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Short & Sweet – Priority of security interests in aircraft

SVW boasts one of Norway's largest financing practices with more than twenty experienced lawyers. We continually advise our clients across the full spectre of financial service regulations and financing transactions, including asset financing, project financing, acquisition financing and bond financing. In our series of newsletters, we give a brief introduction to various relevant topics in finance. In this piece, we will focus on the priority of security interests in aircraft.

Norway has acceded to the Cape Town Convention on International Interests in Mobile Equipment and its Protocol on Matters Specific to Aircraft Equipment (the “CTC”). The CTC has been implemented and given effect under Norwegian law as of 1 April 2011.

It is still possible to register security interests over an aircraft with the Norwegian Civil Aircraft Registry (“NCAR”). However, security interests registered as “International Interests” with the International Registry of Mobile Assets (the “IR”) will take priority over any domestic registrations in case of conflict, regardless of whether the IR registration was made before or after the NCAR registration.

The lender will typically obtain a Norwegian law governed “Aircraft Mortgage Deed” from the owner and file the same with the NCAR. Following registration of such mortgage deed, the NCAR will issue a “Certificate of Ownership of Encumbrances” evidencing that the mortgage/encumbrance has been recorded against the aircraft. However, in order for the security created by the mortgage deed to provide the lender with the intended rights, it must also be registered as an International Interest in the IR. Although the CTC was implemented in 2011, we still see lenders in the Norwegian helicopter market that only register their security interests with the NCAR. Such lenders run the risk of the owner filing a security interest created by another mortgage in favour of a different creditor as an International Interest with the IR.

The continued tradition of registering local law mortgages is in our opinion unnecessary due to Norway’s implementation of the CTC. Norway is a fully Cape Town compliant jurisdiction and the lenders are well protected by IR filings. It has been nearly ten years since Norway effected the CTC as Norwegian law, and it is time for the practice to change, especially considering that the continued practice of registering local mortgages seems to provide misconceptions on the lenders’ part that they will be sufficiently covered by local filings. The lenders should register their security interests in the IR and file Irrevocable De-registration and Export Request Authorisations (IDERA) only with the NCAR.

When Norway acceded to the CTC, it opted for the most creditor friendly alternatives in the CTC, i.e. the sixty-day stay period in Alternative A of Article XI of the Protocol and the system of filing IDERAs. An IDERA from the registered owner will authorise the beneficiary thereunder to take the necessary steps to deregister the aircraft from the NCAR and export the Aircraft from Norway. As long as an IDERA from the owner in favour of the lender is filed against the aircraft with the NCAR, the lender will be the only entity that may repossess, de-register and export such aircraft. Norway has also opted for the self-help remedy provided for by the CTC, meaning that no court decision or approval by any government would be necessary for a lender to enforce an International Interest registered with IR. The CTC provides for a quick enforcement of security interests in aircraft. A local registration could potentially delay the process of enforcing such security interests under the CTC, as if registered with the NCAR, the physical mortgage deed must be produced in original in order for it to be discharged.

Please contact us should you have any questions regarding registration of security interests in aircraft.

Here you will find more information about our Aviation team.