2.3.1 Notation of Owner’s/Lessor’s Interests on Aircraft Register. There is no separate FAA register dedicated to leases; instead, conveyances and lease documents are recorded against the aircraft on the FAA owner registry, with international interests recorded on the International Registry under the Cape Town Convention (see 2.10 Cape Town Convention and Others).

Please see 2.3.1 Notation of Owner’s/Lessor’s Interests on Aircraft Register. A lease (and a lessor’s interest) may be recorded with the FAA, and recording is advisable to establish priority; the FAA does not require government consent to the lease itself, and the recording process is generally completed promptly upon a conforming submission, which may now be made electronically through the CARES platform.

A lease does not need to be in a specific form or to be translated, served, certified, notarised or legalised to be valid and registrable. Standard FAA recording requirements (legible execution, identification of the aircraft, and the required signatures) apply.

Only a nominal registration/recording fee is payable to the FAA in connection with registering a lease. No stamp duty or transfer tax applies to the act of recording a lease with the FAA.

It is unusual for aircraft habitually based in the United States to be registered elsewhere. US operators generally register aircraft domestically with the FAA rather than in alternative jurisdictions.

Please see 2.3.1 Notation of Owner’s/Lessor’s Interests on Aircraft Register. The FAA does not require documents to be legalised or authenticated; under the FAA’s January 2025 procedural updates, the historic practice of requiring original, wet ink documents and stamping has been relaxed, and documents bearing compliant digital signatures may be submitted electronically.

The following taxes may apply to leasing income in the case of a lessor that is not deemed to be engaged in the leasing business within the United States (under United States tax rules), or which is so engaged but is a qualified resident of a country with an income tax treaty with the United States and does not have a permanent establishment in the United States.

Gross rental income is generally subject to United States federal withholding tax at a rate of 30% if the rents are attributable to an aircraft that is located or operated within the United States. The United States is a party to many treaties with other countries that would allow a qualified tax resident of the relevant country to reduce (or in some cases exempt) this withholding tax.

A foreign corporate lessor is generally subject to a United States federal gross transportation tax at the rate of 4% on one-half of its rental income attributable to periods when the aircraft is operated between a point within the United States and a point outside the United States (ie, international flight legs). However, all or part of the leasing income may be exempt from this tax under an international treaty or a “reciprocal exemption” under the United States federal income tax statute, depending on the country in which the recipient of the income is tax resident.

Different rules apply to lessors deemed to be engaged in the leasing business within the United States (under United States tax rules), or in the case of a qualified resident of a country with an income tax treaty with the United States, deemed to have a permanent establishment in the United States to which the income is attributable.

A foreign corporate lessor that is deemed engaged in the leasing business within the United States (through a United States permanent establishment if relevant) is subject to United States federal income tax at the graduated rate applicable to United States domestic corporations on its net income (taking into account applicable deductions for items such as depreciation and interest expense). An additional 30% branch profits tax may apply when the income is deemed to be repatriated from the United States, subject to reduction or exemption under an applicable income tax treaty.

A foreign corporate lessor that carries on the business of leasing at a place of business within a state will be subject to income taxation by the state. A foreign corporate lessor that does not have a place of business within a state may nonetheless be subject to income taxation by the state if aircraft leased by the lessor are based or operated within the state. There are 50 states, and each state’s laws may be different.

Please see 2.4.1 Tax Requirements for a Foreign Lessor. Whether a foreign lessor is deemed to be carrying on business or subject to tax depends on whether it is engaged in a US leasing business or has a US permanent establishment, rather than on the mere fact of being a party to, or enforcing, the lease.

Subject to certain exceptions, a passive owner or lessor that has no contractual responsibility for the use, maintenance or operation of the aircraft, or a financier, does not bear liability for the operation of the aircraft or the activities of the operator. Lessors typically reinforce this position in a lease through “hell or high water”, operational-control, indemnity and insurance provisions.

Aircraft-related liability is generally divided into liability for injury to passengers or on-board property and liability to persons or property not on the aircraft (“third-party liability”). United Stated federal law (49 USC Section 44112) creates certain protections for passive lessors and owners – one without operational control or maintenance responsibility – from strict liability for injury or damage occurring “on the surface of the earth”, but this protection does not extend to accidents while the aircraft is in flight or outside the United States.

State courts in the United States have construed this protection narrowly. For example, in Vreeland v Ferrer (2010) the Florida Supreme Court limited the federal protection to loss on the ground and looked to state law for passive-owner liability, and other courts may reach different conclusions.

It should be noted that even for aircraft incidents within the United States, there may be a basis for jurisdiction elsewhere and for non-US law to apply (ie, the passenger is a foreign national, the ticket was purchased outside of the United States or the flight has a foreign origin or destination).

The United States is a party to the Warsaw Convention and other international conventions, which set upper limits on the amount of liability a carrier bears for each occurrence of passenger injury or on-board property damage during international flights. It is uncertain, however, whether these conventions would protect non-carrier lessors. At the very least, the provisions of such international conventions would not likely provide protection against liability for passengers and property in another aircraft involved in a mid-air collision. For practical purposes, a lessor should consider liability for injuries to people and property damage, both on board and on the surface, a serious possibility while the aircraft is operating outside of the United States.

Given existing law does not fully exonerate a passive lessor, a lessor must rely on the lessee’s insurance (and credit) and ensure that the lease addresses required coverage.

Ordinarily, creditors of a domestic lessee cannot attach an aircraft that is leased to the lessee but owned by a different entity. The aircraft remains the lessor’s property and is generally not available to satisfy the lessee’s creditors, subject to limited exceptions (eg, certain liens or a recharacterisation of the lease as a finance lease).

Certain unregistered liens may take priority over registered liens to the extent provided by applicable state law, including mechanics’ and warehousemen’s liens (possessory and non-possessory), US federal tax liens (typically filed at state level) and purchase-money security interests. Aircraft may also be seized by US Customs for criminal violations (most often involving drug transport), and aircraft contractually committed to the Civil Reserve Air Fleet (CRAF) programme may be called upon to support the Department of Defense in airlift emergencies, with compensation paid to participating airlines under the terms of the programme.

There is no requirement that all or part of the insurance be placed with domestic insurance companies. Coverage may be placed in the international markets, subject to the mandatory coverage requirements described in 2.5.2 Mandatory Insurance Coverage Requirements.

Air carriers operating in the United States must generally maintain the following coverage:

• third-party aircraft accident liability coverage for bodily injury or death (other than passengers) and property damage, with minimum limits of USD300,000 per person per occurrence and USD20 million per involved aircraft per occurrence – for aircraft of not more than 60 seats or 18,000 pounds maximum payload, the per-aircraft minimum is USD2 million per occurrence; and
• for carriers providing passenger air transportation, passenger bodily injury/death coverage with minimum limits of USD300,000 per passenger and a per-aircraft total per occurrence of USD300,000 multiplied by 75% of the number of passenger seats installed on such aircraft.

Reinsurance can be placed outside the United States for up to 100% coverage, which is common in aviation insurance programmes.

The enforceability of a cut-through clause depends on the governing law of the insurance/reinsurance contract. Where the contracts are governed by New York law, a cut-through clause should be recognised.

Assignments of insurance and reinsurance are permitted. In the United States and for agreements governed by New York law, lessors and financiers customarily take an assignment of insurance proceeds, supported by broker’s letters of undertaking and additional-insured/loss-payee endorsements.

The procedures for repossessing a leased aircraft are analogous to those for a financed aircraft, and a lessor may proceed either by non-judicial (“self-help”) or judicial process. Self-help is permitted so long as it does not “breach the peace”, which is generally understood as conduct involving violence, the likelihood of violence, or disturbance of public order.

In exercising remedies, a lessor may cancel the lease, take possession of the aircraft, dispose of leased aircraft and recover damages (or retain it and recover damages), and exercise any other contractual remedies. The aircraft does not necessarily need to be located in the jurisdiction, although practical and bankruptcy considerations may apply.

A lessor may take physical possession of the aircraft without the lessee’s consent through self-help, provided this does not breach the peace; otherwise, a court order is required (see 2.6.1 Restrictions on Lessors’ Abilities).

There are no specialist courts dedicated to aviation disputes. Such disputes are heard by the federal and state courts of general jurisdiction, applying the relevant governing law and forum-selection provisions.

A lessor can obtain summary judgment and equitable or other injunctive relief pending final resolution, subject to satisfying the applicable procedural standards. The availability and timing depend on the court and the facts, and interim relief may be conditioned (for example, on posting a bond); see 2.6.1 Restrictions on Lessors’ Abilities.

US courts will generally uphold a foreign law as the governing law of an aircraft lease, give effect to a submission to a foreign jurisdiction and enforce a waiver of immunity by the parties. These outcomes are subject to limited public-policy and due-process exceptions.

The United States is party to the 1958 Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the New York Convention), so foreign arbitral awards are broadly recognised and enforced. Recognition of foreign court judgments is governed by state law rather than treaty: in New York, for example, the grounds for recognition in New York Civil Procedure Law & Rules (CPLR) Article 53 (adopting the Uniform Foreign Country Money-Judgments Recognition Act) must be met, providing for recognition of a foreign judgment that is final, conclusive and enforceable where rendered. Other states have similar statutes.

A lessor can generally obtain a judgment in a foreign currency. New York, for instance, expressly permits foreign-currency judgments, with conversion typically made at the rate prevailing on the date of entry of judgment.

Following termination for default, a lessor may seek accrued but unpaid rent and the present value of future obligations, together with incidental costs and expenses, although applicable state law may require the lessor to mitigate its damages. The parties are generally free to agree to liquidated damages, provided the amounts are reasonable in light of the circumstances when agreed. Default interest and similar charges are enforceable so long as they are not penal or usurious.

A lessor is not required to pay taxes or fees in any significant amount in connection with enforcing a lease. Only nominal court filing or recording fees would typically arise.

There are no statutory mandatory notice periods that override the lease terms where a lessor terminates a lease relating to a domestically operated aircraft or a domestic operator. Notice and cure are instead governed by the contractual terms of the lease, subject to general principles such as the requirement not to breach the peace on repossession.

A lessee may be entitled to claim sovereign or other immunity from suit, but this may be waived. Waivers of immunity by commercial parties are customary in contracts and are generally enforced under the Foreign Sovereign Immunities Act and related principles.

The United States has adopted the 1958 New York Convention, and its courts will recognise and enforce a foreign arbitral decision in accordance with that Convention. See 2.6.6 Domestic Courts’ Recognition of Foreign Judgments/Awards.

The principal additional consideration for lessors relating to its enforcement rights is the impact of a lessee’s bankruptcy, which restricts a lessor’s ability to take possession of the equipment.

Section 1110 of the US Bankruptcy Code provides that, for aircraft, engines and related equipment leased to (or subject to a security interest granted by) an FAA-certificated air carrier operating aircraft capable of carrying ten or more individuals or 6,000 pounds or more of cargo, the lessor may repossess notwithstanding the automatic stay unless, within 60 days of the bankruptcy filing, the debtor cures all defaults and agrees to perform all obligations. Notably, Section 1110 only applies to equipment leased or conditionally sold to, or subject to security interests granted by, FAA-certificated air carriers.

The concepts of contractual assignment and novation are recognised in the United States. Both mechanisms are routinely used to transfer a lessor’s rights and obligations under aircraft leases.

A New York or English law-governed assignment and assumption agreement or novation (or deed) transferring a lessor’s rights to a new lessor will be held valid by a US court. The lessee’s consent is not required as a matter of US law (although it is commonly required contractually), and there are no mandatory terms that US law requires to be included in such an agreement or deed.

A lease assignment and assumption or novation does not need to be translated, certified, notarised or legalised to be enforceable against a domestic party. For US-registered aircraft, the relevant step is recording with the FAA, as described in 2.3.1 Notation of Owner’s/Lessor’s Interests on Aircraft Register.

An assignment or novation may be recorded with the FAA, and recording is advisable to preserve priority; no government consent to the assignment/novation itself is required. See 2.3.1 Notation of Owner’s/Lessor’s Interests on Aircraft Register.

No taxes or duties are payable in respect of an assignment and assumption or novation agreement, or as a consequence of an original or copy being brought into the United States physically or electronically. Only nominal FAA recording fees would apply.

Where the ownership interest in the entity (or the beneficial interest in the trust) that owns an aircraft is transferred, with legal title remaining with that entity, the treatment is a question of state law. Such a transfer is generally respected as a transfer of equity rather than of the aircraft itself, subject to tax and registration consequences. See 1.2.1 Transferring Title.

Subject to a properly granted IDERA (irrevocable de-registration and export request authorisation) or other deregistration power of attorney (DPOA), a request to deregister or export an aircraft must be made to the FAA by the registered owner under the Certificate of Registration (rather than by the operator). The operator/lessee should not be able to prevent deregistration and export by the owner, nor (where there is a properly recorded creditor or IDERA holder) should the owner be able to prevent deregistration and export by that creditor or IDERA holder.

Where an IDERA was provided to a creditor and properly recorded with the FAA, the authorised holder must submit:

• the IDERA;
• a written request for deregistration (describing the aircraft and identifying the country of export);
• evidence satisfactory to the FAA that liens and leases have been discharged or consented to; and
• written certification that higher-ranking interests have been extinguished or consented.

The IDERA must be in the Cape Town form, signed by the holder of the Certificate of Registration and filed for recording with the FAA Registry linked to a security agreement on file.

An owner, mortgagee or lessor (or a recorded IDERA/DPOA holder) can apply for deregistration without the lessee’s or operator’s consent. See 2.8.1 Deregistering Aircraft in This Jurisdiction.

The required documents are the IDERA (where applicable), the written deregistration/export request and evidence that prior interests have been discharged or consented to. See 2.8.1 Deregistering Aircraft in This Jurisdiction.

Once a conforming submission is made, FAA deregistration is generally processed promptly, and electronic submission through CARES can further reduce timing. See 2.8.1 Deregistering Aircraft in This Jurisdiction.

The protection that holders typically rely upon is the recorded IDERA mechanism under the Cape Town Convention, rather than a separate advance assurance from the FAA. See 2.8.1 Deregistering Aircraft in This Jurisdiction.

There are no significant costs, fees or taxes chargeable in respect of deregistration. Only nominal FAA fees would apply.

A DPOA/IDERA is recognised; the principal formality is execution by the holder of the Certificate of Registration and recording with the FAA Registry, and no translation, notarisation or legalisation is required to make it enforceable against a domestic party. See 2.8.1 Deregistering Aircraft in This Jurisdiction.

In practice, supporting corporate authority/incumbency documentation evidencing the signatory’s authority may be required, in addition to the IDERA/DPOA and the deregistration request. See 2.8.1 Deregistering Aircraft in This Jurisdiction.

A DPOA does not have to be governed by US law. It must, however, satisfy the FAA’s recording requirements and, for an IDERA, be in the Cape Town form.

A DPOA expressed to be irrevocable generally cannot be revoked by the grantor. Enforcement may nevertheless be restricted if the grantor becomes subject to a Chapter 11 bankruptcy proceeding.

To maximise the likelihood of exporting without the lessee’s consent, the owner, lessor or mortgagee should obtain a recorded IDERA in the Cape Town form at signing and ensure that all priority interests are addressed. The asset’s physical location in the jurisdiction is not, by itself, the controlling requirement. See 2.8.1 Deregistering Aircraft in This Jurisdiction.

The United States does not impose a separate aircraft export permit regime for ordinary civil aircraft beyond FAA deregistration/export-airworthiness processes, although US export-controls and sanctions requirements – eg, Export Administration Regulations (EAR)/OFAC – may apply. See 2.8.1 Deregistering Aircraft in This Jurisdiction.

There are no significant costs, fees or taxes charged in respect of the export of an aircraft. The standard FAA processing and export-airworthiness certificate costs are nominal.

There are no unusual practical prerequisites such as a requirement to prove removal of registration marks before deregistration is granted. The key practical points are ensuring a properly recorded IDERA, discharge or consent of priority interests and compliance with export-control/sanctions and destination-state import requirements.

The primary regime governing the restructuring, reorganisation, insolvency and liquidation of a US-domiciled lessee is the US Bankruptcy Code (Title 11 of the US Code), administered by the US federal bankruptcy courts. For aviation, the most important feature of the Bankruptcy Code is Section 1110, which gives lessors and financiers of qualifying aircraft equipment leased to (or financed by) FAA-certificated air carriers an enhanced right to repossess equipment, notwithstanding the automatic stay, if defaults are not cured within 60 days. State law (including Article 9 and Article 2A of the Uniform Commercial Code) governs related security and lease enforcement issues outside or alongside bankruptcy.

A US-domiciled lessee may reorganise under Chapter 11 of the Bankruptcy Code (a debtor-in-possession reorganisation) or be liquidated under Chapter 7. Cases may be voluntary (commenced by the debtor) or involuntary (commenced by qualifying creditors). Out-of-court restructurings and consensual workouts are also common and are frequently used as an alternative or precursor to a Chapter 11 filing.

The United States has adopted the UNCITRAL Model Law on Cross-Border Insolvency as Chapter 15 of the Bankruptcy Code, which provides routes for recognition of, and relief in aid of, foreign insolvency proceedings. Through Chapter 15, US courts can grant a stay, entrust the administration of US assets to a foreign representative and co-operate directly with foreign courts and representatives.

Parties are generally not restricted from adopting non-binding international standards, such as the American Law Institute and the International Insolvency Institute (ALI-III) court-to-court communication guidelines or the INSOL International Statement of Principles multi-creditor workout guidelines.

A liquidation or other insolvency of the lessee does not, by itself, render an IDERA or DPOA void, but enforcement may be affected by the bankruptcy proceedings. In a Chapter 11 case, the automatic stay can restrict immediate enforcement, although the Section 1110 framework permits the creditor to proceed if the debtor fails to cure defaults and agree to perform within 60 days. The power therefore continues to operate but is exercised subject to the bankruptcy.

On a lessee’s bankruptcy, the lease is not automatically set aside; the debtor must decide whether to assume or reject it, and absence an agreement between the parties, an assumption requires cure of defaults. The automatic stay can delay repossession, but for qualifying air-carrier equipment, Section 1110 limits that delay to the 60-day cure period. An operating lease keeps the aircraft outside the bankruptcy estate as the lessor’s property, whereas a lease recharacterised as a financing may be treated as estate property subject to other creditors’ priorities.

The principal risks if a borrower becomes insolvent are the imposition of the automatic stay (delaying enforcement), the potential avoidance of pre-bankruptcy transfers as preferences or fraudulent transfers, and the risk that under-perfected security is subordinated to the estate or other creditors.

Guarantees and security from an entity that becomes insolvent may be challenged for lack of corporate benefit or as constructively fraudulent, and recoveries may be reduced by higher-priority claims. For qualifying aircraft equipment, Section 1110 mitigates these risks by enabling repossession if defaults are not timely cured.

The commencement of a bankruptcy case under the US Bankruptcy Code triggers an automatic stay that operates as a moratorium on enforcement and collection against the debtor and its property. The stay generally continues until the relevant property is no longer estate property, the case is closed or dismissed, or the court grants relief from stay. For qualifying aircraft equipment, Section 1110 effectively caps the stay at 60 days unless defaults are cured and obligations assumed.

A domestic lessee can be liquidated under Chapter 7 of the US Bankruptcy Code, in which a trustee collects and sells the debtor’s assets and distributes proceeds according to statutory priorities. Alternatively, a Chapter 11 case may be used to conduct an orderly wind-down or asset sale (including a sale under Section 363 of the Bankruptcy Code). State-law receivership and assignment-for-the-benefit-of-creditors procedures are also available outside the Bankruptcy Code.

As a general matter, ipso facto defaults are not enforced under the US Bankruptcy Code, as enforcement would usually prevent a debtor from assuming a lease. Performance defaults are ordinarily required to act against a debtor in a US bankruptcy.

If a domestic lessee is wound up through a US bankruptcy proceeding (ie, a liquidation under Chapter 7 of the US Bankruptcy Code), the aircraft itself generally remains the lessor’s property under a true operating lease and may be recovered (subject to Section 1110 and the automatic stay).

Lease rentals accruing after the filing are typically treated as administrative obligations if the lease is assumed or pending the cure decision, while pre-petition arrears are unsecured claims. Security deposits and maintenance reserves are dealt with according to the lease terms and their characterisation thereunder but may be exposed to set-off and estate claims, so lessors should hold and document them carefully.

The Convention on International Interests in Mobile Equipment and the related Aircraft Protocol are in force in the United States, having been ratified by the US Senate and implemented by the Cape Town Treaty Implementation Act of 2004. The FAA is the registry ”entry point” for US-registered aircraft, and authorised entry point (AEP) codes are obtained through the FAA in connection with International Registry filings. A lessor or financier can make International Registry filings itself (typically through professional users/administrators) rather than relying solely on local entities. The FAA’s electronic systems and entry-point filing forms facilitate obtaining the necessary codes.

The United States made declarations on accession, the most significant of which for aviation finance is its election of Alternative A (the ”hard” insolvency remedy) under Article XI of the Aircraft Protocol, which is consistent with the Section 1110 framework. The United States also made declarations addressing the relationship between the Convention and existing US law (including its choice not to apply certain provisions where domestic law already governs). The practical effect is to reinforce creditor remedies upon a debtor’s insolvency.

Article XIII of the Aircraft Protocol applies in the United States, and the IDERA mechanism is recognised. An IDERA in the prescribed Cape Town form, signed by the holder of the Certificate of Registration, is submitted to and recorded with the FAA Registry. The recorded IDERA entitles the authorised party to procure deregistration and export of the US registered aircraft, as described in 2.8.1 Deregistering Aircraft in This Jurisdiction.

US courts and the FAA have substantial practical experience administering Cape Town interests and IDERAs, particularly in airline restructurings where the interaction between Section 1110 and Alternative A is tested.

While the precise operation of Alternative A in a US bankruptcy remains relatively untested at the margins, it is notable that the Bankruptcy Court’s decision in respect of CAVIC Aviation Leasing’s claims during Scandinavian Airlines’ (SAS) Chapter 11 proceeding suggested that the Cape Town Convention would apply in a Chapter 11 case. Nonetheless, the broad alignment between Section 1110 and the US Cape Town declarations gives creditors a high degree of predictability.

The United States is a party to the 1948 Geneva Convention on the International Recognition of Rights in Aircraft, though has not ratified the 1933 Rome Convention on precautionary arrest of aircraft.

There are no general restrictions preventing foreign lenders from financing aircraft in the United States or borrowers using loan proceeds, subject to compliance with OFAC, anti-money-laundering and export controls rules. Foreign lenders should, however, consider US withholding tax on interest and the availability of treaty relief or the portfolio-interest exemption. There is no licensing requirement merely to lend to a US borrower.

There are no exchange controls or general government consents material to financing aircraft or to repatriating realisation proceeds under a loan, guarantee or security document. Cross-border flows remain subject to US sanctions screening and to tax/withholding considerations.

Borrowers are permitted to grant security to foreign lenders. Foreign lenders can take and perfect security over US-registered aircraft (through FAA recording and International Registry filings) and over related collateral in the same way as domestic lenders.

Downstream, upstream, and cross-stream guarantees are permitted in favour of lenders. The principal considerations are corporate benefit/adequate consideration and fraudulent-transfer risk, which is why guarantees commonly include savings clause; there is no general registration requirement for a guarantee. Solvency at the time of granting is an important diligence point for upstream and cross-stream support.

It is advisable for a lender to take share (equity) security over the domestic special purpose vehicle that owns the financed aircraft, in addition to asset security for efficiency in enforcement given aviation assets are often leased to operators. A pledge of equity interests is recognised and perfected under the Uniform Commercial Code, typically by control and/or filing, giving the lender the ability to enforce at the equity level as well as the asset level. This dual structure is standard in US aviation financings.

A negative pledge is recognised and enforceable as a contractual undertaking in US courts, subject to limited exceptions. It does not, by itself, create a proprietary security interest, so lenders rely on perfected security – eg, FAA recording, International Registry filings and Uniform Commercial Code (UCC) filings – for priority.

There is no material statutory restriction on intercreditor arrangements, which are freely negotiated and enforced as contractual matters. Subordination, payment-waterfall, standstill and turnover provisions are routinely used and are generally respected, including in bankruptcy (where subordination agreements are enforceable under the US Bankruptcy Code).

The concept of agency, including the role of a facility agent and security agent under a syndicated loan, is recognised in the United States. Agency and trust concepts are well established in US finance practice, including aviation finance.

Debt subordination is permissible and recognised in the United States, and is typically achieved by contractual subordination and/or structural subordination. Contractual subordination agreements are typically enforceable.

The transfer or assignment of all or part of an outstanding debt under an English or New York law-governed loan is permissible and recognised. Loan assignments and participations are customary in financings and especially syndicated transactions, subject to the contractually agreed transfer restrictions in the loan documentation.

Usury and interest-limitation laws exist at the state level, but commercial loans (particularly large, sophisticated transactions and corporate borrowers) are frequently exempt or subject to higher limits, and New York provides commonly relied-upon exemptions for substantial commercial loans. Parties typically address this through governing-law selection and customary usury-savings clauses.

Typical security in a US aviation financing comprises an aircraft mortgage/security agreement over the airframe and engines (recorded with the FAA in the case of US registered aircraft and registered on the International Registry), a security assignment of the lease, rental payments and insurances proceeds, and a pledge of the equity in the owner special purpose vehicle.

Recourse may be full or limited (non-recourse/limited recourse to the asset and structure), depending on the transaction, and is supported by control over collection accounts and, where relevant, guarantees. IDERAs and deregistration powers of attorney are taken to support enforcement remedies against aircraft collateral. See 2.8 Aircraft Deregistration and Export.

There are no aviation-specific categories of security that cannot be taken over an aircraft or related collateral such as engines, warranties or insurances. Moreover, financings in the United States have been supported by:

• spare parts;
• airline loyalty programmes; and
• slots, routes and gates collateral.

Security over each of these assets is routinely created and perfected (FAA recording and International Registry filings for the aircraft/engines and UCC filings/assignments for other types of collateral).

The concept of a trust and the role of a security trustee are recognised in the United States. A security trustee can hold security in a bilateral loan facility or for a syndicate of lenders.

A borrower can assign its rights to the aircraft and under an aircraft lease (including rights in relation to insurances proceeds) to a security trustee, by way of security assignment or mortgage,. Such security assignments are standard and are perfected through FAA recording, International Registry filings and UCC filings as applicable. Customarily, the security trustee is required to be named as the loss payee under the relevant equipment operator’s insurance.

It is possible to assign only the rights and benefits under an aircraft lease by way of security, without also transferring the lessor’s attendant obligations. This is the usual approach for a collateral assignment of a lease, where the lessor remains primarily liable for performance unless and until the secured party enforces and elects to assume the lessor role.

A security assignment or guarantee can be governed by English or New York law and does not need to be governed by domestic (US) law to be fully enforceable. For US-registered aircraft, however, perfection and priority are determined by FAA recording and the Cape Town/International Registry regime regardless of the governing law of the contract.

To create and perfect security, the parties enter into a written security agreement granting the interest (ie, authentication), value is given and the debtor has rights in the collateral (ie, attachment), and the interest is perfected over US-registered aircraft by recording with the FAA and registering the international interest in airframes and engines on the International Registry, and over other collateral by UCC filing or control.

Failure to record/perfect can result in loss of priority to competing interests and to a bankruptcy trustee. It is not necessary for a security assignment to be translated, certified, notarised or legalised to be enforceable against a domestic party.

Where an English or New York law-governed security assignment is taken over a US-registered aircraft, financiers customarily also take a US-law aircraft mortgage/security agreement so that the interest can be recorded with the FAA and serve as the basis for International Registry filings. FAA recording (and a recordable instrument) is, in practice, required to obtain priority and to make Cape Town filings, and the associated FAA fees and filing costs are modest.

An English or New York law-governed security assignment, or a domestic-law security instrument, can be recorded domestically with the FAA for US-registered aircraft, provided it is in recordable form and identifies the collateral. Recording establishes priority and supports the corresponding International Registry filing.

The transfer of security interests over an aircraft and/or engines is recognised. An assignment of the secured debt and the related security can be affected and should be recorded with the FAA and registered on the International Registry to preserve priority.

A change in the identity of the secured parties after execution does not, by itself, jeopardise the underlying security interest, provided the relevant assignment/transfer is properly documented and the FAA recording and International Registry entries are updated. Using a security trustee to hold the security mitigates the need to amend filings each time a lender is changed or added.

Parallel-debt structures are generally not required in the United States because the security trustee can hold security directly for the benefit of the lenders. They are a civil-law device and are not a feature of standard US aviation financings.

A secured party will not be deemed to be a resident, domiciled, carrying on business or subject to US federal taxes merely by reason of being a party to, or enforcing, a security assignment. Tax residence and business-presence questions turn on the secured party’s broader activities, similar to the analysis for lessors. See 2.4.1 Tax Requirements for a Foreign Lessor and 2.4.2 Effects of Leasing on the Residence of a Foreign Lessor.

A domestic-law mortgage over a US-registered aircraft or engine is perfected by recording the mortgage/security agreement with the FAA and registering the international interest on the International Registry, supplemented where appropriate by UCC filings. The combination of FAA recording and International Registry registration determines priority.

The basic mechanism between the form of security and perfection taken over an aircraft and a spare engine are similar: security over both airframes and spare engines is created by a security agreement and perfected through FAA recording, International Registry filings and UCC filings. The key practical difference is that engines are treated as separately identifiable, mobile collateral that can be installed on different airframes, so lenders pay particular attention to engine identification, tracking and the absence of title annexation. The FAA recordation process in respect of engines establishes an interest in the United States, as engines are not registered with the FAA. Therefore, it is important that the international interest in such engine be registered on the International Registry. See 2.2.4 Risk of Title Annexation.

Security over a bank account (such as a lease-receivables or collection account) is typically taken as a UCC security interest in a deposit account. Perfection over a deposit account is achieved by ”control”, usually under a deposit account control agreement among the secured party, the account bank and the debtor.

A third party can assert or register a lien over an aircraft or engine – for example, for unpaid airport fees, navigation charges, customs duties, repairers’ costs or crew salaries – to the extent provided by applicable state (and in some cases federal) law. For repairers’ and similar liens, the lien generally secures the value of work actually done on the asset, and a possessory mechanic’s lien is typically limited to the asset in the lienholder’s possession, though some state statutes are broader. Fleet-wide liens are not generally recognised for ordinary repairers, but statutory and government liens (eg, federal tax liens or customs seizure) may reach multiple assets, and remedies for enforcing a lien include retention/possession and judicial sale.

A consensual mortgage or recorded lien is discharged by recording the appropriate release with the FAA (and discharging the International Registry interest), which is generally processed promptly once submitted, increasingly via electronic filing. However, contested statutory or possessory liens would take longer, as they depend on payment, negotiation or court proceedings.

The FAA Aircraft Registry serves as the recording system for conveyances and security documents affecting US-registered aircraft, and the interests of a mortgagee or security trustee can be recorded against such aircraft. Recording the mortgage at the FAA (together with International Registry registration) establishes the secured party’s priority position.

Statutory rights of detention and non-consensual preferential liens can arise over an aircraft, principally possessory mechanic’s liens, federal tax liens and customs seizures. Some of these can take priority over recorded interests to the extent state or federal law so provides, although ordinary mechanic’s liens are generally asset-specific rather than on a fleet-wide basis.

A prospective purchaser should search the FAA Aircraft Registry records for the specific US-registered aircraft, the International Registry for international interests and UCC filings against relevant debtor party, typically supported by a title search obtained through an FAA-recording/title company in Oklahoma City. These searches reveal recorded ownership, mortgages, leases and other conveyances affecting such aircraft.

There are no fundamental structural differences in enforcing a security assignment as opposed to a loan or guarantee: each is enforced according to its terms and the applicable law, with secured claims enforced against the collateral and unsecured claims (such as a simple guarantee) enforced as money claims. The practical difference is that enforcing security involves taking and realising collateral (through self-help or judicial process) in addition to obtaining judgment.

A security trustee generally cannot rely on a notice and acknowledgement alone to enforce. Enforcement requires exercising the remedies granted under the security assignment and applicable law (the UCC and, for US-registered aircraft, FAA/Cape Town mechanics). A notice and acknowledgement confirms the assignment to the lessee, but actual enforcement follows the contractual and statutory remedies. Customarily, a security trustee would provide a quiet enjoyment letter to the lessee providing that, so long as no default has occurred under the lease, the security trustee will permit the quiet use and enjoyment of the aircraft by the lessee.

US courts will generally uphold a foreign law as the governing law of a finance or security document and will give effect to a submission to a foreign jurisdiction. These outcomes are subject to the same limited public-policy and due-process exceptions noted in 2.6.5 Domestic Courts’ Approach to Foreign Laws and Judgments and 3.4.4 Recognition and Enforcement of Foreign Judgments and Arbitral Awards.

Courts in the United States will in most cases recognise and enforce a final judgment of a foreign court or an arbitral award, even if it is not governed by treaty. Recognition and enforcement procedures are governed by state law. Some factors that might lead a New York court to not enforce a foreign money judgment include that:

• the foreign court procedures are incompatible with notice or other due process considerations;
• the foreign court was not impartial; or
• the cause of action resulting in the judgment is contrary to public policy.

After a foreign judgment has been recognised, it is called a ”domesticated judgment”. Most US states require the person or entity seeking the enforcement of a foreign judgment to commence a new action in the appropriate US court to obtain jurisdiction over the defendant or subject property, including New York. The judgment holder must then prove that the foreign judgment is valid and authentic, which usually requires a certified copy of the judgment by the court that issued it. After a judgment has been domesticated, the judgment holder may begin collection. There are many collection procedures available to judgment holders, all of which depend on relevant state laws.

Most states have adopted a form of the Uniform Foreign Money Judgments Recognition Act, including New York, which provides the framework for courts to recognise a foreign judgment granting or denying the recovery of money only if it is final, conclusive and enforceable where originally rendered. The USA is a party to the 1958 Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the New York Convention), which provides common legislative standards for the recognition of arbitration agreements and the recognition and enforcement of foreign arbitral awards.

Upon the occurrence of an event of default under a mortgage or lease, a mortgagee or lessor, respectively, may take possession of an aircraft without judicial intervention. To the extent that a mortgagee leases the aircraft to an operator, the lessee may have quiet enjoyment rights so long as it is performing under the relevant lease.

Article 9-609 of the Uniform Commercial Code allows for a secured party to repossess collateral after a default, provided that such repossession proceeds without breach of the peace. Similarly, Article 2A-501 of the Uniform Commercial Code allows for the lessor, following a default under a lease agreement, to exercise self-help. However, should the mortgagor or the lessee resist any effort by the mortgagee or the lessor, respectively, to repossess the aircraft, such resistance will be deemed a breach of peace; thus, repossession will not be allowed. In such circumstances, judicial intervention will be required to proceed with the repossession.

The federal and state courts of general jurisdiction are competent to decide enforcement actions under a security agreement or aircraft mortgage. The appropriate forum depends on the parties, the governing law and any contractual forum-selection clause.

A secured party can obtain summary judgment and equitable or other injunctive relief pending final resolution, subject to satisfying the applicable procedural standards. Interim relief may be conditioned, for example on the posting of a bond or provision of a guarantee, depending on the court and the relief sought.

A secured party can obtain a judgment in a foreign currency. As noted in 2.6.7 Judgments in Foreign Currencies, New York and a number of other states expressly permit foreign-currency judgments.

A secured party is not required to pay taxes or fees in any non-nominal amount in connection with enforcing a security agreement or aircraft mortgage. Only nominal court and FAA recording fees would apply.

A mortgagor’s or lessee’s bankruptcy proceedings would restrict a mortgagee’s or a lessor’s ability to take possession of an aircraft. However, if Section 1110 of the US Bankruptcy Code or Alternative A under the Cape Town Convention applies, then the applicable creditor would be permitted to foreclose on the aircraft if the debtor does not cure all defaults and agree to perform under the relevant agreement with the creditor within 60 days (or in the case of Alternative A, a different period selected by the relevant jurisdiction).

Section 1110 of the US Bankruptcy Code would only apply in an insolvency proceeding commenced under Chapter 11 of the US Bankruptcy Code where, at the time the transaction was entered into, the debtor possessed an air carrier operating certificate issued pursuant to Chapter 447 of title 49 of the US Code for aircraft capable of carrying ten or more individuals or 6,000 pounds or more of cargo.

Although generally untested in the United States, the Cape Town Convention provides that Alternative A would apply in respect of a debtor where the debtor’s primary insolvency jurisdiction has adopted Alternative A. In each case, certain other factors would also need to be met in order for the relevant creditor to benefit from the requirement, such as certain requirements regarding the equipment, the transaction agreements and, in the case of Alternative A, that registrations of the relevant international interests had been made on the International Registry.