For many, aircraft evoke a visceral thrill and sense of romance as they push the limits of
human experience and transcend geographical boundaries on a regular basis. To aviation
financiers however, the inherent internationality and mobility of aircraft equipment, i.e.
airframes, aircraft engines and helicopters,1 present special challenges. The quality of
internationality is intensified by the fact that several capital markets often finance a single
aircraft given the airline industry’s heavy dependence on external finance,2 as well as the
industry trend of airframes being dealt in and financed separately from aircraft engines.3
The internationality and mobility of aviation finance makes it difficult for creditors to
exert a degree of control over the equipment that they finance and protect themselves
against the possibility of unauthorised movement, especially when they are not even
well-positioned to know when movement takes place.4
This difficulty is exacerbated by the lack of uniformity across jurisdictions with regards
to secured transactions law. Without uniformity, the means of creating security interests
(“creation”), their effectiveness against third parties (“perfection”), their priority vis-à-vis
1 Protocol to the Convention on International Interests in Mobile Equipment on Matters Specific to Aircraft
Equipment [Aircraft Protocol], Art I(2)(c). See also Arts I(2)(b), I(2)(e) and I(2)(l) for specific definitions
of airframes, aircraft engines and helicopters.
2 Anthony Saunders et al, “The Economic Implications of International Secured Transactions Law Reform:
A Case Study” (1999) 20:2 U Pa Int’l Econ L 309 at 312.
3 Roy Goode, Explanatory Report and Commentary on Draft Convention on International Interests in
Mobile Equipment and Draft Protocol thereto on Matters Specific to Aircraft Equipment, UNIDROIT,
Diplomatic Conference to Adopt a Mobile Equipment Convention and an Aircraft Protocol, DCME-IP/2
(2001) [Explanatory Report and Commentary] at 4. See also Mark Arundell & F. Scott Wilson, “The Need
for International Secured Transactions and Leasing Rules for Aircraft Engines through the Proposed
UNIDROIT Convention” (1998) 23:6 Air & Space L 283.
4 Roy Goode, ibid. See also Thomas J. Gallagher, “Assessment of the Anticipated Economic Benefits of the
UNIDROIT Convention” (1998) 23:6 Air & Space L 294 at 296.
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other interests (“priority”) and the rights and remedies available to creditors to enforce
them (“enforcement”) will differ from jurisdiction to jurisdiction.5 The traditional lex rei
sitae rule governing proprietary rights, which applies the law of the jurisdiction in which
the asset is situated in to determine legal questions, addresses the lack of uniformity
problem to a certain extent but is clearly unsuited to highly mobile equipment such as
aircraft equipment because the applicable law would change far too frequently.6
Taking into account the high credit risk – the business of aircraft repossession is even
said to carry mortal risk – creditors may refuse to lend or charge higher interest on loans.
In an effort to “induce the assumption of risk and the release of funds”7 as well as reduce
the cost of financing mobile equipment such as aircraft objects, the Governing Council of
the International Institute for the Unification of Private Law (“UNIDROIT”) authorised
the creation of a Study Group in 1992 to draft uniform rules on international aspects of
security interests in mobile equipment, a project that started from a 1988 proposal made
by its Canadian member, Mr. T.B. Smith QC.8 Over the years, the project developed into
a comprehensive international convention accompanied by three protocols, each dealing
with a particular category of equipment. The work concerning aircraft equipment was
done with the active participation of the International Civil Aviation Organisation
5 Otherwise known as the four cornerstones of secured transactions law, borrowing the terminology used in
Michel Deschamps, “The Perfection and Priority Rules of the Cape Town Convention and the Aircraft
Protocol: A Comparative Law Analysis” (2013) 1 Cape Town Conv J 51 at 51-52.
6 Jeffrey Wool, “The Next Generation of International Aviation Finance Law: An Overview of the
Proposed UNIDROIT Convention on International Interests in Mobile Equipment as Applied to Aircraft
Equipment” (1999) 20:3 U Pa Int’l Econ L 499 at 501.
7 Explanatory Report and Commentary, supra note 3 at 2.
8 Roy Goode, “From Acorn to Oak Tree: The Development of the Cape Town Convention and Protocols”
(2012) 17:4 Unif L Rev 599 at 599. The motive of reducing borrowing costs was later enshrined as one of
the five key objectives of the Convention and its Protocols – see Explanatory Report and Commentary,
supra note 3 at 3.
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(“ICAO”), International Air Transport Association (“IATA”) and the Aviation Working
Group (“AWG”)9 and culminated in the signing of the Convention on International
Interests in Mobile Equipment (“Convention”) and the Protocol to the Convention on
International Interests in Mobile Equipment on Matters Specific to Aircraft Equipment
(“Aircraft Protocol”) in 2001.10 After receiving the requisite number of ratifications, both
entered into force in 2006. Singapore ratified both the Convention and the Aircraft
Protocol in 2009.11
The other two protocols dealing with railway rolling stock and space assets, the Protocol
to the Convention on International Interests in Mobile Equipment on Matters Specific to
Railway Rolling Stock (“Luxembourg Protocol”) and the Protocol to the Convention on
International Interests in Mobile Equipment on Matters Specific to Space Assets (“Space
Protocol”), were signed in 2007 and 2012 respectively but have yet to enter into force and
are outside the remit of this paper.
The ‘hub-and-spoke’ convention-protocol approach has been adopted in a few
conventions prior to the Convention but the Convention’s use of protocols is
unprecedented.12 The Convention enters into force with respect to a particular State only
9 The Aviation Working Group is a not-for-profit legal entity comprised of major aviation manufacturers,
financiers and leasing companies.
10 Roy Goode, supra note 8 at 602-604.
11 Status – Convention on International Interests in Mobile Equipment, online: UNIDROIT
; Status – Protocol to the Convention on International
Interests in Mobile Equipment on Matters Specific to Aircraft Equipment, online: UNIDROIT
12 Mark J. Sundahl, “The “Cape Town Approach”: A New Method of Making International Law” (2006) 44
Colum J Transnat’l L 339 at 355-358. Sundahl categorized protocols prior to the Convention’s protocols
into (1) protocols of signature that address detailed technical matters, (2) protocols of amendment used to
modify or change the provisions of the base convention, (3) optional protocols providing for obligations
6
when that State has acceded to both the Convention and a protocol and the Convention
will only enter into force for that State with respect to the category of assets covered by
the acceded protocol.13 Further, the Convention takes effect subject to the provisions of
the protocol,14 with Article 6(1) stating that the Convention and in individual protocol
“shall be read and interpreted together as a single instrument” and Article 6(2) stating that
with respect to a particular type of asset, the provisions of the protocol relating to such
asset will trump any inconsistent provision contained in the Convention. This unique use
of protocols, which ensures that the Convention’s provisions can be adapted to the
specific needs of particular sectors, underlines the importance of conceiving the legal
regime governing security interests in aircraft equipment as a single set of rules contained
in the Convention and Aircraft Protocol.
The Convention and Aircraft Protocol established comprehensive creation, perfection,
priority and enforcement rules governing aircraft equipment incorporating elements of
both secured transactions law and insolvency law but the focus of the article is on the
perfection and priority rules, specifically the first-to-register rule that grants a registered
interest priority over any other subsequently registered or unregistered interest. The
concept of a registration system with a first-to-register priority rule is not new; it is a key
feature of Article 9 of the Uniform Commercial Code (“UCC Article 9”) that governs
secured transactions in all fifty states of the United States of America (“US”).
that supplement obligations contained in the base convention, and (4) framework protocols that provide
substance to existing treaty obligations. The Convention’s protocols do not belong to any of these
categories, playing a primary role alongside the Convention instead of a mere supporting role that the
Convention can do without.
13 Convention on International Interests in Mobile Equipment [Cape Town Convention], Art 49.
14 Roy Goode, “The UNIDROIT Mobile Equipment Convention” in Michael Bridge & Robert Stevens, eds,
Cross-Border Security and Insolvency (Oxford: Oxford University Press, 2001) 225 at 231.
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Nevertheless,