The concept of multi-country international laws governing the financing of aircraft was the brainchild of Jeffrey Wool, who understood the global nature of airline financing. Mr. Wool knew that more favorable international laws were needed to encourage investment in startup airlines. Originally referred to as UNIDROIT, which is French for one law, he envisioned countries around the globe adopting a set of laws favorable to lenders that would encourage international financing of aircraft. The overall concept would include a central international registry where rights and interests of international lenders would be registered in one place.
The Concept of Global Financing
The concept of global financing for aircraft and airlines is important. You can read about this in Aircraft Guaranty’s blog, Why an Aircraft Should be Registered in Trust. Starting a new airline is no small undertaking. There is a long list of requirements needed to get a new airline off the ground, not the least of which is capital investment. Emerging markets are traditionally not affluent enough to provide start-ups with capital, so new airlines look to more affluent economies for assistance. Investors around the globe are more willing to invest in startup airlines if they can be assured that they have the right to repossess the assets of the new business if the burgeoning new airline doesn’t make it, and it can’t pay off their loan.
Global air traffic is on the rise and people are flying more. While countries want to encourage tourism, many local airlines are overburdened with the increase in passenger traffic. More and more, the demand for air travel is overwhelming the supply chains, creating opportunities for new airlines to handle the increase in global air travel. Start-ups around the world are adopting the low-cost carrier model, and opportunities to invest in these start-ups abound. Investors need to feel comfortable with the business model of the airlines with which they are investing.
The Cape Town Convention
Thus was born the Convention on International Interests in Mobile Equipment, a set of uniform laws created to encourage the financing of aircraft, particularly for developing countries. The original convention was held on November 16, 2001 in Cape Town, South Africa, and has therefore become widely recognized as the Cape Town Convention. Of the more than 60 countries present at the convention that day, only 20 actually signed on, but many more quickly followed.
But signing the treaty was only the first step, and only represented an intent to participate in the Convention. To fully participate in Cape Town, signatories to the Convention had to ratify the treaty. This meant that participating countries had to change or adopt certain specific laws to make them more favorable to lenders financing the airlines.
To get Cape Town fully up and running, eight countries had to ratify the treaty. This took a while, so although the Convention was signed in 2001, all of the provisions did not get fully up and running until March 1, 2006. The original participating eight countries were Ethiopia, Ireland, Malaysia, Nigeria, Oman, Panama, Pakistan, and the United States. Today, the Convention has been signed by 77 different countries, and all but seven have fully ratified the treaty.
So, What About the International Registry?
The Cape Town Convention had a provision for creating an International Registry (IR) where the rights of all these international lenders could be filed for the world to see. The concept is much like the FAA, where all interests in the United States are filed in one place (Oklahoma City), Unlike the FAA, however, the IR is an electronic-based registry that only gives notice of an international interest against an aircraft. In order to see the actual documents creating the interest, one must go beyond the IR to the country where the interest was created.
The IR was originally designed to show only liens against aircraft. As the concept of the Convention grew, many people felt that ownership interests should be registered as well. Many wanted it to operate more like the FAA’s title-based registry, so that interested parties could get an understanding of the aircraft owner’s current identity, not just whether there were any liens against it. Registration of Ownership Interests were therefore added to the scope of the treaty, and the IR now allows for notices of ownership interest called contract of sales.
Is the International Registry in Cape Town, South Africa?
In fact, no. It is not. The treaty was signed in South Africa, but the question of where to place the IR was a big one, and a political one at that. Many countries vied for the right to host the IR, but it came down to two main contenders: Canada and Ireland. A lot of deliberation went into making the final decision, but it the end Ireland won out, and the IR was placed in Dublin where it is currently managed by a company named Aviareto.
Now that we’ve given the history behind the Cape Town Convention and the creation of the IR, we’ll continue this important topic next month with an article on the actual implementation of the treaty around the globe.