Introduction
The Convention on International Interests in Mobile Equipment (pdf) was concluded in Cape Town on 16 November 2001, as was the Protocol on Matters Specific to Aircraft Equipment (pdf). 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.
As of 16 June 2016, there are 65 Parties to the Convention. A full list of signatory parties is available
here .
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 with respect to 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 (
Linetsky , 2009).
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 percent (10%) discount on export credit premiums. For example, it was calculated that the adoption of the Convention will 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 (cf.
Flightglobal).
