The ownership and security rights over aircraft engines in Malta are governed by two complementary legal frameworks: domestic legislation, mainly the Aircraft Registration Act[1] (the “Act”), and the Cape Town Convention on International Interests in Mobile Equipment (the “Convention”) and its Aircraft Protocol as implemented into Maltese law and reproduced in the First Schedule to the Act. While the Act does not cater for the separate registration of aircraft engines, the Convention and the Protocol have the force of law in Malta and prevail over any other law in case of conflict. The protection granted to owners of aircraft engines, particularly financiers and lessors, must therefore be analysed in terms of the rights granted and protection afforded under both regimes.
Provisions of Maltese Law
The Aircraft Registration Act
Under the Act, ‘aircraft engines’ are defined as “aircraft engines (other than those used in military, customs or police services) powered by jet propulsion or turbine or piston technology and together with all modules and other installed, incorporated or attached accessories, parts and equipment and all data, manuals and records relating thereto without prejudice to any other thresholds which may be applicable for the purposes of other parts of this Act”.
Although aircraft engines cannot be separately registered in the Malta Aircraft Register (the “Register”), the law provides specific mechanisms to safeguard ownership rights. In terms of the Act, when an aircraft is registered, the following details are recorded:
- Physical details of the engines attached to the aircraft and any replacement engines owned by the registrant to the extent they are designated to be used on the aircraft and;
- If the engines or replacement engines are not owned by the registrant, if the owner consents, the physical details of such engines are also recorded;
- Ownership rights in an engine must be recorded, including when:
- Held by a trustee, for a single interest or more;
- Held by one or more owners;
- Divided into fractional shares or otherwise; or
- Held under an agreement with reservation of ownership rights or under conditions affecting title in terms of the Act;
- The details of any international interests registered on the aircraft in the International Registry, and subsequently all transactions relating to such international interests.
The registrant or any other interested person may also request that the following matters are noted in the Register:
- The lessor’s rights relating to an engine where the lessor is different from the owner;
- The lessee’s rights in relation to an engine and all matters relating thereto;
- Information on any international interest registered in the International Registry and the debtor thereof.
Notation of information in the Register brings about certain legal effects, such as:
- Rendering the information public which is thus considered to be within the knowledge of third parties and effective against third parties;
- Creates priority between different rights (although the notation of ownership or lessee rights does not imply any priority over the rights of the holder of a registered mortgage);
- Creates legal effects between the parties to certain transactions.
Therefore, although aircraft engines cannot be separately registered as an asset class, ownership interests in engines are still offered a high degree of protection.
The Act also recognises a security interest constituted under a security agreement, which is governed by terms of the security agreement. The existence or validity, construction and effects of such security interest are governed by the law applicable to the security agreement, and when executed or perfected in accordance with its proper law, the security interest is recognised and given effect in Malta. The Act however provides that such interests are subject and subordinate to the rights of any registered mortgagee or holder of an international interest registered under the Convention.
Crucially, where an engine is attached to an airframe which is not also owned by the airframe owner, each owner retains ownership of their thing and the engine does not accede to the airframe. Therefore, any security over the aircraft does not extend to any engine attached to the airframe when such engine does not belong to the owner of the airframe who granted the security, notwithstanding that the engines may be specifically referred to in the security instrument. By way of a practical example, an engine lessor or financier does not risk having its asset subject to an enforcement action in the event of an enforcement action being brought against an aircraft to which the leased or financed engine is attached, but which does not belong to the owner of such aircraft.
The Code of Organization and Civil Procedure
Under the Code of Organization and Civil Procedure[2] (the “COCP”), Maltese courts have jurisdiction in rem over aircraft engines in certain claims, such as claims to the ownership of an engine or claims in respect of an international interest in an engine. When such claims arise, an action may be brought in rem directly against the engine when:
- The claim arises in connection with the engine;
- The person who would be liable on the claim for an action in personam was, when the cause of action arose, the owner or lessee of, or in possession or control of the engine, if at the time the action is brought the person who would be liable in personam is either an owner or beneficial owner of that engine or the lessee of the engine under a dry lease agreement (except in the case of a claim based on a non-registered consensual right or interest registered in the International Registry, which is subject to certain exceptions); and
- The relevant threshold for the issue of a warrant of arrest of the aircraft or seizure of an engine are satisfied.
This provides creditors a powerful means of enforcement, since claims can be pursued directly against the asset itself, rather than the owner.
Under the COCP, a warrant of arrest may be issued against an aircraft engine. This may also be issued in the event of a default under a lease agreement in order to secure the rights of a lessor against a lessee.
When an aircraft engine is not attached to an aircraft, a precautionary warrant of seizure or precautionary garnishee order can also be issued.
Protection provided under the Cape Town Convention
The Convention, as implemented under Maltese law, provides internationally recognised protection for owners and financiers. Under the Act, an international interest registered in the International Registry is recognised and enforceable under the laws of Malta and has the status, rights and powers specified in the First Schedule to the Act, irrespective of whether it is recorded in the Register. In the event of default, in addition to the default remedies granted under the Convention, the holder of a security interest registered in accordance with the First Schedule may terminate the agreement and take possession or control of the aircraft to which the agreement relates or apply to the court to authorise or direct either of these acts. A creditor may terminate the agreement and take possession or control without the leave of any court. In the event of any hindrance caused by any conditional buyer or lessee, a creditor may seek the support of the Maltese courts, and the court shall render full support to the holder of the security interest as expeditiously as possible, including by making any declaration on the vesting of ownership or lessor rights or the termination of possessory rights to the aircraft.
Furthermore, security interests and international interests registered under the Convention constitute executive titles in terms of article 253 of the COCP. This ensures direct and rapid enforcement by the Maltese courts.
The Act further provides that when a conditional sale or a lease agreement is governed by Maltese law and a security interest in relation thereto is registered under the Convention, the rights granted under Maltese law are extended to the owner and/or the lessor, without prejudice to their rights under the Convention.
A Creditor-Friendly Regulatory Framework
Malta’s legislative framework offers a robust and creditor-friendly framework for the protection of aircraft engine ownership. The combined effect of the Aircraft Registration Act, the Convention and the COCP ensures that security interests and lessor rights are clearly identifiable and enforceable. From an enforcement perspective, the COCP allows creditors to enforce their rights directly against the asset itself, which, coupled with the self-help remedies established under the Convention, offers creditors a high degree of protection in the event of default.
[1] Chapter 503 of the Laws of Malta.
[2] Chapter 12 of the Laws of Malta.
The information provided in this Insight does not, and is not intended to, constitute legal advice. All information, content, and materials available are for general informational purposes only. This Insight may not constitute the most up-to-date legal information and you are advised to seek updated advice.
