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Vedder Thinking | Articles Pedro Eraso Authors "A Risk Avoidance Primer for Cross-Border Aircraft Investors and Lessors in Latin America" in International Bar Association


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This article first appeared on the website of the Aviation Law Committee of the Legal Practice Division of the International Bar Association, and is reproduced by kind permission of the International Bar Association, London, UK. © International Bar Association.


Given the diversity of legal systems, the prevalence of codified laws and a tendency to favour debtor's rights in Latin America, potential investors and lessors related to aircraft assets ('Aircraft Creditors') in this region should carefully assess the protections available in countries where their rights may need to be enforced (the 'Host Country'). In broad terms, this assessment entails: (1) establishing whether the Cape Town Convention (the 'Convention') and its Aircraft Protocol (the 'Protocol') have entered into force in the Host Country; (2) identifying the declarations to the Convention and Protocol that the Host Country has made; (3) determining potential enforcement issues and other aspects of cross-border financing not covered by the Convention; and (4) analysing the legal infrastructure in Host Countries that have not ratified the Convention.

Impact of the Convention and its Protocol on assessing the risk of aircraft creditors in Latin America

The Convention and Protocol provide a uniform, stable and predictable international legal regime for the protection of secured creditors, conditional sellers and lessors of aircraft objects, which can be enforced in any country party to the Convention and Protocol, even if such a country has no connection with the parties or the transaction. The Convention also creates a centralised registry (the 'International Registry') for the registration of security interests, sales, conditional sales and leases of aircraft objects. In general terms, the ratification of the Convention and Protocol reduces enforcement risk faced by Aircraft Creditors.2 The mitigation of enforcement risk can be particularly important in Latin American jurisdictions, where proceedings can be lengthy and unpredictable.

Aircraft Creditors should also verify that a Host Country has ratified the Protocol.3 The rights and remedies established in the Convention will not be available for aircraft objects in a contracting state if the Protocol has not been ratified by the contracting state,4 as the Protocol is a separate legal instrument that provides for the application of the Convention to aircraft objects.5

Declarations system under the Convention and Protocol

Contracting states can adapt the Convention and Protocol to their national legal systems through a system of declarations pursuant to which a contracting state may opt-in or opt-out of select provisions of the Convention or Protocol. As a result of this flexibility in the implementation of the Convention and Protocol, the applicable provisions of such instruments may vary between contracting states. Thus, a comprehensive assessment of the legal risk in Host Countries requires an analysis of the declarations to the Convention and Protocol that such countries have made.

Declarations allowed under the Convention include: non-consensual rights that have priority over interests registered in the International Registry (Article 39); courts that have jurisdiction (Article 53); power to lease a charged aircraft object while in the declaring state's territory as a remedy (Article 54(1)); and self-help as a remedy (Article 54(2)), among others. Declarations under the Protocol include: the ability of parties to elect the law applicable to a contract (Article VIII); speedy relief (Article X); remedies of creditors on the occurrence of an insolvency-related event (Article XI); cooperation of courts of a contract state in which an aircraft object is situated with foreign courts (Article XII); and recognition and recordation of irrevocable de-registration and export request authorisations, among others.

Each declaration affects the risk of repossession of an aircraft object to varying degrees. Particularly important to Aircraft Creditors are the declarations under Article XI and XIII of the Protocol analysed below.

Article XI of the Protocol and impact of Alternative A

Article XI of the Protocol sets forth the available remedies for creditors on the occurrence of an insolvency related event (ie, the commencement of insolvency proceedings or the declared intention or actual suspension of payments by the debtor where the creditor’s right to institute insolvency proceedings against the debtor or to exercise remedies under the Convention is prevented by law or State action). Under the Protocol, a contracting state may apply Article XI through two alternatives: Alternative A and Alternative B.

Alternative A eliminates judicial discretion in the repossession of aircraft objects in the event of the insolvency of a debtor, allowing repossession upon the expiration of a waiting period established by the contracting state, thus reducing the length and uncertainty of such repossession. By contrast, Alternative B enables local courts to dictate the terms of repossession, and includes additional requirements and delivery of notices, resulting in repossession proceedings that are significantly more favourable to debtors than the procedure set forth under Alternative A.

Alternative A allows Aircraft Creditors to reduce the risk of exposure to lengthy, complex and unpredictable judicial proceedings to which they may be exposed in certain Latin American countries. Therefore, Aircraft Creditors tend to prefer Host Countries that have ratified Alternative A.

Relevance of IDERAs

Article XIII of the Protocol enables Aircraft Creditors to register an irrevocable de-registration and exportrequest authorization (an ‘IDERA’) issued by the debtor, pursuant to which an Aircraft Creditor is allowed to procure the export and physical transfer of the aircraft object from the territory in which it is situated without judicial intervention in accordance with the terms agreed by the parties in the IDERA. The ability to obtain, register and enforce IDERAs can also be extremely important for Aircraft Creditors in Latin America as it prevents potential controversy and the involvement of local courts in relation to events that trigger the deregistration of an aircraft and export of aircraft objects from the territory in which it is situated.

OECD Qualifying Declarations

The Organisation of Economic Co-operation and Development (‘OECD’) provides a reduction of up to ten per cent of the minimum premium rates of official support in the form of an export credit guarantee or insurance, official financing support, or direct credit financing/financing and refinancing or interest rate support. This premium rate discount is available for asset-based transactions and leases of civil aircraft, engines, parts, service contracts and conversions, among others, where the operator of the aircraft is situated in a state that at the time of disbursement has made certain qualifying declarations (the 'Qualifying Declarations') under the Convention and Protocol pursuant to the OECD Sector Understanding on Export Credits for Civil Aircraft (2 January 2019) (the 'ASU').

These Qualifying Declarations include: (1) a declaration under Article XI adopting Alternative A with a waiting period not to exceed 60 days; (2) a declaration under Article XIII that the State Party will authorise the use of an IDERA for the de-registration and export of the aircraft object; (3) a declaration under Article VIII that the parties to an agreement may agree on the applicable law to this agreement; and (4) a declaration under Article 54 of the Convention that any remedy under the Convention may be exercised without leave to the court or without court action, or a declaration under Article X of the Protocol pursuant to which a court of a contracting state shall provide speedy relief for an aircraft creditor. In addition, a contracting state should not have made the following declarations in order to qualify for the Cape Town Discount: (1) opting out of speedy relief unless self-help remedies under Article 54(2) are available; and (2) Article 54(1) excluding the lease of an
aircraft object as a remedy.

Countries that have made the Qualifying Declarations arguably offer an optimal set of declarations for Aircraft Creditors. However, Host Countries that have made some (but not all) of the Qualifying Declarations may still provide a desirable set of protections for Aircraft Creditors, particularly if the contracting state has chosen Alternative A under Article XI of the Protocol.

As of the date of this article, Brazil and Panama are the only Latin American countries that have made all the Qualifying Declarations, and thus are eligible for the Cape Town Discount.6

Enforcement issues and other aspects of cross-border financing not covered by the Convention

Aircraft Creditors should acknowledge that their rights and remedies under the Convention may not be enforced as expected. Local courts may apply the Convention in different ways. A recent example is the bankruptcy of Oceanair Linhas Aéreas SA (known as 'Avianca Brazil') in which Brazilian bankruptcy courts granted Avianca Brazil stays and applied toll periods under local law that exceeded the 30-day waiting period that Brazil had adopted by ratifying Alternative A. These delays resulted in an effective stay period for creditors of approximately four months.7

In addition, many other important aspects of cross-border aircraft financing are not addressed by the Convention or Protocol, and thus are governed by national laws including, among others

  • execution formalities for the validity of agreements, for example, notarisations, registrations, government authorisations and payment of stamping duties or fees;
  • withholding taxes on payments to foreign creditors;
  • validity of payments to foreign creditors, such as currency convertibility restrictions, governmental authorisations and other requirements for cross-border payments;
  • regulations intended to impose economic sanctions or prevent illegal activity;
  • immunity of debtors or lessees or non-enforceability of contractual obligations that may violate local laws or public policy;
  • proper ratification and implementation of the Convention and Protocol;
  • political and expropriation risks; and
  • enforceability of choice of law provisions and enforcement of foreign judgments.

Creditors should seek the advice of local counsel to identify, allocate and mitigate these risks.

Protection of aircraft interests in countries that have not ratified the Convention

Risk identification for Aircraft Creditors is more complicated in Host Countries that have not ratified the Convention. As discussed above, the Convention and Protocol provide a centralised system of registration of international interests, and a predictable set of remedies and relief in the case of the default or insolvency of a debtor or lessee.

As a result, Aircraft Creditors or their advisors should obtain the advice of local counsel in order to assess the legal infrastructure of the Host Country and identify critical aspects of aircraft leasing and financing otherwise addressed by the Convention and Protocol, such as constitution and effects of interests in aircraft objects, remedies available upon contract repudiation or bankruptcy of a debtor or lessee, registration and priority of interests over aircraft objects, and proprietary rights.

In addition, Aircraft Creditors should seek expert advice to identify, allocate and manage other related crossborder investment issues, such as taxation, restrictions on payments to foreign creditors, expropriation risks and non-enforceability of contracts, among others. Finally, local counsel can help Aircraft Creditors to navigate language barriers and unique aspects of local civil law systems that may be unfamiliar to Aircraft Creditors from common law jurisdictions.



1 This paper is for informational purposes only and is provided merely as a quick reference tool. It is not intended to, nor does it, provide formal legal advice. You should not act upon this information without seeking advice from your own counsel.

2 For the status of states that have ratified or acceded to the Convention see UNIDROIT, 'Status of the Cape Town Convention' ( accessed 4 July 2019.

3 For the status of states that have ratified or acceded to the Protocol and declarations see UNIDROIT, 'Status of the Aircraft Protocol' at ( accessed 4 July 2019.

4 Art 49(1) of the Convention.

5 Aircraft objects are defined in the Aircraft Protocol as airframes that can carry at least eight people; aircraft jet engines that have at least 1750 pounds of thrust and turbines or piston-powered aircraft with at least 550 take-off shaft power; and helicopters capable of carrying at least five people or goods in excess of 450 kilograms.

6 See the status of the list at ( accessed 4 July 2019.

7 For a general discussion on the Avianca Brazil bankruptcy, see K Basch 'Recent developments in aircraft repossession', International Law Office, 16 January 2019.


Pedro F. Eraso