CAPE TOWN CONVENTION AND AVIATION PROTOCOL

(article written march 2007)

COUNTDOWN TO MARCH 27TH, 2007 DEADLINE FOR SUBMISSION OF DECLARATION MY COUNTRIES WHO HAVE RATIFIED THE DOCUMENT


Before the diplomatic conference that was midwife by the United Nations agency that deals with private laws and convention (UNIDROIT) work had advanced on the basis of two separate instruments; that is a convention that would not be equipment specific and a separate protocol for each category covered by the convention.

These equipments are helicopters, airframes & aircraft engines, railway rolling stock and space spares. At some point, majority of the participants favored a stand alone convention for aircraft objects, railway rolling stock and space spares, which must have influenced the gathering of Friday 16 November,2001, at a diplomatic conference in Cape Town, South Africa, with no fewer than twenty countries participating, which is about a third of the countries in attendance, followed subsequently by two other countries who signed the convention on international interest in mobile equipment(the convention) and the protocol on matter specific to aircraft equipment(aircraft protocol).

At that conference there was a proposal to include UNIDROIT in the title as it was done with the convention on international factoring but for, the hesitation of the secretary general of UNIDROIT, who felt appreciation, should be shown for the superb organization of the South African Government. The convention formally, became known as CAPETOWN CONVENTION.

The Cape Town convention and aircraft protocol was negotiated over a five year period which has been signed by twenty six countries including Nigeria.

The convention and supporting protocol has six main objectives
• To ensure through relevant protocols the particular needs of the industry and sector concerned are met
• To have an electronic international register
• To give intending creditors greater confidence in the decision to grant credit
• To enhance credit rating of equipment receivables and reduce borrowing cost
• To provide for the creation of an international interest that will be recognized by contracting states
• Provide creditors with a range of basic default remedies and speedy interim relief provided there is an evidence of default

International interest in this instance; is a security interest in a uniquely identifiable object, for the aircraft, this identifier is a manufacturer’s name, serial number and the model. Once an international interest is filed by a creditor and searchable at the international registry, that creditor’s interest will have priority over all registered and unregistered interest.

The provisions reflect a balance between enhanced creditor rights that will help to reduce aircraft financing cost while improving debtors’ protections.

The Cape Town convention is also designed as a “multi-equipment” treaty. Different protocols will be added to the convention to facilitate specialized treatment for different forms of equipment financing, which is embedded in article 51 which prescribe a procedure for future protocols covering other types of equipment.

UNIDROIT as depository may create working groups to consider the feasibility of such protocols, prepare text for states, inter-governmental and other organizations and when a text is ripe for adoption it will go to the diplomatic conference.
Advantages of the convention to contracting states
• It is designed to overcome the problem of obtaining secure and readily enforceable rights in items of high value mobile equipment, which by their nature do not have a fixed location
• It reduce inhibitions to extension of finance, in respect of such categories of high value mobile equipment, particularly in developing countries
• It reduces the inconsistencies in legal and commercial recovery rules of different countries by setting clear and easily enforceable rights to financier
• Creates uniform international regime governing, taking security in high value mobile equipment based on creation of international interest. And establishing an electronic international registration system for the registration of such interest.
• Improves predictability as to the enforceability of security, title reservation and leasing rights of various aircrafts and aircraft parts.
• Provides confidences to lenders and institutional investors.
• It aids the conversion of illiquid loans to liquid securities.
• Improves safety and reduces environmental pollution and noise as airlines can upgrade their fleet to relatively new ones.
• To the manufacturers of aircrafts and spares it will increase sales.

The convention gives financiers rights, in a country that has ratified the convention and protocol. The rights includes, if there is a default-to deregister the aircraft, take possession, sell or grant a lease in the aircraft.

The extent and speed of these rights being exercised is a function of the declaration a country files in his instrument of ratification. This declaration has the remedies the state will recognize and implement. Note the greater the remedies a state chooses to recognize in its declaration the greater the benefits that will accrue to airlines in that state.

It is important to state here, that by the end of march,2007 the 1/3 reduction in exposure fee offered by the US EXIM BANK to airlines in countries where the convention and protocol has come into force will expire, with a proviso that benefiting countries must have appropriate declarations.

Nigeria being a signatory, has also ratified the convention, and domesticated it, as part of Nigeria laws which was passed into law by the national assembly in compliance with section 12 of the 1999 constitution.
It is also part of civil aviation act of 2006, the relevant authorities in Nigeria should look into the declarations filed in the ratification instrument which is to be deposited with UNIDROIT in Rome on Monday 26th,20007, which is barely 24hours to the deadline, so that Nigerian airlines can benefit from such facilities as exemplified by US EXIM BANK