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Aircraft leasing

On May 28 2008, Luxembourg Parliament approved the Convention on International Interests In Mobile Equipment, as well as its Aircraft Protocol, signed in Cape Town on November 16 2001. Thus Luxembourg became the second European country (after Ireland) to adopt this legal framework, designed to facilitate asset-based finance and leasing of aircraft, engines and helicopters.

The Convention creates the concept of an "international interest" in aircraft objects and associated rights as defined by the Convention in signatory countries. It provides, among other things, for the registration and priority of those rights in the international registry of mobile assets. This concept is similar, but not identical, to the Luxembourg aviation mortgage (hypothèque aérienne). Luxembourg is a contracting state to the Convention on the international recognition of rights in aircraft signed at Geneva on June 19 1948, and as the current regime on aviation mortgages is not abolished by the law of May 28 2008, Luxembourg continues to apply a domestic aviation mortgage register as provided for by the Luxembourg law of March 29 1978.

The Aircraft Protocol clearly states that the Cape Town Convention shall supersede the Geneva Convention for the assets it applies to. However, in this context it must be noted that the Geneva Convention of June 19 1948 and the Luxembourg domestic aircraft mortgage regime apply to aircrafts in the sense of the Chicago Convention, whereas the Aircraft Protocol applies to transactions where three requirements are met: (i) the aircraft/engine meets certain size/power requirements; (ii) an "international interest" is created; and (iii) the debtor is "situated in" a contracting state (such as Luxembourg) at the time of conclusion of the agreement creating the interest.

Unlike most other contracting parties, such as the US and Ireland, Luxembourg has chosen not to make a declaration with regards to categories of non-consensual rights that have priority over registered international interests, and regarding the right of government authorities to arrest or detain objects for payment of amounts owed to those authorities. Thus the Luxembourg implementation of the Cape Town Convention provides a high degree of creditor protection. Also, unlike the Luxembourg domestic aviation mortgage regime, remedies available to the creditor may be exercised without court intervention. This new regime will allow for swift enforcement of the security.

Jean-Luc Schaus

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