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Rights in Aircraft Engines and Components

One of the largest gaps between the current law and practice of aircraft financing lies with financing and leasing of aircraft engines. No jurisdiction covered by this volume maintains a registry for recording interests in aircraft engines. In many jurisdictions, an engine loses a status as an independent object by way of the rules on accession.[1] These rules are outdated in a day when an aircraft engine costs tens of millions of dollars and the practice of leasing has become so common.

There is a similar issue concerning transponders and other payloads on space assets. “Hosted payloads” are frequently employed in space financing when the government does not want to procure the whole satellite but wish to own only a payload on a satellite, the remaining part of which is used for commercial purpos- es.[2] The difference from the case of aircraft engines is that a payload cannot practically be removed from the satellite bus once the satellite is placed on orbit, while engines can be installed on or removed from an airframe easily. As a result, financing of the “remainder” of the satellite (in an extreme case, a satellite bus only) usually does not take place, but the whole of the satellite including the hosted payload is the subject of financing. No domestic law appears to have an explicit rule to govern such a situation.

The Cape Town Convention addresses these demands of the most recent practice. In particular, the Aircraft Protocols has created a system for registering rights in aircraft engines. Aircraft engines are separate type of “aircraft objects”,[3] and international interests created in them can be registered with the International Registry. The rules on accession under the domestic law do not apply when an aircraft engine is installed on an airframe.[4] The Space Protocol, in a similar manner, provides that a payload and “a part of a spacecraft or payload such as a transponder” may be treated as an independent space asset on condition that a separate registration may be effected for these pursuant to the regulation.[5] As with an aircraft engine, installation of and removal from a space asset (payload) from another space asset (satellite), if it ever occurs, does not affect the ownership or other rights or interests by way of accession.[6]

  • [1] See Chap. 21.
  • [2] Maria Buzdugan, Satellite Financing through Hosted Payloads: Benefits and Challenges, Airand Space Law, Vol.36, p.139 (2011).
  • [3] Article I (2) (c) of the Aircraft Protocol.
  • [4] Article XIV (3) of the Aircraft Protocol.
  • [5] Article I (ii) (k) of the Space Protocol.
  • [6] Article III (b) of the Space Protocol.
 
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