As technology evolves, industries are finding new, creative ways to leverage technology to increase efficiency. Unmanned aerial vehicles, otherwise referred to as “drones,” are a perfect example of a technological advancement that has enhanced many industries. One industry in particular that has benefited from the use of drones is the agricultural industry. Farmers are currently utilizing drones for various tasks including crop spraying, crop and livestock monitoring, and field mapping. The precision farming and increased efficiency that drones offer has caused demand in the agricultural industry to increase rapidly. One leading commercial drone manufacturer estimates that in 2023, over 300,000 drones operated globally to treat millions of acres of farmland across the world.
Now, precision farming and increased efficiency comes at a cost. Most “sprayer drones” cost around $15,000.00 with some costing upwards of $30,000.00, exclusive of accessories and batteries. With many farming operations utilizing multiple drones at once, the cost of adoption likely exceeds $100,000.00. Farmers most certainly will look toward financial institutions for financing. Therefore, as agricultural and commercial drone usage becomes increasingly popular, lenders should know how to protect their rights and interests when using the drone as collateral.
Procedurally, perfecting a security interest in a drone is the same as perfecting a security interest in any aircraft. The secured party must file a security agreement with the Federal Aviation Administration (the “FAA”) Aircraft Registration Branch. To properly file a security agreement, send the appropriate documentation to the Aircraft Registration Branch via U.S. Postal Service at P.O. Box 25504, Oklahoma City, OK 73125-0504. Once the security agreement is filed with the FAA, from that date, the security agreement is valid against all other persons and creditors who do not have a recorded interest. Similar to a UCC-1 filing, a security agreement filed with the FAA Aircraft Registration Branch provides public notice of the secured interest to all subsequent creditors.
Unlike a UCC-1 filing, a security agreement filed with the FAA Aircraft Registration Branch requires a more detailed description and notarized signatures. A security agreement eligible for filing with the FAA Aircraft Registration Branch must also be in a form acceptable to the FAA, a sample Aircraft Security Agreement form, AC Form 8050-98, can be found on the FAA’s website for reference (https://www.faa.gov/documentLibrary/media/Form/AC_Form_8050-98_09-2024_final.pdf). Promissory notes, financing statements, and disclosure statements are not eligible documents for filing. In general, the security agreement must include the following information: (1) a description of the drone, including the make, model, manufacturer’s serial number, and the FAA registration number; (2) an acknowledgement that the owner of the drone is granting a security interest in the drone to the secured party; (3) signatures by both parties; and (4) an acknowledgement before a notary public. Finally, the security agreement must be accompanied by the appropriate recording fee.
Once an eligible security agreement is filed, the FAA will return a Conveyance Recordation Notice, AC Form 8050-41, to the secured party. The recordation notice describes the drone, lists the parties and the date of the security agreement, and lists the FAA recording number and date of filing. It also operates as a lien release. Once the secured party agrees to release its lien on the drone, the secured party may sign the AC Form 8050-41 and return it to the FAA Aircraft Registration Branch. If a secured party misplaces the AC Form 8050-41, the FAA also accepts a signed letter from the secured party containing the same information along with a statement of release. Additionally, should the parties wish to amend the filed security agreement, any amendments or supplemental documents may be recorded with the Aircraft Registration Branch if the documentation describes the original conveyance by listing the date of the security agreement, the parties, and the FAA recording number and date of initial filing. All subsequent filings must be signed by the parties and accompanied by the appropriate recording fee.
While perfecting a security interest in a drone is similar to any aircraft, perfecting a security interest in drone accessories is more akin to perfecting equipment under the UCC. In addition to the aircraft itself, secured parties must file security agreements that identify aircraft engines, propellers, and other spare aviation parts with the Aircraft Registration Branch to perfect their interests. However, drone batteries, charging stations, and other accessories do not fall within the definitions of aircraft engines or other spare aviation parts. Therefore, to perfect a security interest in drone batteries and accessories, the secured party must file a UCC-1 financing statement with the appropriate Secretary of State identifying the collateral as equipment.
Secured parties should be aware that federal law prohibits the operation of unregistered commercial drones. Nearly all types of drones are required to be registered with the FAA. Additionally, if the commercial drone is not registered, the secured party cannot perfect their security interest. Best practices dictate the secured party to encourage registration. There is, however, a limited exception to registration. Drones strictly used for recreational purposes that weigh less than 0.55 pounds do not need to be registered with the FAA. However, all other drones must be registered. Upon registration, the owners receive a Certificate of Registration and an FAA registration number. Depending on the size of the drone, the FAA registration number may either begin with an “N” or an “FA.” Regardless, the security agreement must contain the FAA registration number to be eligible for filing with the Aircraft Registration Branch.
As of April 1, 2025, more than one million drones have been registered with the FAA. Industries across the U.S. are implementing drones to increase their efficiency and improve production. The agricultural industry, for example, has already witnessed a substantial rise in drone utilization; this trend will only continue as technology advances and regulatory developments progress. As of early 2025, the FAA regulations limit drone usage to one (1) drone per pilot, and in some instances, a visual observer is also required. Thus, as the regulations stand, two (2) persons are required to operate one (1) drone. The FAA regulations have limited drone efficiency. However, in 2024, multiple agricultural drone manufacturers have petitioned the FAA for an exemption. With an exemption, pilots may operate a swarm of three (3) drones at one time. Effectively tripling their efficiency.
Although drone usage is highly regulated by the FAA, the FAA does not require drone operators to maintain a drone insurance policy. Instead, the FAA limits certain aspects of drone usage and requires extensive pilot training. To become a drone pilot, the FAA requires each person to earn a Remote Pilot Certificate through required trainings and a knowledge-based test. However, even with all the regulations and required trainings, accidents and unpredictable conditions happen. Now, many agricultural businesses have a general or commercial liability insurance policy, but drones are typically excluded from such insurance policies because drones are deemed to be “aircrafts.” Financial institutions should consider drone liability insurance and hull coverage as a lending requirement to further secure their rights and interests.
Eventually, drone usage in commercial industries, including the agricultural industry, will become commonplace. Financial institutions seeking to finance this technological adoption must be aware of their rights and interests. For help perfecting your security interest in a drone, contact an experienced legal professional.
