IATA Aircraft Lease Guidance

Pre-Delivery
As of July 2015, sixty-four states (as well as the European Union) have ratified or acceded to the CTC, and
therefore references to the CTC often feature in the provisions of a lease. It is worth noting, however, that the
CTC does allow for an “opt-out” or “declaration” system, allowing contracting states to modify the effect of
the CTC. Therefore one cannot assume total harmonization of security interests in aircraft across the
aforementioned contracting states. Generally the CTC applies if the aircraft is registered, or the debtor is
situated, in a contracting state 9 .
In establishing an international legal regime for security interests in aircraft, the CTC lays out priority rules.
These priority rules operate in a way that a previously registered international interest will have priority over a
subsequently registered one, as well as over unregistered interests. It is worth noting here that the
establishment of priorities will be subject to any declared local priorities, as per the “declaration” system
referred to above.
The mechanism used by the CTC to establish these priority rules and perfect a security interest is the
International Registry of Mobile Assets (http://www.internationalregistry.aero). This is an electronic system
which, through registration of one’s interests, allows for the establishment of priority over those interests. In
practice this means that there will often be a provision in a lease agreement, usually contained in the sections
relating to protection of title, or registration and filings, or the CTC directly, that obligates the Lessee to
register the aircraft on the International Registry. It is a fairly simple process that entails minimal costs
totaling in the hundreds of US dollars.
The CTC also offers default remedies for creditors, including termination, possession, or control of the aircraft,
relief pending final determination of claims, and safeguards for debtors. One of the main default remedies for
creditors is the Irrevocable De-registration and Export Request Authorization (“IDERA”). This tool allows the
creditor to designate an authorized party (the Lessor) which would have the right to exercise the IDERA. In
practice, this means that once the IDERA is registered with the applicable Civil Aviation Authority, and
repossession becomes necessary under the lease as a result of default of the Lessee, a Lessor would be able
to submit a deregistration request to the applicable CAA for its aircraft under the previously registered
IDERA. This particular remedy is a self-help remedy in that the Lessor does not need an application to the
local courts to exercise the IDERA 10 , in order to achieve deregistration and export of its aircraft, and the CAA
would have to comply with the exercise of the IDERA, subject to local law. A Lessee may find IDERA
provisions in its lease, obligating the cooperation and assistance of the Lessee with the IDERA registration
where necessary.
One can conclude from the above that the CTC will provide Lessors and financiers with the benefit of a
partially harmonized and internationally recognized security position across their portfolios, which will in turn
reduce funding costs for borrowers.
9
Note that there are further detailed criteria for the scope of application of the CTC, including criteria relating to the size and power of
the aircraft.
10
The Civil Aviation Authority, assuming that it is in a contracting state to the CTC, would have to comply with the IDERA, unless
applicable law dictates otherwise.
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