Cape Town forum updates operators

Aviation International News » April 2007
March 27, 2007, 7:38 AM

Anyone who has purchased an aircraft or airplane engine knows the process is complicated, especially when you consider the mountain of paperwork through which buyers and sellers are often required to navigate. Add in changes in the registration process and you’re sure to find more than one confused aircraft seller, buyer or broker. This is exactly what happened when The Cape Town Treaty and an international aircraft registry came into force on March 1 last year.

The Aircraft Registry and Cape Town Convention and Aircraft Protocol Treaty Forum, held in Miami Beach, Fla., on February 22 and 23, gave operators another chance to familiarize themselves with the registry.

The Cape Town Treaty and its related aircraft equipment protocol is an international treaty to facilitate the cross-border financing and leasing of aircraft, helicopters and aircraft engines. The treaty (formally known as the Convention on International Interests in Mobile Equipment) was completed at an international diplomatic conference in Cape Town, South Africa, in November 2001. It established a commercially oriented, comprehensive international legal framework to protect security and leasing interests in aircraft equipment.

As part of the treaty’s implementation process, the Secretary General of the International Civil Aviation Organization (ICAO) issued a mandate for an organization to establish and act as registrar for an international registry. The officially titled International Registry of Mobile Assets was assigned to Dublin, Ireland-based Aviareto.

The treaty stipulated it could be enforced only after acquiring at least eight entities and a waiting period of three months after the last ratification. On Nov. 2, 2005, Malaysia became the eighth country to ratify.

To date, 15 countries have ratified the treaty: the U.S., Afghanistan, Angola, Colombia, Ethiopia, Ireland, Kenya, Malaysia, Mongolia, Nigeria, Oman, Pakistan, Panama, Senegal and South Africa.

Cape Town is intended to apply only to equipment with these specifications: airframes that transport at least eight people (including crew) or goods in excess of 6,062 pounds (2,750 kg); helicopters that transport at least five people (including crew), or goods in excess of 992 pounds (450 kg); and engines that have at least 1,750 pounds of thrust for jet propulsion engines or at least 550 hp in the case of turbine-powered or piston-powered engines. Cape Town excludes coverage of any equipment used for military, customs or police services. It also excludes propellers.

The initial driving force behind Cape Town was Unidroit, the International Institute for the Unification of Private Law. In the late 1980s, the independent institute focused its attention on determining how best to enable and promote the international financing of high-value mobile assets, such as aircraft and aircraft engines, railcars and space vehicles.

It quickly recognized that many potential participants were hesitant to offer financing for these assets, one reason being that they could be moved covertly from one country to another. In addition, the fact that each country operates under its own set of legal guidelines creates a gray area for legal disputes regarding ownership rights.

As a result, Unidroit decided to work on a uniform framework that would eliminate, or at least lessen, this transaction risk. The organization approached major aerospace manufacturers and financial institutions to form the Aviation Working Group (AWG).
Jeffrey Wool, AWG secretary and general counsel, coordinates all day-to-day activities and represents the group with third parties. The task is not an easy one, as the group includes such diverse interests as Airbus, Boeing, Bombardier, Embraer, GE Capital, ILFC, Snecma and the U.S. Export-Import Bank.

The AWG worked in conjunction with the International Air Transport Association to lay the groundwork for an international treaty that addresses the financing and leasing of “aircraft objects,” namely airframes, aircraft engines and helicopters. The AWG work ultimately led to the 2001 conference in South Africa. It was there that the text of the Cape Town Convention and the Aircraft Protocol was introduced to the international community.

The Convention generally applies to aircraft, rail equipment and space assets, but the Aircraft Protocol’s text applies specifically to interests on aircraft objects.

Aviareto, a joint venture of SITA SC and the Irish government, operates the registry. It performs its functions on a not-for-profit, cost-recovery basis, as required by the Cape Town Convention. Niall Greene, Aviareto’s managing director, told AIN that the organization gained this exclusive management deal by bidding on the ICAO contract to operate the registry. He said the organization is 20 percent owned by the Irish government and 80 percent by SITA, which is owned by the world’s airlines.

Greene pointed out the registration process is entirely electronic and automated, but the initial applications must be scrutinized by registry officials. “We have to be satisfied, and make every diligent effort to ensure, that the applicants are who they claim to be,” he explained.

From a financial perspective, the Export-Import Bank, the official export credit agency of the U.S. government, was a major player in the crafting of Cape Town. It is an independent agency of the executive branch established by Congress in 1934 for the purposes of financing and insuring foreign purchases of U.S. goods for customers unable or unwilling to accept credit risk. “We primarily focus on export financing for U.S.-manufactured aircraft as a way of supporting U.S.-based jobs,” said Robert Morin, the bank’s vice president of transportation.

Morin oversees the agency’s financing of aircraft, rail and ship exports. He also was a member of the U.S. delegation involved in the development and negotiation of the Cape Town Convention. Morin told AIN the registry was formed to assist in sales to countries that did not offer “a well developed system” to register aircraft finances. “The Registry allows these countries to adopt established practices worldwide,” he explained.

Morin expressed optimism that the global community will accept the Cape Town treaty, predicting that more countries are sure to sign on. “I expect more participation as one country sees another benefit from increased access to financial services,” he said. “I would not be surprised if we saw another 14 countries ratify the treaty within the next five years.”

One of the protections afforded to those negotiating under the auspices of Cape Town is the ability to deregister aircraft in the case of insolvency. Aviation attorney James Myer told AIN the Irrevocable De-registration and Export Request Authorization lets a financier regain control of an object when insolvencies arise. “It is essentially a power of attorney,” he said. “This agreement allows the financier to deregister an aircraft in the creditor’s country in case of a defaulted mortgage or lease.” What if two U.S.-based parties are involved in a sales transaction? Myer explained that aircraft interests falling within the categories set by the Protocol must register with the International Registry even if both parties reside within the U.S.

The International Registry is entirely electronic and, like many other Internet-based projects, it developed a few operational issues when it debuted. For example, some users discovered that the registration portal did not recognize the & symbol and suffixes were simply not allowed. In addition, there were reports that only one party could register for an aviation interest. This threw the proverbial monkey wrench into the mix when a group of partners or several entities owning a single aviation interest tried to register it.

To their credit, the team at Aviareto compiled user feedback and quickly fixed some of the initial problems. They also plan to implement several new features to address many of the Web site’s problems. (See below.)

“We have had a series of reliability issues, but certainly no flaws with the security and integrity of the system itself,” Greene said. “There were some issues we did not originally anticipate having to deal with, such as the registration of multiple items in one session and the recognition of certain keyboard characters.”

He asserts that the system’s reliability and speed are constantly improving and several new solutions are on the way. “We are working on these issues and, in fact, are introducing a new registration system in the next few months,” assured Greene.

One of the new features will allow the simultaneous registration of multiple items via a traditional “online shopping cart” format found on many e-commerce Web sites.
Pre-certified administrators will simply select the number of items to register and then “check out” and pay their fees by credit card at the end of the session. “The business aviation community might appreciate that we are also launching a new feature within the next few months that will allow the registration of fractional interests,” Greene said. As for future plans, he explained that Aviareto’s staff is continually enhancing the Web site’s search capabilities. 

The elimination of a few of the cyber bugs must have worked because by early last month there were 8,000 administrators and users registered with the online system. In addition, there have been 33,500 priority searches conducted and interests registered against 15,000 aircraft, helicopters and engines.

Another issue of concern for some users and observers of the Cape Town Treaty is their perception that the Aviation Working Group consciously decided to lower the required aircraft weight limits to include business aviation. Some users of the registry have questioned why the AWG took this step. Was it pressure from the airline industry or did the registry simply want to bring in more business?

Senior AWG officials told AIN that business aviation was always considered during the treaty’s discussions. Aviareto’s Greene concurs. “There was certainly no late rush to include them at the final moments of discussion,” he said. “I would be quite surprised if business aircraft and general aviation were not included as they often are quite expensive and require financing, as is the case with airliners.”

Despite the international registry’s technical problems, the online processing system is here to stay. Aviareto’s team developed a plan to correct many of the registry’s issues and has asked ICAO for authorization on its next phase of work. So, while these issues are dealt with, attorneys, brokers and other parties will need to continue using the online portal to protect their aviation interests. The question is whether the registry outgrows these issues soon after its first birthday.   

Cape Town Convention Resources

The International Registry: www.internationalregistery.aero.

The FAA Web site on Cape Town: www.faa.gov/licenses_certificates/aircraft_certification/aircraft_
registry/cape_town_treaty

The Aircraft Working Group: www.awg.aero

Aviareto: www.aviareto.aero

Export-Import Bank of the United States: www.exim.gov

Unidroit:
- Main Web site: www.unidroit.org
- Cape Town Treaty:

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