www.cooperlevenson.com
By Frederic L. Shenkman, Esq., Peter Y. Fu, Esq., and Michael L. Salad, Esq.
Disclaimer: This article is strictly for
educational purposes, and should not
be used or relied upon as legal guidance
or advice. It is highly recommended
that you retain legal counsel prior to
entering into any transaction related to
aircraft or aircraft components.
As one of the largest hubs for private
aircraft, New Jersey offers several
benefits to lenders and borrowers who
finance or leverage aircraft or aircraft
components (hereinafter “Aviation
Assets”). However, to fully recognize
these benefits, it is critical to understand
the process for perfecting a secured
interest in Aviation Assets. This article
discusses (1) the interaction between
United States federal laws and New
Jersey state laws, (2) the rise of aircraft
mechanic’s liens, and (3) best practices
to ensure that all parties realize their
intended contractual objectives.
Federal law provides that
all aircraft,
including
airplanes, helicopters and
aircraft components, such
as an engine or propeller,
must be registered with
the United States Federal
Aviation Administration
(“FAA”). Once Aviation
Assets are registered, all
transactions
involving
title to, or an interest in the
Aviation Assets must be in
writing and filed with the
FAA by the party attempting
to retain a secured interest
over the asset. The
documents
associated
with
Aviation
Asset
transactions are called “conveyances.”
Below you will find three of the most
common examples of transactions
involving Aviation Assets.
In Scenario 1, the buyer completely
financed the purchase of an Aviation
Asset. If the Aviation Asset is new, the
seller is required to register the asset
with the FAA. If the asset is used, then
registration is unnecessary. Once an
asset purchase agreement is executed,
the buyer is required to record the
conveyance with the FAA, as a transfer
of title has occurred.
In Scenario 2, the seller partially
financed the purchase of an Aviation
Asset. Like Scenario 1, registration of
the asset is contingent on whether the
asset is new or used. Unlike Scenario 1
however, both the buyer and seller are
required to file and record conveyances
with the FAA. Buyer is required to file
and record the conveyance with the
FAA because a transfer in title has
occurred and the seller must file and
record the conveyance with the FAA
because a transfer in a secured interest
occurred.
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Perfecting a Secured Interest in Aircraft in New Jersey (continued)
not have notice of the secured interest.
New Jersey’s Uniform Commercial
Code (“UCC”) generally governs
competing secured interests in Aviation
Assets that are located in New Jersey.
In most instances, the first party to file
its interest with the county in which the
Aircraft Asset is located prevails.
However, New Jersey provides broad
statutory protections to persons or
entities that render maintenance,
repair, or storage services (“Service
Providers”) to operators of Aviation
Assets.
Service
Providers
are
permitted to levy a “mechanic’s lien”
against an Aviation Asset if an owner
of an Aviation Asset fails to pay for
services rendered.
In Scenario 3, the bank finances the
purchase of an Aviation Asset. Like
the previous scenarios, registration
of the asset is contingent on whether
the asset is new or used. Unlike the
previous scenarios, both the buyer and
the financier are required to file and
record conveyances with the FAA. The
buyer files and records the conveyance
with the FAA because a transfer in title
has occurred, and the financier files and
records the conveyance with the FAA
because a transfer in a secured interest
occurred.
Despite the plain text of federal laws
governing the validity of Aviation
Asset conveyances, the United States
Supreme Court held that filing and
recording a conveyance with the FAA
does not create priority amongst
competing secured interests, and that
such disputes are generally governed
by the laws of the state in which the
Aircraft Asset is located. The only
exception to this rule arises when a
security holder fails to properly file
and record with the FAA. Under that
scenario, the security holder loses
priority against third parties that did
In New Jersey, a mechanic’s lien
against an Aviation Asset is superior
to all other secured interests, except
Continued
Perfecting a Secured Interest in Aircraft in New Jersey (continued)
for tax liens. With certain exceptions,
a mechanic’s lien
(1) Prevails over secured interests
properly filed and recorded prior
to the existence of the mechanic’s
lien; and
(2) Survives the transfer of title of
an Aviation Asset.
Parties involved in an Aviation Asset
transaction should include certain
representations and warranties in
asset purchase agreements or security
agreements, including, but not limited to:
(1) The existence of liens and
judgments against the Aviation
Asset;
(2) The dates and descriptions of
all services rendered to or for an
Aviation Asset within 90 days of the
execution of the transaction; and
(3) Receipts of payment for services
rendered to or for an Aviation Asset
within 90 days of the execution of
the transaction.
As the sale and collateralization of
Aviation Assets becomes more and
more common, it is imperative to
review and address the laws that
supplement the traditional rules
governing the transfer of goods. The
field of aviation law is very complex.
Individuals and companies involved
in aviation transactions are strongly
advised to seek the advice of legal
counsel.
Peter Fu, Esq. is an associate in
Cooper Levenson’s Business &
Tax and Cyber Risk Management
practice groups. He concentrates
his practice on sales and use tax,
enterprise risk management, and
commercial transactions. Peter
is licensed to practice law in New
Jersey, and is pending admission
to Florida. Peter can be reached
at 609.572.7556 or at pfu@
cooperlevenson.com
Michael Salad, Esq. is an associate
in Cooper Levenson’s Business & Tax
and Cyber Risk Management practice
groups. He concentrates his practice on
estate planning, business transactions,
tax matters and cyber risk management.
Michael holds an LL.M. in Estate
Planning and Elder Law. Michael can be
reached at 609.572.7616 or msalad@
cooperlevenson.com.
Fredric L. Shenkman, Esq. is a partner at
Cooper Levenson, PA. He concentrates
his practice in the areas of commercial
litigation, e & o defense and banking
law. He has his L.L. M. in Tax Law. He
is admitted to the following bars: New
Jersey, Pennsylvania, United States
District Court for the District of New
Jersey, United Stated District Court for
the Eastern District of Pennsylvania,
United States District Court for the
District of New York (Southern District,
Eastern District and Western District,
U.S. Tax Court and the United States
Court of Appeals for the Third Circuit.