European Community Accedes to the Cape Town Convention
The Cape Town Convention, which became effective in March 2006, is now a worldwide aircraft finance law code. On April 28, 2009, the European Community deposited in Rome at UNIDROIT1 their adherence to the Cape Town Convention2 (“Convention”) and the Aircraft Protocol.3 This adherence opens the way for countries in Europe to individually become Contracting States to the Convention. Currently, the only European States that have ratified the Convention are Ireland, where the International Registry4 is based, and Luxembourg, which ratified the Convention in connection with the Rail Protocol.5
To date, 31 countries worldwide along with the European Community have deposited ratifications and declarations. Nations that have ratified the Convention include China, India, Indonesia, Malaysia, Saudi Arabia, Singapore, South Africa, United Arab Emirates, Ireland, Luxembourg, Mexico and the United States.6 The full list of Cape Town countries and their declarations are found on the UNIDROIT website, www.unidroit.org, along with texts of the Cape Town Convention and the Aircraft Protocol.7
The Convention applies when a debtor under a security agreement, a buyer under a title reservation agreement, a lessee under a lease agreement, or a seller under a purchase agreement, with respect to, an aircraft object, is situated in a Contracting State at the time of agreement. The Convention also applies when an airframe or helicopter is registered in a Contracting State at the conclusion of an agreement. The Convention’s application extends to any assignments, subordinations, and subrogations with respect to such agreements and prospective international interests and sales.
The Convention and Protocol cover airframes of eight persons (including flight crew) or larger, helicopters of five persons (including flight crew) or larger, parallel cargo aircraft, and helicopters and aircraft engines of specified size. Aircraft engines are covered when installed on an aircraft, but helicopter engines are not covered when installed.
Cape Town Convention: A Major Impact to Aircraft Finance
Given the pace of ratification, the Cape Town Convention will dramatically alter the world of aircraft finance. Each ratifying country must make certain mandatory elections and certain optional declarations in the nature of opt-ins and opt-outs. Areas affected by the options include choice of forum and remedies. Thus, it is necessary to review individual country declarations to understand the Convention’s impact in each jurisdiction.
In order to determine the benefits and risks that may arise when the Convention applies, one should first assess the available remedies, including those under the various country declarations. Such remedies may include speedier recovery of an aircraft after default, early aircraft recovery following bankruptcy and deregistration from an aircraft registry. One should then determine the risks of not registering their priority properly on the International Registry, not writing Cape Town remedies into their agreement, or not complying with the few formalities of the Convention.
The website of the Aviation Working Group (AWG) (www.awg.aero), a not-for-profit entity comprised of major aviation manufacturers, leasing companies and financial institutions, is an excellent source of material and resources on the Cape Town Convention. It contains links to other websites, including the International Registry. AWG, a leader in providing support to UNIDROIT in creating the Convention and Aircraft Protocol, is involved in the process of ratification and, where helpful, the implementation of the Convention and the Aircraft Protocol. AWG also conducts Cape Town seminars around the world to facilitate understanding of this complex treaty.8
1 UNIDROIT is the International Institute for the Unification of Private Law, an independent intergovernmental organization whose purpose is to study methods for harmonization of commercial laws between nations.
2 Convention on International Interests in Mobile Equipment (Cape Town, 2001).
3 Protocol to the Convention on International Interests in Mobile Equipment on Matters Specific to Aircraft Equipment (Cape Town, 2001).
4 The International Registry identifies “international interests” and all other interests under the Cape Town Convention to be perfected against third parties in any Contracting State.
5 The Luxembourg Rail Protocol is the protocol of the Convention that applies to railway rolling stock. It was implemented in February 2007.
6 The United States adopted the Convention and Protocol by the Cape Town Treaty Implementation Act of 2004. Additional information is available on the FAA’s website.
7 The treaty documents may be downloaded from this website. The already revised Official Commentary on the Cape Town Convention by Professor Sir Roy Goode is a critical companion to the Cape Town practitioner because it explains and analyzes all provisions of the Convention and Aircraft Protocol. This Commentary was authorized by the original diplomatic conference, and may be obtained through the UNIDROIT website and the Aviation Working Group website, www.awg.aero.
8 The AWG Legal Advisory Panel leads these seminars and has published two booklets, one on the application of the Convention to transactions, and one on advanced contract practices and legal opinions under the Convention and Aircraft Protocol. These booklets may be obtained through the AWG website.