NBAA Convention News

Cape Town rules still causing headaches

 - November 13, 2006, 6:07 AM

Seven months after the International Registry of Mobile Assets (IRMA) became effective, the controversial Web-based registry–known colloquially as the Cape Town Treaty–still has few fans and continues to create much confusion among business aviation users.

Nevertheless, the U.S. and nine other countries have ratified the legal “convention” and “protocol to convention” that define the International Registry. Thus, it is effectively the law of the land and virtually all sales of business aircraft conducted here at the NBAA Convention will likely be subject to Cape Town rules.

Activity at the registry’s Web site (www.internationalregistry.aero) has been high since it opened for business on March 1. During its first month of operation, Aviareto, the Dublin, Ireland-based company that manages the International Registry, reported taking five days on average to approve new users, when its target was two days.

According to Niall Greene, managing director of Aviareto, “By the end of August, some 5,500 administrators and users had been approved and as many registration sessions occurred. In addition, 23,700 searches have been carried out and 18,000 interests have been registered against aircraft, engines and helicopters. While volumes of registrations and searches have exceeded forecasts, they are still well below the levels that the system has been designed to handle.”

The effect of the Cape Town Treaty is to extend “modern commercial laws for the sale, finance and lease of aircraft and aircraft engines to the international arena in a manner consistent with U.S. law and practice.” The purpose of the treaty is to facilitate international financing of high-value mobile equipment and the creation of the International Registry. But the benefits of the registry to business aviation are neither altogether clear nor widely accepted. In fact, the only other first-world country to ratify the Cape Town Treaty is Ireland, where the registry is located (see box).

Coping with Cape Town

“The International Registry was developed for the airlines and someone late in the game realized that there wouldn’t be enough transactions to pay for it, so business aviation was tagged with the bill,” said David Davis, president of the aircraft division for 1st Source Bank in South Bend, Ind. “For all intents and purposes, the [international registry] doesn’t do anything for most aircraft financing today other than add costs and processes. The concept of a truly international registry in all countries to protect lenders’ rights on aircraft is a great concept and one to embrace, but that isn’t what we’ve got here.”

Bob Kent, president of Scope Aircraft Finance in Columbus, Ohio, noted that his company does no international business, so the registry is of no benefit. “I could give you example after example of our frustrations,” he said, “but I’ll cut to the chase. The net result of the international registry is to unnecessarily increase the cost to U.S. business aviation of owning aircraft so that manufacturers can sell more transport and business jets overseas.”

Sharon Schroeder, president of Aero Records and Title Co. in Oklahoma City, had absolutely nothing good to say about the functioning of the registry’s Web site. “It was designed for security with little thought to how professional users like me would have to use it,” she said. “It’s terribly cumbersome and very non-user friendly. It’s intriguing to lawyers who are excited to have a facet of international law appear during their careers. But to those of us who have to sit in a chair and deal with the Web site, well, it’s just an egregious system.”

Nick Popovich, president of Sage-Popovich in Valparaiso, Ind., said, “The IRMA is inept. They refuse to return e-mails, phone calls and/or other demands for service. They appear to be lacking the expertise to pull this off. If they do not get a handle on service, the whole concept will fail.”

Mary Schwartz, director and vice president for Citigroup Private Bank Aircraft Finance in New York, was a bit more positive. “There were definite ‘teething’ problems [in the beginning], but it was more of a nuisance factor than a major issue,” she said. “If other countries sign up for the registry, it could have a real benefit. It remains to be seen whether that will happen.”

And Joe Dini, senior vice president of Sovereign Bank, had this opinion about the IR: “It works and will be a benefit to the lending industry in the future.”

Aviareto’s Greene, responding to criticism of the International Registry’s Web site, said, “Notwithstanding considerable pre-operational testing of the system, including by third parties, there have been some initial teething problems but no more than would be expected in a completely new and complex system. All of these teething problems have been related to operating issues and they have not affected the security and integrity of the system.

“The most significant problem that has impacted on users has been related to the payment system that ‘crashed’ on a number of successive Fridays, and with the failure of the backup system to kick in when the primary site malfunctioned. These issues have now been resolved. In the first two months, there was also a problem with retrieving priority search certificates on several occasions. This was due to the security sensitivity of the system being set too high. This issue, too, is also now fully resolved. For the small group of users who have experienced problems with the system, Aviareto has taken responsibility and acted to get the problems fixed as quickly as possible. Aviareto is also operating a fair and open refund policy in cases where registrations have had to be repeated.”

Regardless of one’s opinion of the international registry, there’s no doubt that it will be around for the foreseeable future and must be dealt with. (Congress would have to un-ratify its ratification of the Cape Town Convention and Protocol to remove their effects.) The good news, such as there is, is that most people involved with the buying and selling of aircraft at least know about it now, whereas it came as a shock to many of them when it took effect in March.