We have an idea, by which we mean a thought or suggestion as to a possible course of action, regarding the use in the United States of an “IDERA,” a document that can be filed with an aviation authority to help deregister and export an aircraft.
“IDERA” is catchy shorthand for “Irrevocable De-Registration and Export Request Authorization,” a concept and term introduced as part of the Convention on International Interests in Mobile Equipment (the “Convention”) and the related Protocol on Matters Specific to Aircraft Equipment (the “Protocol”), which have been a part of the international aircraft leasing and financing landscape for the last 20 years.
The IDERA is intended to be a more advanced form of another document called a “deregistration power of attorney,” which is, as its name suggests, a power of attorney granted by the party in whose name an aircraft is registered allowing another person to deregister that aircraft. The IDERA goes further because it allows a creditor, including the holder of a security interest or a lessor, to deregister an aircraft and to export that aircraft from the country in which it is situated in the event of a debtor’s default. The IDERA carries with it the weight of the Convention and the Protocol, obliging aviation authorities in countries that are contracting states party to the Convention and the Protocol to facilitate the deregistration and export of the relevant aircraft when the IDERA is presented. This gives certainty to creditors financing aircraft that they can get their expensive and fragile assets back, redeploying them quickly elsewhere in the global fleet.
Under the Protocol, an IDERA must be recorded with the registry authority in order to be effective, and in the United States recordation is governed by the Federal Aviation Administration’s guidelines (the “FAA Guidelines”) which provide, relevantly that “[a]n IDERA is only acceptable for security conveyances against aircraft—this does not include straight leases.”[1] The FAA Guidelines therefore limit the recordation of an IDERA to security conveyances of an aircraft and not operating leases.
This is contrary to the provisions of the Protocol, which provides that “where the debtor has issued an irrevocable de-registration and export request authorization substantially in the form annexed to this Protocol and has submitted such authorization for recordation to the registry authority, that authorization shall be so recorded.” A “debtor” under the Convention expressly includes “a lessee under a leasing agreement.”[2] We therefore have a contradiction between the FAA Guidelines, on the one hand, and the Convention and Protocol, on the other.
The United States as a contracting state that is party to the Convention and the Protocol is required to implement them under domestic law, and so – at least on this small point – there is a difference between the two sets of rules which should align.
So, what went wrong? Among a minority of aircraft registries, the FAA is what is called an “owner registry,” meaning that the registration of the asset is based on the owner of the aircraft. By contrast many other jurisdictions are “operator registries,” where registration is done in the name of the operator of the aircraft, often an airline, or the lessee in a leasing transaction. The author of the FAA Guidelines may therefore have considered the IDERA unnecessary in the United States because, with the registration done in the name of the owner, the owner would not need to have authorization from the operator of the aircraft – the lessee – to deregister the aircraft in what the FAA calls a “straight lease.”
Additionally, part of the problem may have stemmed from the definition of “debtor” in the FAA Guidelines, where it means the “term used under the Uniform Commercial Code to designate a person who is obligated on chattel paper (conditional sales contract, chattel mortgage, trust receipt, equipment trust agreement, etc.),”[3] in contrast to the use of “debtor” in the Convention and Protocol, as noted above.
So, is this a problem? In practice, in the 20 years or more since this FAA Guideline was issued, the lack of IDERAs for leases has meant little because the FAA has reliably removed cancelled leases from its registry and has allowed export and deregistration of aircraft being repossessed from lessee-debtors. The author of the FAA Guidelines might argue that this is because the IDERA is not relevant in the United States because our registry is an “owner registry.”
However, this point ignores the fact that the IDERA has two purposes. The first is to deregister, and the second is to facilitate export. Presentation of the IDERA places a burden of compliance on the registry to which the IDERA is presented to facilitate both. The FAA Guidelines establish that the authorized party or certified designee under an IDERA is the “sole party entitled to request deregistration of the aircraft for the purposes of export.” [4] This is narrower than was intended in the Protocol, which provides that the registry is required “to de-register the aircraft and procure its export.”[5]
Excluding the issuance of IDERAs in leasing transactions means that lessors in the United States do not have the full benefit of the Convention and the Protocol in fulfilling both functions. The FAA’s limited interpretation of the use of IDERAs further limits the rights of all creditors in these circumstances and denies one of the primary purposes of the Convention and the Protocol – to create a uniform enforcement and recovery regime for aircraft objects across jurisdictions.
So, what should we do? The current FAA Guidelines are narrower than is required by the Convention and the Protocol and should be amended in two ways. First, they should allow the filing of IDERAs for aircraft leasing transactions. Second, the guidelines should contemplate that the filing results in an obligation for the registry to deregister and procure export. These changes would align the FAA Guidelines with the Convention and the Protocol, and would conform U.S. practice with the requirements of the Protocol. Practically speaking, very little will change in most lease enforcements, but the rules will be more robust in outlier deregistration and export situations. And nobody ever again will write that the FAA, at least for leases, has no IDERA.
[1] U.S. Dep’t of Transp., Fed. Aviation Admin., Aircraft Registration and Recordation Processes
§ 4.1.2(r) (June 2018).
[2] Convention on International Interests in Mobile Equipment art. 1(j), Nov. 16, 2001, 2307 U.N.T.S. 285.
Note: The definition of “debtor” also includes a chargor under a security agreement and a conditional buyer under a title reservation agreement.
[3] U.S. Dep’t of Transp., Fed. Aviation Admin., Aircraft Registration and Recordation Processes
§ 4.1.1.(a) (June 2018).
[4] Id. § 4.1.2(r).
[5] Protocol to the Convention on International Interests in Mobile Equipment on Matters Specific to Aircraft Equipment annex (i)(a)–(b), Nov. 16, 2001, 2367 U.N.T.S. 517.
