Aircraft buyers and sellers, aviation attorneys, bankers and other lenders, brokers, aircraft and title insurance agents and everyone else involved in aircraft transactions are climbing a steep learning curve in their collective attempt to comply with the requirements of a new international aircraft registry that opened for business on March 1.
Brought into being by the Cape Town Convention on International Interests in Mobile Equipment, the Web-based registry is raising the hackles of many–if not most–of those involved for three reasons: many people, professing ignorance of its coming, were and are still unprepared to deal with the registry; more are baffled by its requirements and seeming incongruities with the FAA’s own registration process, which is still required; and even those who understand and accept the international registry’s benefits are finding themselves grappling with glitches in the registry’s Web site. The good news, for the last group if no one else, is that these usually minor glitches are being fixed relatively quickly.
The registry’s official designation is the International Registry of Mobil Assets (IRMA), but it is more commonly called the International Registry, the Cape Town International Registry (CTIR), the Cape Town Treaty or simply Cape Town. Despite these latter names, the only connection the registry and treaty have to South Africa is their origin at a diplomatic conference held in Cape Town in late 2001. In fact, IRMA and its Web site (www.internationalregistry.aero) are operated in Dublin, Ireland, by a company called Aviareto, a joint venture between SITA (an international information technology company headquartered in Geneva) and the Irish government.
The most pressing question U.S. business aviation interests are asking about IRMA is, “Must we really register all future aircraft transactions on this international registry?” Several aviation attorneys AIN spoke with for this article said that, strictly speaking, registering with IRMA is voluntary, but…if the aircraft title is not registered with IRMA, it is not perfected. Legally, this means the title would not be recorded or registered internationally in the proper place so that one’s ownership is established against all others.
Registering the title with the FAA, which is still required, could help prove one’s ownership, but legally (although this has not yet been tested in the courts) any earlier filings for the same title on IRMA would take precedence.
Protecting against Financial Risk
However, the question of registering or not registering with IRMA becomes moot, the lawyers say, if a loan is involved, because the lender or lenders will definitely require the title be registered internationally to protect their interest in the aircraft. Another as yet unproven reason for registering transactions on IRMA is that not registering might make an aircraft harder to sell in the future and possibly harm its value.
This protection of financial risks worldwide is what Cape Town is all about. To figure out the motivation for the treaty, one does not have to look further than the membership of the aviation working group formed to hammer out the Cape Town agreement–Airbus, Boeing, Bombardier, Embraer, GE Capital, General Electric, ILFC, Pratt & Whitney, Rolls-Royce, Snecma and the U.S. Export-Import Bank, among others.
“The treaty was pushed by the airline industry,” said Keith Swirsky, of Washington, D.C. law firm Galland, Kharasch, Greenberg, Fellman and Swirsky, which has handled more than 1,000 aircraft closings over the years. “Fraudulent title transfers are not a big issue in business aviation because of the usually high caliber of the owners. But many airline customers are second- and third-tier airlines in third-world countries where there are conflicting laws about ownership and repossession,” he explained.
Cape Town provides greater security to international transactions by superseding the conflicting laws in those countries that sign the treaty, of which the U.S. is one of eight so far. This in turn creates a more favorable financial environment in which OEMs can sell their wares and financial organizations lend money.
Though some in business aviation seem to be accepting Cape Town with little more than a shrug, others question why the aircraft weight limits were lowered to bring business aircraft under the treaty. At least one elected representative, Sen. James Inhofe (R-Okla.), has written a letter to the FAA. In the letter, dated March 15, he states, “I have been asked by some in the general aviation (GA) community to introduce legislation exempting aircraft 100,000 pounds or less or with 30 seats or less from the burdens of the implementing act [H.R. 4226, the Cape Town Implementation Act of 2004]. However, before moving forward, I would like to have some detailed information from the FAA. To begin, I would like to know the extent of the GA community’s involvement in the negotiations of this treaty, as well as whether or not it was supportive of the outcome.”
The letter goes on to ask several more questions that are vexing the GA community. How much will the cost of registering with IRMA add to a typical transaction? Would it be possible for the FAA to forward the appropriate information to IRMA? Is an additional title search necessary? Will liens be registered with IRMA instead of the U.S.? He also asks several questions regarding the operation of the Web site: is there an additional fee if the user forgets his password, wants to register using another computer or adds another user certificate?
These latter questions are better answered by someone involved regularly with the registry because Aviareto is making changes and improvements as problems arise. One attorney said the registry’s Web site would not initially accept the ampersand symbol (&) and “Jr.” in a name, but it does now. However, she cautioned that one should “affirmatively” log off the site, instead of just clicking off the Internet, because IRMA will not allow the same user back on for some indeterminate length of time. She also mentioned having some difficulty getting on to the site, particularly when it first went live, but she said the bugs are being corrected.
Perhaps the most serious current limitation of IRMA for business aviation users is that it will not accept “multiple anything”: buyers, sellers, lenders, whatever. This means that fractional shares and joint owners of aircraft cannot be easily registered at this time. This might be changed in the future. In the meantime, aviation lawyers are coming up with innovative ways to make such transactions acceptable to IRMA, but as one would expect these require extra time and expense.
If there’s a silver lining to Cape Town, according to those interviewed, it is that people are becoming more aware of its requirements, the bugs in the Web site are being fixed and it is working relatively painlessly for most straightforward transactions. “As Cape Town becomes commonplace, the necessary paperwork will be in place and people will know what to expect when they come to the closing,” one attorney said.
It’s impossible for anyone to predict with certainty, however, if and when business aircraft will ever be excluded from registering under the Cape Town Convention. And even if U.S. law is changed to this effect, many buyers, sellers and lenders might decide it’s worth the peace of mind to register their transactions on IRMA anyway.