Aviareto, which manages a new global electronic database identifying parties with a financial interest in civil aircraft, has made its system more user-friendly following processing delays after it came on line two months ago. The Dublin-based agency told EBACE Convention News that it has ramped up its operation to reduce a growing backlog in applications to register information.
The International Registry (IR) of Mobile Assets has been established under the Cape Town Convention, an agreement on financing and leasing of movable equipment–such as aircraft–that establishes an international legal framework for the enforcement of financial rights. Aviareto is a joint venture between SITA, the international aeronautical telecommunications and information technology group, and the Irish government. It has been contracted by the International Civil Aviation Organization to establish and operate the IR.
The registry is intended to clarify priority interests in such assets under the Cape Town Convention. The system does not replace national aircraft registration, which is also concerned with airworthiness approval. Rather, it supersedes any previously conflicting laws in transactions between parties in ratifying countries, so conflicts should be much more easily resolved, since the IR records sales and establishes priority of financial interest in assets.
The long awaited treaty, on which the convention is founded, helps to align private international law with global financing and leasing practices. This makes the rights established by contract and secured on aircraft more transparent and predictable. “The risk of lending can be better assessed allowing lenders to reduce [their current] interest rates,” says an Aviareto statement. “Interests in airframes, engines and helicopters involving transactions in Cape Town Treaty contracting states will be accessible electronically in one place. The registry will be a central vehicle in helping parties understand the extent to which they have legal rights in aircraft equipment, information vital to airlines, financiers, leasing companies, manufacturers and governments.”
By registering interests, involved parties obtain lien security in ratifying countries. Initially, more than 30 nations signed the convention, and nine (Ethiopia, Ireland, Malaysia, Nigeria, Oman, Pakistan, Panama, Senegal and the U.S.) had ratified it shortly thereafter. Aviareto said that after opening for business on March 1, it quickly received inquiries from more than 1,000 entities seeking authority to register aircraft interests. Unless unavailable for security or maintenance reasons, the registry may be searched by anyone, from any place, at any time.
A New York University study of the treaty’s potential economic benefits suggests that international registration could save airlines and governments some $10 billion over five years. The study predicted that many countries, in particular developing nations, will see an improvement in their sovereign ratings. The implications would be significant because it would potentially reduce perceived sovereign risk general debt servicing costs or release borrowing capacity for other purposes.
According to the U.S. Export-Import Bank, registration “results in greater predictability for financiers by significantly reducing the legal risks associated with cross-border, asset-backed aircraft financings.” Several factors contribute to the savings, including access to secured financing and lower international financing rates, and improvements in airline corporate debt ratings.
The treaty is the result of 12 years’ work aimed at avoiding lengthy and expensive legal battles that can occur because a lack of harmonized international legislation previously could make ownership uncertain, especially when aircraft were seized as collateral in third countries outside the domain of legitimately interested parties.
Registration covers certified airplanes with capacity for eight occupants (including crew) and more than 6,050 pounds of goods, or helicopters able to accommodate five people (including crew) and 990 pounds of goods. Engines of 550 hp or 1,750 pounds thrust also come under the provisions.
In ratifying countries, the treaty gives priority in any security claim to the first registrant of interest in an aircraft, engine or helicopter. This overcomes any need for legal recourse for an interested party should a second entity seek priority resolution of a claim on the same asset (whether or not the second party knows of prior interest). Although nominally voluntary, registration may be mandated by lenders, if priority of interest–a key feature of any financing–is to be ensured.
Not the least consideration in negotiating the treaty were the implications for aircraft manufacturers. “Lower risk for us justifies a 33-percent reduction in our exposure fee for airlines in countries that ratify and implement the treaty,” said Ex-Im Bank transport vice president Robert Morin. “The Cape Town Treaty is intended to expand the sources and increase the amount [and lower the cost] of financing available to airlines, enabling them to upgrade their fleets, thereby supporting jobs in the aerospace industry.” The Ex-Im Bank also extends preferential terms to aircraft lessors if they and the initial operating lessee are based in a ratifying country and make appropriate declarations under the Treaty.
Teething Troubles for New Register
Aviareto has “educated and worked with many hundreds of representatives from all aspects of the business aviation market,” according to operations director Martin Gaskill. Nevertheless, when the registry opened in March a significant number of U.S. entities involved in aircraft transactions complained about difficulties in using the system and the expense. Some of these companies acknowledged that the procedures and costs will ease over time. Aviareto denies that system charges are excessive. “The $100 registration and $35 search-session fees are, for most people, trivial relative to the tens and hundreds of thousands of dollars’ commission that the deals generate,” said Gaskill.
Initial U.S. reactions had included complaints of secrecy, despite the treaty’s lengthy gestation period that had included U.S. Congressional hearings and changes to federal aircraft-registration law following initial signature of the Convention in 2001, as well as the danger of fraud.
Aviareto said early feedback called for investment in new software and other improvements to reduce registration on-line time. For example, after complaints that registration procedures allowed only for single owners or lenders–an obvious concern for the fractional-ownership fraternity–Gaskill said a simple software change would accommodate, say, multiple debtors. “We have also educated many users on how to use a secure Web-based service,” said Gaskill.
An early suggestion was to raise weight and capacity thresholds to 100,000 pounds and 30 seats, a proposal probably aimed at exempting larger corporate aircraft, but this would also exclude almost all regional airliners. Representing Oklahoma (home to the Federal Aviation Administration’s registry and a number of related aircraft-transaction firms), Senator James Inhofe has been considering the introduction of exempting legislation.
Summarizing Aviareto’s response to initial criticism, Gaskill said the agency could not comment on internal U.S. government processes, but “we treat all users equally–whether they are members of the business aviation community or come from other segments of the market.”