Aviation Finance in the UK: Overview | Practical Law

Aviation Finance in the UK: Overview | Practical Law

A Q&A guide to aviation finance in the UK.

Aviation Finance in the UK: Overview

Practical Law Country Q&A 2-630-6036 (Approx. 20 pages)

Aviation Finance in the UK: Overview

by Mark Bisset, Clyde & Co LLP
Law stated as at 01 Sep 2023England, Wales
A Q&A guide to aviation finance in the UK.
This Q&A provides a high-level overview of key practical issues including applicable international conventions and domestic legislation; financing options for purchasing aircraft; transfer of title; security, including aircraft mortgages; transfer of security; enforcement of security and repossession; deregistration and discharge; application of the Cape Town Convention; liability for the operations of the aircraft and actions of the operator; and reform and recent developments.

Conventions and Legislation

1. To which major air law treaties is your jurisdiction a party?
The UK has signed and ratified the:
  • Chicago Convention on International Civil Aviation 1944 (Chicago Convention).
  • HCCH Convention on the Law Applicable to Trusts and on their Recognition 1985 (Hague Trusts Convention).
  • Convention on International Interests in Mobile Equipment 2001 and its Protocol on Matters Specific to Aircraft Equipment (Cape Town Convention).
The UK is a signatory to both the:
  • Geneva Convention on the International Recognition of Rights in Aircraft 1948.
  • Rome Convention on the Unification of Certain Rules relating to the Precautionary Arrest of Aircraft 1933.
However, the UK has not ratified or acceded to either and consequently their terms do not apply under English domestic law.
2. What is the principal domestic legislation applicable to aviation finance?
The main domestic legislation in the UK applicable to aviation is the:
European regulations do not have direct application in the UK post-Brexit, but many have been implemented into UK law as retained legislation. The Cape Town Convention has been implemented into UK law in the International Interests in Aircraft Equipment (Cape Town Convention) Regulations 2015 (SI 2015/912).

Financing Options

3. What are the main options available for financing the purchase of an aircraft? How are aircraft purchases typically financed?
The main options for financing the purchase of an aircraft include:
  • Cash purchase. Buyers with sufficient funds can choose to purchase their aircraft outright with cash. This avoids the cost and restrictions of financing and allows for full ownership from the start.
  • Secured loan. In a basic secured loan structure, the airline or leasing company obtains (via a special purpose company borrower) a loan from a lender for the purchase of an aircraft from the manufacturer. The loan is secured by a mortgage or other security interest over the aircraft. The airline then leases the aircraft from the special purpose company and operates the aircraft.
  • Operating lease. In this structure, the owner or lessor owns the aircraft, which it leases to airlines for a fixed term (a shorter term relative to finance leasing) at the end of which the lessor regains the possession of the aircraft. All economic risks and rewards associated with the ownership of the aircraft are substantially retained by the lessor. About half of the world's commercial airline aircraft are under operating leases.
  • Finance lease. This involves a structure where a finance lessor purchases an aircraft from the manufacturer and leases it to an airline for regular rent payments, which eventually aggregate to the purchase price/financing cost of the aircraft. At the end of the lease term, the lessee has the right or obligation to purchase the aircraft, usually for a nominal amount.
  • Sale and leasebacks. In such a structure, an airline first sells a used aircraft (or its right to purchase an aircraft from the manufacturer) to a leasing company, and then leases the aircraft back from that entity. These are usually undertaken when the airline needs more flexibility in managing its fleet or needs to raise capital.
  • Export credit agencies. Export credit agencies ensure buyers have sufficient funds to purchase the aircraft and mitigate cross-border payment risks by directly financing or guaranteeing the purchase of an aircraft by a foreign buyer. The agency can either make direct loans or guarantee loans made by other lenders to an owner or lessor to finance the purchase by that owner or lessor of the aircraft.
4. What are the issues arising in relation to the various financing options?
Issues may arise in relation to:
  • Secured loans. These are balance sheet transactions with a full recourse debt to the lessee. The loan documents will include operational, maintenance and insurance provisions, which may unduly restrict the airline's ability to operate its business.
  • Leases. The typical operating lease is heavily lessor-friendly and will contain extensive provisions in relation to operations, maintenance, insurance and re-delivery that must be strictly complied with by the airline. The lessor-friendly nature of such leases was reinforced by the English courts in a string of recent cases relating to the COVID-19 pandemic, in which the courts generally dismissed arguments relating to force majeure and frustration. Conversely, operating leases provide airlines with flexibility in the management of their overall fleet.
  • Validity and enforcement. For a security to be enforceable under English law, the lex situs rule stipulates that the aircraft must be located in England or another qualifying jurisdiction (that is, any jurisdiction where domestic laws recognise an English law mortgage as an effective way of creating security, without reference to conflict of laws) at the time of creation of the mortgage. This was affirmed by the courts in Blue Sky One Limited and others v Mahan Air and another (2010) EWHC 631 (Comm) (Blue Sky case) (see Question 27).
  • Taxation. Taxation can play a part in a decision on financing structure, and parties should take advice on applicable taxes such as withholding tax and general sales tax, and consider the effects of depreciation.
  • Accounting treatment. This will be an important consideration in choosing a financing structure, as the value of the aircraft may be on or off balance sheet, thereby affecting an airline's gearing (debt to equity ratio).
  • Financier oversight/management. The desired degree of financier oversight/management (in particular with regard to inspections, return conditions and maintenance reserves) is an issue to negotiate between the parties.

Transfer of Title

5. How is legal title to an aircraft transferred?


There are no formal requirements for transferring title to an aircraft or engine under English Law. Title may be transferred by physical delivery of the relevant asset, although the delivery of a bill of sale is the more common title-transfer mechanism in aircraft transactions, as future purchasers will expect to be provided with a continuous chain of title documentation back to the manufacturer. Failure to provide evidence of an uninterrupted chain of title can have a negative impact on the commercial value of the asset.
Provided that the entity in question holds both legal and beneficial title to the asset, the sale of an ownership interest in a company that owns an aircraft will effectively be recognised as an indirect sale of that aircraft.
The contract of sale must contain an obligation whereby the seller, having the power to dispose of the specified identifiable object, binds themself to transfer the object to the buyer for consideration, which the buyer binds themself to pay to the seller. The bill of sale then effects the title transfer. The consideration set out in the bill of sale is typically nominal, as the bill of sale is not a confidential document, and the parties will not want the actual purchase price to be reflected in it.
The bill of sale must be duly executed, but there is no need for the document to be translated, stamped, notarised, apostilled or legalised for use in the UK.
A sale and purchase agreement commonly includes provisions regarding the:
  • Agreement to buy and sell the aircraft.
  • Condition of the aircraft at completion of the sale.
  • Inspection procedures.
  • Closing procedures to effect transfer of title.
  • Buyer and seller obligations before and/or after closing of the sale.
  • Allocation of risk of damage.
  • Destruction of the aircraft.
  • Termination rights.


The engines are considered an integral part of the aircraft and are usually sold together with the airframe. The sale and purchase agreement should specify the details of the parts (including any spare engines to be transferred) that are intended to be sold with the airframe.



6. What are the types of aircraft mortgages available? What requirements must be met to ensure an aircraft mortgage is valid?
Under English law, a mortgage can encompass a personal contract to pay the debt (known as a "covenant to pay") and/or creation of a security interest over the aircraft. There are two kinds of mortgages:
  • Legal mortgage. Under a legal mortgage, ownership of the aircraft is conditionally transferred by the mortgagor to the mortgagee as a security for the debt, with the mortgagor gaining or retaining possession of the aircraft and having the right to recover the title once the debt is discharged (known as "equity of redemption").
  • Equitable mortgage. An equitable mortgage is formed on the basis of a valid agreement to create a legal mortgage, mortgage of an equitable interest or a legal mortgage that falls short of meeting the formalities of a legal mortgage. An equitable mortgage creates a charge over the aircraft but does not lead to transfer of ownership or legal interest to the mortgagee. The mortgagor retains an inalienable right to redeem the aircraft on repayment of the debt.
If the mortgagor is a company registered in England, the mortgage must be registered at Companies House by filling in Form MR01 to register the particulars of a charge.
It is not necessary for the economic terms of the deal (principal, interest or repayment terms) to be reflected in the mortgage itself, although these must be ascertainable on enforcement (usually by reference to the relevant loan agreement). It is permissible under English law for the mortgagor to provide security such as an aircraft mortgage for the debts of a third party, provided that there is either "consideration" for so doing (a corporate benefit for the mortgagor) or the mortgage is executed as a deed.
The mortgage does not need to be in the English language. However, for the purpose of proceedings in an English court, a certified translation is required if the mortgage is not written in English. The mortgage does not require notarisation, apostillation, legislation or stamping. However, it is common for the mortgage to be made by way of deed and the formalities for the creation of a deed should therefore be complied with. There are no stamp or other documentary costs as such.
To constitute an international interest under the Cape Town Convention, the mortgage must meet the requirement for validity of an international interest set out in the Cape Town Convention.
7. Will a registered mortgage take priority over other mortgages and charges over the aircraft?
A mortgage of an aircraft entered in the Civil Aviation Authority (CAA)'s Aircraft Mortgage Register has priority over any other mortgage of or charge on that aircraft, other than another prior mortgage entered in the Register or unregistered mortgages created before October 1972. Under the Mortgaging of Aircraft Order 1972, a registered mortgage is subject to a common law lien (that is, a "lien for work done", the right to retain an aircraft that can be exercised by an unpaid repairer of the aircraft). A subsequently filed international interest under the Cape Town Convention and CAA statutory lien for unpaid air navigation charges will take precedence over a UK CAA registered mortgage. Any interest registered with the CAA prior to ratification by the UK in 2015 will retain its priority.
8. Can spare parts be subject to an aircraft mortgage? If not, are there any other forms of security that can be taken over spare parts?
A mortgage can be created over spare parts such as spare engines. However, a mortgage solely in respect of spare parts cannot be registered on the CAA's Aircraft Mortgage Register. When, for instance, a spare engine is installed on an airframe located in England, the separate interests of airframe and engine owners or mortgagees continue to be recognised. England does not have a doctrine of accession whereby title to a spare part automatically transfers to the owner of the airframe on which the part is installed.
A company incorporated in England and Wales can also enter into other forms of security over spare parts by way of debentures to create a fixed or floating charge over the assets. Mortgages and fixed charges must be registered at Companies House, failing which they would be void against an administrator, liquidator or secured creditor.


9. What forms of security can be granted over an aircraft lease?
Security over aircraft leases is usually granted by way of an assignment by the lessor to the financier, with a written notice to the lessee (in accordance with section 136 of the Law of Property Act 1925). In the lease agreement, the financier may require the lessor to assign by way of security all of its rights, remedies, title, benefits, interests and insurance proceeds, in order to be able to enforce the agreement directly against the lessee in case of a default under the financing. Security may also be taken by way of a share charge over the shares in the special purpose vehicle that owns the leased aircraft. The account to which lease rental payments are made may be charged by way of an account charge.

Other Forms of Security

10. What forms of security, other than a mortgage, can be taken over an aircraft?


The main form of security over an airframe is a legal mortgage. However, other forms of security such as charges or liens may also be used.
The effect of a charge is similar to an equitable mortgage, as the creditor obtains equitable interests in the airframe but not the legal title over it. Since there is no transfer of ownership, the creditor can only enforce their rights through a court order, making such forms of security less favourable than legal mortgages.
A lien entitles a creditor to retain possession of the aircraft in case of a pending debt payment. The lien holder does not have a right to sell the aircraft, unless such a right is created by operation of law, equity, contract or statute (Torts (Interference with Goods) Act 1977). Third-party liens are recognised and may take priority over aircraft ownership or security interests. Local authorities that own or manage UK airports, the CAA, and HMRC, among other agencies, all have the right to seize, detain and sell aircraft for unpaid debts. The priority of such rights is also retained under the Cape Town Convention as applied in the UK, without the need for any registration on the International Registry.
Security under the Cape Town Convention may be available instead of or in addition to a traditional aircraft mortgage. If the Cape Town Convention applies because the owner of the aircraft is situated in a Cape Town Convention contracting state, the creditor can benefit from an international interest over both the airframe and engines irrespective of the state of registration. If this is not the case, but the state of registration of the aircraft is a Cape Town Convention contracting state, an international interest will be available over the airframe only.


Most forms of security that can be taken over an airframe can also be taken over engines.

Transaction Security

11. What forms of transaction security can be taken in an aircraft finance transaction?
Typical forms of security include:
  • Share charge over the borrower entity.
  • Mortgage over the aircraft.
  • Assignments of airframe and engine warranties.
  • Lease security assignment.
  • Parent guarantees.
  • Assignments of insurances.
  • Account charges over lease rental accounts.
  • Security deposit.
  • Maintenance reserves accounts.
All such types of security are recognised and typically enforceable under English law.
Aircraft mortgages must be registered at Companies House if the mortgagor is a UK company. While such registration is not mandatory, if not registered within 21 days, the mortgage will be void against insolvency officials and secured creditors. See Question 21.

Registration Requirements

12. What is the procedure for registration of an aircraft?
A "qualified entity" can register an aircraft in the UK on the CAA's Register of Civil Aircraft by completing form CA1 and providing evidence that the aircraft is insured along with the registration fee to the CAA's Aircraft Registration Section. A "qualified entity" is any owner or operator of an aircraft that is qualified under the Air Navigation order, which includes:
  • The UK government.
  • Commonwealth citizens.
  • Nationals of any European Economic Area (EEA) state.
  • British protected persons.
  • Bodies incorporated in some part of the Commonwealth, having their principal place of business in the Commonwealth.
  • Undertakings formed in accordance with the law of an EEA state, having their registered office, central administration or principal place of business within the EEA.
  • Firms carrying on business in Scotland.
There may be additional requirements for certain types of aircraft. The CAA may make further enquiries to ensure that the aircraft meets the criteria for registration under the Air Navigation Order 2016. Once the process is complete, the CAA issues a certificate of registration (showing either the owner as registrant, or the registering operator as "charterer by demise").
13. What is the effect of registering an aircraft?
Entry on the CAA's Register of Civil Aircraft is not conclusive evidence of ownership, since the register is not one of legal ownership. However, it does constitute prima facie evidence of ownership. In addition, evidence of ownership can reasonably be implied where a person or entity has mortgaged the aircraft and registered it on the CAA's Aircraft Mortgage Register. This does not take into account circumstances such as fraud and misrepresentation, or reveal the interests of properly entitled third parties, such as holders of an aircraft lien (which cannot be registered on the CAA's Aircraft Mortgage Register). An aircraft registered on the CAA's Aircraft Mortgage Register must be operated in accordance with the provisions of the Air Navigation Order 2016, whether it is operating in the UK or elsewhere.
14. How are registered aviation interests certified?
The CAA issues to the owner/operator of the aircraft a certificate of registration of the aircraft that certifies that the aircraft has been duly entered in the Register of Civil Aircraft. The certificate of registration must be carried on the aircraft at all times of operation within or outside the UK, in accordance with the Chicago Convention.
15. What is the procedure for registration of aircraft mortgages?
The CAA maintains the Aircraft Mortgage Register, under the Mortgaging of Aircraft Order 1972. There are no restrictions as to who can be registered as a mortgagee. For registration, the application must submit Form CA1577 with a certified copy of the mortgage and the corresponding registration fee to the CAA.
A potential mortgagee of a registered aircraft can "pre-register" a mortgage with the CAA by entering a priority notice using Form CA1330 and paying a registration fee, which varies according to the maximum take-off weight of the relevant aircraft. This priority notice is valid for 14 working days, during which the mortgage must be registered definitively, or a further priority notice sought for 14 days. Once the mortgage is eventually registered, it takes priority over other interests from the original date of the priority notice.
Under the Companies Act 2006, if the mortgagor is a company incorporated in England and Wales, the mortgage must also be registered at Companies House within 21 days of the creation of the mortgage. Otherwise, the mortgage will be void against an administrator, liquidator or secured creditor of the insolvent mortgagor. See Question 21.
If the security document creates an "international interest" under the Cape Town Convention, registration must be completed in accordance with the International Registry regulations and procedures.
16. What is the effect of registering an aircraft mortgage?
An aircraft mortgage registered on the CAA's Aircraft Mortgage Register takes priority over all other unregistered or subsequently registered mortgages. The CAA will confirm in writing to the applicant once an aircraft mortgage application has been successful. This will not state the priority of the mortgage, which is determined by the date of registration.
Registration constitutes notice of the mortgage to all third parties, who are deemed to have express notice of all the details appearing in the Aircraft Mortgage Register, given that it is a matter of public record. The CAA will indemnify any person suffering an injury on account of an error or omission in the Register or an inaccuracy in its entries on the Register. A search of the Register for entries made against an aircraft can be made by submitting Form CA350 to the CAA and paying the search fee.
Certain interests can take priority over a registered mortgage, such as:
  • "Liens for work done" (the right to retain an aircraft that can be exercised by an unpaid repairer of the aircraft).
  • Statutory detention rights (for example detention by the CAA for unpaid Eurocontrol charges and by the UK Environment Agency for unpaid EU Emission Trading Scheme (ETS) penalties).
17. What other forms of security over an aircraft can be registered?
All charges created by a UK company must be registered at Companies House. Liens cannot be registered under English Law. Any interests in airframes, engines and helicopters created under a security agreement creating an "international interest" under the Cape Town Convention can be registered with the International Registry.
18. What is the effect of registering those other forms of security?
If the security document creates an "international interest" under the Cape Town Convention, registration of that interest at the International Registry means that the security takes priority over subsequently registered interests and unregistered interests, subject to certain exceptions. A registered mortgage does not have priority over a registered "international interest" in that aircraft registered with the CAA's Aircraft Mortgage Register unless the mortgage was registered with the CAA before 1 November 2015.
19. Can aircraft leases be registered? If so, what is the procedure for registration of aircraft leases?
The CAA does not allow for the registration of leases in the UK Register of Civil Aircraft. An aircraft lease interest constituting an "international interest" under the Cape Town Convention is registrable on the International Registry. Registration must be completed online in accordance with the International Registry regulations and procedures.
20. What is the effect of registering an aircraft lease?
Aircraft leases are not registrable at the CAA, although they can be registered at the International Registry under the Cape Town Convention. The effect of the registration of an international interest under a lease is that the interest takes priority over subsequently registered interests and unregistered interests, subject to certain exceptions.
21. How is registration of a security interest certified?
Registration of a security interest (such as a charge or mortgage) is effected by delivering prescribed particulars on a standard form plus any applicable charging instrument to the Registrar of Companies at Companies House. The prescribed particulars then appear on the public file. In England and Wales, the certificate of the Registrar that the security interest has been duly filed is conclusive, even if particulars are defective.
There is no concept of "certification" of a security interest under English Law. Once a security interest has been registered it must be "perfected", a process by which the interest is made binding against third parties. The appropriate method of perfection depends on the type of security interest. If a UK company creates an interest over an aircraft, registration at Companies House perfects the security interest. An aircraft mortgage must also be registered to be perfected.
22. What is the procedure for obtaining a certificate of airworthiness?
The European Union (Withdrawal) Act 2018, as amended and supplemented by the Aviation Safety (Amendment etc.) (EU Exit) Regulations 2019, included regulatory arrangements that allowed for the recognition of European Union Aviation Safety Agency (EASA) approvals and licences for a period of two years from 31 December 2020 when the UK left the EU. However, from 1 January 2023, the UK is no longer able to recognise EASA-issued certificates, approvals and licences for the operations and/or maintenance of UK registered aircraft.
A certificate of airworthiness can only be obtained in respect of aircraft that are registered in the UK on the CAA's Register of Civil Aircraft. Registered aircraft owners, aircraft operators, continuing airworthiness maintenance organisations (CAMOs) and maintenance organisations can apply for a certificate of airworthiness. Aircraft that meet the applicable type design standard and are in a condition for safe operation, in accordance with the mandatory requirements for airworthiness are eligible for the issue of a Certificate of Airworthiness. The process for obtaining this is as follows:
To obtain a certificate of airworthiness in respect of Part 21 Aircraft, which fall under the retained EU legislation UK Regulation (EU) No 748/2012, the applicant must provide the following to the Civil Aviation Authority (CAA):
  • Details of the aircraft.
  • Approved organisation details.
  • Location of the aircraft for survey (if required).
The application must be made via an online form along with the payment of the corresponding fee.
The following documents need to be included in the application:
  • For new aircraft constructed in the EU, a "Statement of conformity to the UK Type Design" (EASA Form 52).
  • For new aircraft constructed outside the EU, an Export Certificate of Airworthiness issued within the 60 days preceding receipt of the application by the CAA.
  • For used Part 21 Aircraft, an Export Certificate of Airworthiness issued within the 60 days preceding receipt of the application by the CAA.
The application will be reviewed to determine if an airworthiness surveyor involvement is required. If so, a Certificate of Airworthiness, Airworthiness Review Certificate and Noise Certificate (if applicable) will be issued once the regional office surveyor is satisfied that all necessary paperwork is in order and that the aircraft is airworthy. If not, a direct/indirect issue may take place. A direct issue can only be considered for a new aircraft that has not yet moved from the manufacturer. An indirect issue can only be considered for newly manufactured non-complex aircraft types excluding multi-engine helicopters. For these issues, the technical section liaises with the manufacturer directly.
Eventually, a non-expiring Certificate of Airworthiness is issued, which is valid for operation along with the Airworthiness Review Certificate.

Transfer of Security

23. Is it possible to transfer security interests over an aircraft? Are there specific issues of local law when transferring security interests?
It is possible to transfer security interests over an aircraft. This is done by way of assignment of contractual rights or novation.
Generally, the following issues should be considered:
  • Whether consent to the transfer from the security provider is required.
  • Transferring a bank's rights to another party may have an impact on the bank's duty of confidentiality, and it would be appropriate to seek the consent of the security provider in these cases.
  • To be effective, the security must contain a covenant to pay the relevant debt in favour of the transferor. Otherwise, the transferee will not be able to acquire the right to be repaid the relevant debt by the security provider.
  • Where security is cross-collateralised, it may be difficult to transfer that security to another creditor where not all debt obligations can be transferred.
  • Future rights are not assignable at common law, as the security interest must exist at the time of the transfer. However, in equity, an assignment of a future right takes effect as a specifically enforceable contract to assign, and therefore requires a valuable consideration. Future rights can also be novated.
  • It is not possible to effect a legal assignment of part of a debt.
24. Is a transfer of security subject to any registration requirements?
An assignment of security transfers existing rights and does not create a new security interest. Therefore, there is no requirement to register the new security holder. However, when a security interest is novated, it is deemed to create a new security interest, as the assignor is in fact released from its rights and obligations and a new contract is created between the assignee and the security provider. Novation may require registration, depending on the type of interest.

Enforcement of Security and Repossession


25. In what circumstances can a mortgagee take possession of the aircraft and sell the aircraft? What requirements must the mortgagee comply with?
In case of a default under a mortgage, the mortgagee can notify the mortgagor as to the event of default and its intention to enforce the security, and may then proceed to take possession of the aircraft and sell the aircraft without approaching the court if it has this right under the mortgage deed (this is known as a "self-help" remedy).
If the mortgagor opposes this action or there is uncertainty as to the event of default, the mortgagor can apply to the court to seek delivery and possession of the aircraft. In practice, a court order will be sought by the mortgagee in most cases for the purposes of certainty of title on the resale of the aircraft.
A mortgagee may also seek remedies under the Cape Town Convention if the parties have agreed to such remedies under the mortgage deed. These remedies include:
  • Taking possession of the aircraft without a court order.
  • Selling or granting a lease over the aircraft.
  • Collecting income or profits in connection with operation of the aircraft.
  • Deregistering and exporting the aircraft.
  • Obtaining any interim relief to that end.
26. What is the procedure for a mortgagee taking possession of and selling an aircraft?
The process of commencing court proceedings for aircraft repossession involves initiating a claim form, based on which the court considers the mortgage terms and the ordinary meaning of those terms, including the right to take possession of the aircraft. If there is a genuine risk of the aircraft leaving the UK or the mortgagor prejudicing the mortgagee's position, the mortgagee can seek interim relief before formal proceedings begin. Interim relief options include injunctions regarding the aircraft such as detention orders preventing its departure and freezing injunctions restricting the mortgagor from disposing of the aircraft.
The mortgagee typically needs to provide assurance against wrongful claims. After obtaining a court judgment, the mortgagee can enforce the judgment by issuing a claim for enforcement if the debt is still unpaid, resulting in actions such as seizing and selling the aircraft. This enforcement can be done automatically without a re-examination of the merits of the case by issuance of a writ or warrant of control administratively by the court office, following production of documents and payment of a fee.
27. Will local courts recognise a choice of foreign law in an aircraft mortgage? Are there any mandatory local rules that apply, despite a choice of foreign law?
The Rome I Regulation (EC) No. 593/2008 and Rome II Regulation (EC) No. 864/2007, which were incorporated into UK law (and are retained in essential aspects post Brexit) allow parties the freedom to make a choice of governing law. An express governing law clause is typical is most aviation finance documents.
The Blue Sky case clarified the stance of English courts regarding aircraft mortgages under English law. This case reaffirmed that, with respect to ownership, the mortgage must adhere to the domestic laws of the place where the aircraft is located when the mortgage is created (lex situs), disregarding international conflict of laws and the doctrine of "Renvoi". Failing this, the mortgage could be held to be void by English courts. In the Blue Sky case, an English law mortgage was nullified against third parties because it had not adhered to Dutch domestic laws where the aircraft was physically located at the time of the execution of the mortgage.
The impact of this case for aviation finance is significant. When establishing an English law mortgage or effecting aircraft sales, practitioners are cautious about executing these actions in England, its airspace, or jurisdictions recognising English law mortgages or bills of sale. For aircraft in international airspace, ensuring mortgage or sale recognition by the aircraft's state of registration is common practice (following guidance in Dicey, Morris & Collins on the Conflict of Laws, the leading English law textbook on the conflict of laws).
Analysis should be carried out on a case-by-case basis as to the most appropriate submission to jurisdiction clause to take account of the implications of the UK's exit from the EU with respect to the:
  • HCCH Convention on Choice of Court Agreements 2005 (Hague Choice of Court Convention).
  • Regulation (EC) 44/2001 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters (Brussels Regulation).
  • Lugano Convention on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters 2007 (New Lugano Convention).
Under the Cape Town Convention, creating an "international interest" over an aircraft is predicated on compliance with the validity conditions under the Convention. For creation of an international interest under the Convention, as implemented domestically by the UK, the aircraft need not be physically present in the UK or its airspace. This differentiates "international interests" under the Convention from other security interests. For other security interests, validity under English law is still determined by the lex situs rule, as reaffirmed by the Blue Sky case.
Financiers and lessors continue to register mortgages for UK-registered aircraft in the UK Aircraft Mortgage Register, while also recording "international interests" in the International Registry under the Convention. Many financiers and lessors demand valid English law mortgages alongside "international interests", especially when concerned about enforcement in non-Cape Town contracting states that may not recognise "international interests" but may recognise validly executed English law mortgages.
28. Will local courts recognise and enforce a foreign court judgment in favour of a mortgagee?
A number of regimes are applicable to the enforcement of foreign judgments in England based on the jurisdiction of the award and the date of issuance.
  • Judgments from EU member states and EFTA states in connection with proceedings commenced before 31 December 2020. The Brussels Regulation and New Lugano Convention are applicable in respect of proceedings commenced before 31 December 2020 when the UK was still a part of the EU.
    Under the Brussels Regulation, for proceedings commenced after 10 January 2015, judgments of the courts of one EU member state can be recognised and enforced in other EU member states without the need to follow special procedures. Following Brexit, this Regulation is not applicable in the UK, but courts continue to enforce judgments issued during the period of its applicability.
    The New Lugano Convention applies in respect of enforcement of awards between and among all EU states and the EFTA states. The Convention ceased to be applicable in the UK post Brexit, but courts will enforce judgments in connection with proceedings commenced before 31 December 2020. The UK has applied to accede to the New Lugano Convention in its own right but the unanimous approval of all current signatory states is required for accession to occur, which has not yet taken place.
  • Judgments from Hague Choice of Court Convention countries. All EU member states, Mexico, Singapore and Montenegro are bound as contracting parties to the Hague Choice of Court Convention, which came into force on 1 October 2015. The UK has acceded to the instrument post Brexit. The Convention provides that a judgment given by a court in a contracting state designated in an exclusive jurisdiction agreement will be recognised and enforced in other contracting states. There is disagreement between the EU and UK as to whether the Hague Choice of Court Convention entered into force in the UK on 1 October 2015 or 1 January 2021, but this will not impact the enforcement of judgments of the courts of any contacting state by the English courts.
  • Judgments from Commonwealth countries. Under various pieces of legislation, the English courts will enforce judgments from recognised courts in most Commonwealth and some other countries including Australia, Canada (except Québec), India, Israel and Singapore.
  • Judgments from other countries. Under common law, there is no process for the direct execution of a foreign judgment. However, a separate debt claim can be brought in the English courts to enforce the debt under the foreign judgment. For instance, where a mortgagee is in possession of a foreign judgment, the mortgagee can commence an English action based on the judgment debt by serving proceedings on the mortgagor.

Other Forms of Security

29. What is the procedure for taking possession of an aircraft if a security interest other than a mortgage is held over that aircraft?
The procedure for repossession of an aircraft under other forms of security can either take place:
  • Without the court's intervention, by using the remedies provided under the Cape Town Convention (this is referred to as "self-help").
  • Through court proceedings similar to the enforcement of a mortgage interest. See Question 26.


30. In the event of a default event under an aircraft lease, can the lessor take possession of the aircraft without judicial intervention?
Other than bankruptcy and subject to other applicable laws and the "quiet enjoyment" terms applicable under a specific lease, there are no specific limitations on the ability to exercise remedies. The aircraft need not be physically located in the UK but, if it is not, the procedural local laws of the jurisdiction in which it is located will typically govern the exercise of remedies.
English law permits a lessor to exercise "self-help" remedies without the need for a court order, to the extent that the lessor is able to do so peaceably and lawfully, provided that the lease does not contain any restriction on these (which would be unusual in practice). In circumstances where the lessee does not co-operate with the lessor's exercise of such rights, it is common practice for a lessor to apply for a possession order.
31. What is the procedure for taking possession of an aircraft before the expiration of a lease?
The procedure for taking possession of an aircraft before the expiration of a lease is the same as when an event of default occurs under an aircraft mortgage. See Question 26.
32. If recovery of the aircraft is contested by the lessee and a court judgment is obtained in favour of the lessor, how long is it likely to take to gain possession of the aircraft?
Possession can be obtained within a few days from the issuance of a warrant of control by the court office in favour of the lessor, depending on where the aircraft is located and/or when the aircraft is due to arrive in the UK.
33. Will local courts recognise a foreign court judgment in favour of a lessor?
The methods of enforcing a foreign court judgment in favour of a lessor are the same as for enforcement in case of a mortgagee. See Question 28.

Deregistration and Discharge

34. What is the procedure for and effect of deregistration of an aircraft from the aircraft register?
Deregistration is effected by completing either a:
  • Section on the certificate of registration instructing the CAA to remove the aircraft from the CAA's Register of Civil Aircraft.
  • Sale notification form, if the certificate of registration is not available.
Following deregistration, any certificate of airworthiness or permit to fly concerning the aircraft will be automatically suspended and revoked. Once an aircraft is removed from the CAA's Register of Civil Aircraft, it can no longer fly while displaying its UK nationality and registration marks.
A deregistration certificate is not issued in the UK. Instead, the CAA provides a written confirmation to the registered owner that deregistration has taken place. If an aircraft is to be re-registered abroad, the CAA will also send fax confirmation to the new state of registration.
35. What is the procedure for and effect of discharge of an aircraft mortgage?
To discharge a mortgage, the relevant entity must submit Form CA1577c (Discharge of Aircraft Mortgage) signed by the mortgagee and including evidence of the discharge of the mortgage, such as the deed of discharge. The CAA will amend the Register to reflect the discharge, which is deemed to be effective from the date of receipt of the form by the CAA. On discharge, the CAA will inform all parties to the mortgage by e-mail or letter. There is no fee for the filing of the discharge of an aircraft mortgage.
36. What is the procedure for and effect of discharge of other forms of security over an aircraft?
Other security can be discharged by agreement of the relevant parties. No registration is available for other security interests, except under the Cape Town Convention.
37. What is the procedure for and effect of deregistration of an aircraft lease?
Since leases cannot be registered with the CAA, there is no set procedure for deregistration.
However, a security interest under a lease can be registered as an "international interest" under the Cape Town Convention, which can be discharged. The consent for the discharge of an international interest must come from the lessor, or the transferee if the right to discharge has been transferred by the lessor.

Cape Town Convention

38. Has your country signed and ratified the Convention on International Interests in Mobile Equipment 2001 and its Protocol on Matters Specific to Aircraft Equipment (Cape Town Convention)?
The UK has signed and ratified both the Cape Town Convention its Protocol. Both the Convention and the Protocol came into force domestically on 1 November 2015 by way of the International Interests in Aircraft Equipment (Cape Town Convention) Regulations 2015 (SI 2015/912).
In England and Wales, declarations have been made with respect to Articles: 39 (1) (a)-(b), 39(4), 52 (1), 53, 54 (2) of the Convention and Articles XXIX, XXX(1).VIII, XXX(1). XII, XXX(1). XIII, XXX(2) and XXX(3) of the Protocol.
39. Has ratification of the Cape Town Convention caused any conflicts or issues with local laws?
The lex situs rule under English law contrasted with the goal of the Cape Town Convention to exclude the application of conflict of laws when creating interests over aircraft.
Under the lex situs rule, the validity of an aircraft security interest would only be effective if that interest was validly created under the laws of the jurisdiction of the location of the aircraft at the time of creation. Under the Cape Town Convention, the only requirement is to meet the conditions of validity of the international interest, irrespective of the location where the interest is created or applicable local law.
However, the UK's implementation of the Cape Town Convention now confirms that international interests are recognised under English law and no further requirements with respect to the lex situs rule need to be satisfied to give force to the security interest. See Question 27.
There are issues concerning the Insolvency Provisions of the Corporate Insolvency and Governance Act (CIGA) 2020 and how these interact with the self-help remedies under the Cape Town Convention that may need clarification (see Question 44).
40. What is the legal position regarding non-consensual rights and interests under Article 39 of the Convention?
Non-consensual rights that currently have priority over a mortgage-type interest under English law continue to have priority over registered international interests under the Cape Town Convention following ratification, without any requirement for registration with the International Registry. These non-consensual rights include those arising from:
  • Unpaid airport charges.
  • Unpaid air navigation charges.
  • Unpaid amounts relating to the EU Emissions Trading Scheme (EU ETS).
41. Has your country adopted the remedies on insolvency provided under Article XI of the Protocol?
On ratifying the Cape Town Convention and its Protocol, the UK amended its insolvency laws, by way of the International Interests in Aircraft Equipment (Cape Town Convention) Regulations 2015 (SI 2015/912) (CTC Regs 2015), which provide that on an "insolvency-related event" occurring, the debtor must either return the asset to the creditor within 60 days (the "waiting period") or cure the breach and agree to perform all future obligations under the relevant agreement within the waiting period. Failing this, the creditor may exercise self-help remedies to repossess the relevant asset. The Convention also provides that no debtor obligations can be modified without creditor consent.
The UK has adopted "Alternative A" of the Cape Town Convention proposals through the CTC Regs 2015, although it has not made a declaration to this effect under Article XXX(3).
42. What is the procedure to file an irrevocable deregistration and export request authorisation (IDERA)?
Under the Cape Town Convention, the registered owner can also issue an irrevocable deregistration and export request authorisation (IDERA) in favour of an "authorised party". There is a standard CAA form that must be completed and filed with the CAA. The IDERA enables an authorised party to request deregistration before the CAA. An IDERA must relate to an international interest created before 1 November 2015. If there is a mortgage entry against the aircraft on the CAA's Aircraft Mortgages Register pre-dating 1 November 2015, either the mortgage must be discharged, or the mortgagee must give written consent. However, the consent of mortgagees entered onto the Register on or after 1 November 2015 will not be required before a deregistration request.


43. Can an owner, lessor or financier be liable for the operation of the aircraft or the activities of the operator?
Under Section 76(2) of the Civil Aviation Act 1982, an aircraft owner has strict liability for loss and damage caused by an aircraft to third persons and property. Unless the claimant caused or contributed to the loss or damage by its own negligence, the claimant will be able to recover damages without proof of negligence, intention or other cause of action from the owner, as if the owner had wilfully been at fault.
However, liability is transferred to a lessee where the aircraft is leased for a period of more than 14 days, where the claimant could claim from a lessee as if the latter had been wilfully at fault. The lease terms typically ensure that this risk remains with the lessee, and the lessee indemnifies the owner for liability arising from operation of the aircraft. In some circumstances, the lessee may have a right of counter-indemnity from, for instance, the manufacturer. The prevailing view is that such strict liability should not apply to the financier of an aircraft.

Reform and Recent Developments

44. Are there any proposals for reform in the area of aviation finance?
There are currently no specific proposals for reform in the aviation finance area, although aviation finance will be affected by trends seen in the wider aviation industry and there has been recent reform of insolvency law in the UK which may have a bearing on aviation finance when considering the position of creditors in an aviation insolvency.

Insolvency Reform

The UK's insolvency regime was recently given an overhaul with the enactment of the Corporate Insolvency and Governance Act 2020 (CIGA), part of which has the potential to affect the enforcement of international interests in aircraft registered under the Cape Town Convention. The UK government introduced a new CIGA moratorium preventing creditors taking certain actions for a prescribed period under an amended Part A1 of the Insolvency Act 1986. There has been some debate over concerns that exercise of the CIGA moratorium may conflict with enforcement of an international interest under the Cape Town Convention.
The provisions are complex but in summary if the commencement of insolvency proceedings is deemed to be an "insolvency-related event" for the purposes of the Cape Town Convention, no obligations of a debtor can be modified without the unanimous consent of the lessors/creditors. This may have a significant adverse effect on airlines/lessees seeking to avoid insolvency by means of a restructuring plan or scheme of arrangement. The issue will be tested as cases arise but as it stands there is uncertainty as to whether creditors holding "aircraft related interests" will be able to pursue "Alternative A" insolvency remedies outside the UK in the event that these have been triggered by the entry of an airline or leasing company into a CIGA moratorium.


The UK's departure from the EU in 2020 was a seismic event politically and economically but, in terms of aviation, the regulatory impact was less than anticipated, with the final exit agreement broadly maintaining the liberalisation, traffic rights and safety standards of the EU. Many commentators had raised concerns that existing conditions would be seriously eroded but this seems to have been avoided. There is an agreement on general co-operation in safety and security and an expressed desire on the part of the UK to achieve a "high level of consumer protection" although how this plays out remains to be seen, and future divergence between the UK and EU is possible.


The highly charged environmental debate on sustainability will impact on aviation finance as stakeholders assess demand and look to meet net-zero targets. There is likely to be an increasing demand for Sustainability Linked Loans (SSLs) as airlines and operating lessors are pressured to play their part in tackling the climate crisis. It is likely that there will be further legislation from the UK government affecting the aviation industry in the coming years to address the net-zero agenda and the risks of "greenwashing".


The government is also taking a more proactive approach to technology and it is likely that there will be reform in this area with an increasing awareness of the risks of artificial intelligence to the transport industry, which will be likely to have an effect on aviation finance as stakeholders seek to adapt to these technological advances and navigate regulation in this area.

The Global Aircraft Trading System (GATS)

GATS went live in June 2020, enabling leasing companies to trade aircraft electronically, executing documents for the first time using digital signatures, by migrating their existing owner trusts onto the GATS platform or by establishing new GATS Trusts directly on the GATS platform. GATS had slow take-up because of transaction volumes drastically dropped during the pandemic, as focus was on restructurings, deferrals and sale-lease-backs. Transaction volumes are now recovering, and GATS is now being re-launched (informally GATS 2.0).
45. What are the key developments (key cases, judgments and legislation) of the past year relevant to aviation finance?
The aviation industry, which is renowned for its speed, innovation and global impact, suffered a severe blow due to the unprecedented COVID-19 pandemic. Passenger numbers plummeted, leading to a staggering USD371 billion loss in gross passenger revenue, according to the International Air Transport Association. Despite this, the industry demonstrated resilience and began recovering. In 2021, net industry losses reduced to USD9.7 billion, followed by USD6.9 billion in 2022.
The year 2023 marks a significant turning point with an expected net profit of USD4.7 billion, the first profit since 2019.
Numerous airlines faced bankruptcy or ceased operations, yet the aviation industry has historically rebounded from challenges. Major incidents, health scares and economic downturns have previously impacted air travel, but the industry has consistently recovered.
Projections show a global aviation recovery, with Boeing forecasting over 19,500 aircraft deliveries by 2031 and 41,000 by 2041. Airbus delivered 661 commercial aircraft in 2022, an 8% increase from 2021. In relation to aircraft financing, the following trends have been observed in the past year:
  • Aircraft financing sources. Various sources have driven the growth in aircraft financing, including traditional commercial banks, lessors and export credit agencies (ECAs). Commercial banks provided 15% of new aircraft deliveries in 2021, while ECAs covered 9%. However, the role of ECAs is diminishing due to increasing regulation and market conditions.
  • Leasing and operating leases. Leasing has played a crucial role, representing 41% of new aircraft deliveries. Many leasing companies have strong credit ratings, making them more accessible sources of financing compared to airlines.
  • Structured finance and capital markets. Capital markets have played a pivotal role in aviation recovery, with various financing instruments such as equity, convertible bonds and secured issuances. Asset-backed securities and modern lessor enhanced equipment trust certificates (EETCs) are significant components of financing structures.
  • Insurance and risk management. Insurance products such as Aircraft Finance Insurance Consortium (AFIC) and Balthazar provide risk protection to financiers, increasing their confidence in financing aviation projects and have been helpful in covering the lack of ECA financing options.
  • Green finance and sustainability. Environmental regulations such as CORSIA, EU ETS, and EU Taxonomy are playing a more significant role in the aviation sector, impacting lease rates and aircraft recycling. While the aviation sector aims for "net zero" carbon emissions by 2050, achieving this goal requires technological advancements, sustainable aviation fuels and more fuel-efficient aircraft. The decline in traditional finance sources and market volatility are driving innovative methods of securing debt, leading to sustainability-linked financing, green bonds and sustainable aviation funds. Carbon credit programmes are also emerging as a strategy for carbon reduction. "Green finance" or financing emissions-reducing equipment aligns with environmental, social, and governance (ESG) initiatives.
  • Transition from LIBOR. The industry is shifting from using LIBOR as a benchmark interest rate to alternative risk-free benchmark rates such as SOFR and SONIA.
  • Ukraine-Russia conflict. The invasion of Ukraine by Russia has led to global economic disruption, particularly within the aviation sector in the UK. The EU and the UK swiftly imposed sanctions, affecting aircraft lessors leasing to Russian airlines. Approximately 500 foreign registered aircraft operated by Russian airlines were illegally dually registered by Russia, leading to insurance litigation in the UK for alleged irretrievable loss of possession of these aircraft. The UK government has also enacted new sanctions legislation that introduces restrictions in respect of transactions with Russian entities as part of the UK-Russia sanctions regime.
  • Rising costs. Rising costs have also impacted aviation lessors due to increasing interest rates and inflation. Central banks are implementing measures to combat inflation, affecting borrowing, purchasing, and maintenance costs. While lease rates are adapting and rising, they still lag behind values. Supply chain challenges, especially with engines and parts, are hindering aircraft production rates, potentially leading to a shortage of aircraft in the short term. Despite these challenges, increased trading activity in the secondary market has led to rising asset values.
As the industry continues to face challenges, it has nonetheless attracted new investments and demonstrated its resilience. The aviation industry is recovering after the pandemic, with signs of profitability. However, the recovery is fragmented due to factors such as travel restrictions and geopolitical events. Rising costs, changing finance sources, consolidation and environmental concerns are shaping the industry's future. However, despite clear challenges, the aviation sector is capable of adapting and innovating to ensure its survival and future success.

Contributor Profiles

Mark Bisset, Partner

Clyde & Co LLP

T +44 7810 557 841
E [email protected]
W www.clydeco.com
Professional qualifications. England and Wales, Solicitor (qualified 1997).
Areas of practice. Aircraft finance; aviation regulation.
Non-professional qualifications. BA in Modern History, Oxford University.
Languages. Italian.
Professional associations/memberships. Airlines UK; The Board of Airline Representatives in the UK (BAR UK); British Business and General Aviation Association (BBGA); European Regions Airline Association (ERA); European Business Aviation Association (EBAA); International Society of Transport Air Trading (ISTAT).
Publications. Brexit scenarios for Business Aviation (EBAA, 2018).