Cape Town Convention: Enhancing Aircraft Financing Security
Unlock better terms and mitigate risk with the International Registry for aircraft assets.
The Cape Town Convention (CTC) and its Aircraft Protocol (collectively, 'CTC') provide a robust international legal framework for the creation, registration, and enforcement of security interests in aircraft objects. It fundamentally improves lender confidence and reduces risk in aviation finance transactions globally.
How it works
At its core, the CTC establishes an International Registry (IR) where interests in airframes, aircraft engines, and helicopters can be registered. This central, electronic, notice-based system provides a globally accessible, universally recognised priority system, resolving conflicts of law. Registered interests enjoy priority over unregistered or subsequently registered interests, irrespective of the asset's physical location. The availability of an Irrevocable De-registration and Export Request Authorisation (IDERA) is a crucial mechanism, enabling a chargee to expeditiously de-register and export an aircraft upon default, circumventing domestic judicial or administrative delays. The benefit to lessors and lenders is a significantly de-risked recovery process, potentially leading to more competitive financing.
Typical terms in 2026
The CTC's 'qualified transaction' status, particularly within specific Contracting States, can yield tangible benefits for borrowers. Aircraft financed under CTC-compliant structures often attract more favourable terms due to the enhanced creditor protections. For a typical mid-life narrowbody jet in a CTC-compliant jurisdiction, expect:
| Metric | Typical Range (CTC Qualified) |
|---------------------|-------------------------------|
| Loan-to-Value (LTV) | 70-85% |
| Tenor | 7-12 years |
| Interest Rate (SOFR + margin) | 2.5% - 4.0% |
| AEP Discount | 5-10% LTV, 0.25-0.5% rate discount |
These discounts, part of the 'Aircraft Protocol Enhanced Remedies' (AEP), reflect the reduced risk premium for lenders. Residual value risk, particularly for newer assets, might see depreciation schedules adjusted, with less aggressive markdown in early years due to perceived ease of repossession and remarketing.
Who it suits
The CTC primarily benefits financiers, lessors, and export credit agencies by providing greater certainty and enforceability. However, this translates directly to advantages for sophisticated operators and high-net-worth individuals acquiring high-value aircraft. By mitigating lender risk, the CTC facilitates access to more attractive debt financing. It is particularly advantageous for cross-border transactions involving jurisdictions that have ratified the Convention and made the necessary declarations for enhanced remedies, such as the AEP.
Pitfalls to avoid
Navigating the CTC requires precision. Key pitfalls include failing to correctly register interests on the IR, leading to loss of priority. Incomplete or incorrectly executed IDERAs can render them unenforceable. Furthermore, understanding the specific declarations made by each Contracting State is critical, as not all states adopt all provisions uniformly. Jurisdictional nuances, particularly regarding enforcement of domestic insolvency laws versus CTC remedies, demand expert legal counsel. Engaging with a lender unfamiliar with CTC mechanics can also negate potential benefits.
How Mega Aviation helps
Mega Aviation provides bespoke advisory services, helping clients structure transactions that maximise the benefits of the Cape Town Convention. We introduce clients to a global network of vetted lenders and lessors with deep expertise in CTC-compliant financing structures. Our role is to facilitate connections and optimise deal terms, ensuring clients are matched with financial partners who understand the intricacies of international asset registration and enforcement. Mega Aviation does not act as a regulated financial adviser; rather, we are an independent facilitator dedicated to enhancing financing outcomes for our clients.