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Aircraft Mortgage vs Aircraft Pledge In Mexico

Author:Mr Gerardo Reyes
Profession:Abogados Sierra y Vazquez
  1. - Which is better in Mexico? : The "Aircraft Mortgage" or the "Aircraft Pledge".

Second Chapter

In the last COELUM edition we showed the viability of an Aircraft Mortgage in Mexico, arguing that there is no article prohibiting this special kind of Mortgage. Also on the first chapter we recognized some examples of Mortgages on Real Property.

The special Aircraft Mortgage was established for the first time in international law in 1948, during the "Convention on the International Recognition of Rights in Aircraft" in Geneva in which they decided to add in its first article1, Aircraft Mortgage, a legal figure that today is not fully understood, due to its complexity.

"... Article 1°. - The Contracting States undertake to recognize:

d) The mortgage, and similar rights in aircraft, created as security for payment of a debt ..."

The two Aircraft Mortgage conditions for it to become legally effective according to the mentioned treaty are:

"... 1) aircraft registration; and

2) The Aircraft Mortgage registered in the public registry office of each state..."

When Mexico signed Geneva Treaty, only reserve rights on tax obligations and labor laws. The country admits and recognizes all the guarantees stablished by the Geneva Convention and was also obligated to regulate the Aircraft Mortgage, under its jurisdiction.

The procedure of this legal figure has been regulated through the General Communication Routes Law2, in book 4: "Aeronautical Communications" up until 1995; when the rules following the Aircraft Mortgage were derogated. Despite that fact the aeronautic industry in Mexico is still using the Aircraft Hypothecation while the figure does not have a procedure to follow, it is still in full force and effects.

In 2001, the Cape Town Convention, which Mexico signed years after, the safeguards were expanded and instead of making a list like Geneva, the seventh article of Cape Town Document declared that to constitute an international guarantee agreement3, there are only four necessary requirements:

Granted by a chargor under a security agreement. Vested in a person who is a conditional seller under a title reservation agreement. Vested in a person who is a lessor under a leasing agreement. As a result of the exposed, the aircraft industry can elaborate Aircraft Mortgages Agreements, Aircraft Pledge Agreements and all kind of security interest agreements that accomplish the amenities the Cape Town Convention.

To determine which figure is better to constitute a security interest between Mortgage and the Commercial Pledge4 we have to compare the formalities and the procedural facts of each one.

According with the articles 1414 bis, section II and 1414 bis 7 of the Commercial Code (CC), the Mercantile Pledge Agreement as like the Mortgage, has to be written5, but in the Pledge with no transferred possession; it is necessary for the pledgee and the pledgor to designate a person responsible for appraise6 the aircraft at the time of the agreement or at least establish bases to designate a valuating expert.

At first...

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