Perfection of securities over helicopter engines

The Cape Town Convention facilitates the registration of aircraft by providing a standardized framework that regulates the securitisation of aircraft objects such as airframes, aircraft engines and helicopters. The Convention applies to objects, which satisfy the requirements of the Protocol. Specifically, the Convention applies to the purchase and financing of aircraft, airframes, jet engines and helicopters, provided that:

  1. Airframes can transport eight persons (including crew) or goods in excess of 2750 kilograms;
  2. Helicopters that are certified to  transport at least five persons (including crew) or goods in excess of 450 kilograms; and
  3. Aircraft engines that have 1750lb of thrust.

Each of the three (3) listed objects include all installed, incorporated or attached accessories parts and equipment in the case of airframes.

Helicopter engines vis-à-vis  conventional aircraft engines

One interesting aspect of the Convention and the Protocol thereto and which concerns this article is the perfection of securities over helicopter engines.

Under the Convention, aircraft engines are treated as distinct objects separate from the airframes whether or not they are attached to the airframe. It follows that such aircraft engines are not affected by their removal or installation in an airframe.

Helicopter engines, on the other hand, are accorded a slightly distinct treatment to conventional aircraft engines. The reason for this is two-fold; first the Convention does not define the term “Helicopter Engines” leaving a lacuna on their standing in relation to perfection of securities. Secondly, the Convention does not create a distinction between a helicopter engine and any other accessory/component of the helicopter as is the case with conventional aircraft and their engines.

This legal stalemate has since been resolved through a protracted engagement among aviation stakeholders which culminated with the publication of the Practitioners’ Guide to the Convention and Protocol in 2020 by the Legal Advisory Panel of the Aviation Working Group. The condition prescribed by the Guide is that helicopter engines are to be accorded the status of “aircraft engines” if at the time security is perfected over them, they are not attached to a helicopter. This, therefore, means that the rule only applies to helicopter spare engines.

The above scenario implies that when the engine is installed in a helicopter, (a) it becomes an accessory or component of the helicopter and loses its characterisation as an “aircraft engine”(b) is subject to existing or newly registered interest of the helicopter in which it is installed (c) remains subject to any priorities established by any registrations made against such helicopter engine when it was not installed on the helicopter (d) is not capable of being the subject of a separately registered international/ prospective international interest.  

Practical options available to financiers/lenders

This article recommends a raft of options to financiers to enable the seamless creation and perfection of securities over helicopter engines. The options include:

  1. making of a new registration at any time the engine is removed from the helicopter;
  2. entering into a transactional programme or inter-credit agreement if multiple lenders/creditors/lessors are involved with a debtor, owner or operator; and
  • conducting regular scheduled inventory and report regarding helicopter engines and their installation status. Based on that information, determine if any additional releases, registrations, or terminations should be made.

Conclusion

Based on the totality of the above analysis of the Convention, the Guide by the Aviation Working Group and the practical options proffered by this article, financiers/lenders should be comfortable in perfecting securities over helicopter engines as their interests are adequately protected.

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Guest author The Platform Magazine