Recognizing the importance of harmonized regulations, practices, and streamlined processes in the context of cross-border aircraft transactions, a new agreement between the International Civil Aviation Organization (ICAO) and the Aviation Working Group (AWG) will facilitate capacity-building initiatives for States, particularly in developing States, to further enhance safety and efficiency in these processes.
This work will focus on the critical areas of cross-border transferability of aircraft and compliance with the Convention on International Interests in Mobile Equipment and its Aircraft Protocol (the Cape Town Convention). It builds upon longstanding cooperation between the two organizations.
The agreement encompasses the development of comprehensive implementation support, through the deployment of workshops, training, and Implementation Packages (iPacks) relating to the cross-border aircraft transfer process.
The Cape Town Convention is an essential instrument in promoting asset-based financing and leasing in the aviation sector, contributing to reducing financing costs and increasing access to capital for airlines and aircraft operators worldwide. It does so through a rules-based system designed to provide greater legal certainty. To help realize these benefits, this collaboration includes educational work relating to the requirements to implement and comply with the Convention.
This new agreement reflects the two organizations’ joint commitment to supporting States in unlocking the sustainable development benefits of aviation by enhancing the efficiency of aircraft-backed financial transactions.
The Convention on International Interests in Mobile Equipment was concluded in Cape Town on 16 November 2001, as was the Protocol on Matters Specific to Aircraft Equipment. The Convention and the Protocol, adopted under the joint auspices of ICAO and UNIDROIT, shall be read and interpreted together as a single instrument (Article 6(1) of the Convention).
The primary aim of the Convention and the Protocol is to resolve the problem of obtaining certain and opposable rights to high-value aviation assets, namely airframes, aircraft engines and helicopters which, by their nature, have no fixed location. This problem arises primarily from the fact that legal systems have different approaches to securities, title retention agreements and lease agreements, which creates uncertainty for lending institutions regarding the efficacy of their rights. This hampers the provision of financing for such aviation assets and increases the borrowing cost.
Advantages of the Convention and the Protocol
Predictability & enforceability: By creating an international interest recognized in all of the Contracting States and establishing an international electronic interest registration system, the Convention and Protocol improve predictability concerning the opposability of the securities and the interest held by sellers of aviation assets. Indeed, it is estimated, based on World Bank data, that the mean worldwide contract enforcement delay is 10 months. The ratification of the Convention and the Protocol reduces this delay to two months.
Cost savings: The Convention and Protocol are intended to reduce risks for creditors, and consequently, the borrowing costs to debtors, through the resulting improved legal certainty. This promotes the granting of credit for the acquisition of more modern and thus more fuel-efficient aircraft. The airlines of States that adopt the Convention and the Protocol may receive a ten per cent (10%) discount on export credit premiums. For example, it was calculated that the adoption of the Convention would enable Australian airlines to save $330,000 on the purchase of a new ATR 72 and $2.5 million on the purchase of an Airbus A380.
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