Cape Town

1. Cape Town Treaty 2001 Presented By: SalmanAlmasri Salman Almasri / Queen Noor College - JO

2. Cape Town Treaty 2001 • The 2001 Convention on International Interests in Mobile Equipment and the associated Protocol to the Convention on International Interests in Mobile Equipment on Matters Specific to Aircraft Equipment (together known as the ‘Cape Town Treaty’) facilitate the financing of aircraft by: • providing creditors with an internationally recognized set of rights in the event of a debtor’s default or insolvency; and • allowing creditors to register their interests in an international register to guarantee the priority of their claim against other parties. Salman Almasri / Queen Noor College - JO

3. Background information • International investors in, or leasers of, mobile equipment such as aircraft have had to rely on differing national laws to protect their investments. • When there is a default by the debtor, recovery of the property sometimes requires protracted legal proceedings across more than one jurisdiction. • Consequently, financiers seek a premium on their lending as a hedge against the risks involved. Salman Almasri / Queen Noor College - JO

4. Background information • The Convention and the Aircraft Protocol are private legal agreements, supported by the International Institute for the Unification of Private Law and the International Civil Aviation Organization (ICAO). • They are intended to significantly improve financial security for investors from cross-border transactions in high-value mobile equipment, such as aircraft, rail rolling stock and space equipment. Salman Almasri / Queen Noor College - JO

5. Background information • The Convention enables creditors (financiers) to register international security interests and provides standard remedies in the event of default by the debtor. The Aircraft Protocol supplements and modifies the Convention to meet the particular requirements of aircraft financing. The Aircraft Protocol offers creditors additional remedies, including the ability to require removal of an aircraft from the national civil aircraft register and export it. Salman Almasri / Queen Noor College - JO

6. Background information • Consequently, organisations involved in aircraft financing will have more confidence in transactions, and the resulting reduction in risk will permit discounted finance costs. Debtors are in turn protected from unwarranted seizure of the assets by creditors, provided they have maintained their financial obligations. Salman Almasri / Queen Noor College - JO

7. Background information • Accession to the Convention and Aircraft Protocol supports an international system to protect commercial security interests in mobile aircraft equipment, and potentially enables aircraft operators to secure commercial advantages from savings in funding and transaction costs in future aircraft acquisitions.  Salman Almasri / Queen Noor College - JO

8. Background information • The Convention and Protocol, once fully implemented, will bring help to facilitate the modernization of airline fleets around the world. The economic benefits will be truly global. Less-developed countries and their airlines will be able to modernize their fleets through easier access to aircraft at reduced financing costs. The world’s skies will be safer and cleaner as newer aircraft replace those currently in use. And for countries that manufacture aircraft there will be increased exports as the number of aircraft orders increases. Salman Almasri / Queen Noor College - JO

9. Background information • The Cape Town Convention and Aircraft Protocol were negotiated over a five-year period under the auspices of UNIDROIT, the UN agency that deals with private law conventions, and ICAO, the International Civil Aviation Organization. • Its provisions reflect a balance between enhanced creditor rights that will help to reduce aircraft financing costs while improving debtor protections. • It was concluded in November 2001 at a Diplomatic Conference at Cape Town, South Africa, and has been signed by 26 states, including the United States, which signed just last month. To date, there have been no ratifications, although only three are needed for the Convention to become effective, with eight needed before the Aircraft Protocol can come into force. Salman Almasri / Queen Noor College - JO

10. Background information • The Convention is designed as a “multi-equipment” treaty. Different protocols will be added to the Convention to facilitate specialized treatment of different forms of equipment financing. The Convention can apply to any category of high-value mobile equipment through the adoption of an equipment-specific protocol. The only protocol adopted thus far is the Aircraft Protocol, which applies to airframes, aircraft engines, and helicopters above a minimum size or power threshold. Salman Almasri / Queen Noor College - JO

11. Background information • The mechanics of the Convention and Protocol center on a recognition of “international interests” in mobile equipment and the creation of an international registry in which creditors will file these interests. “International interests” are security interests in a uniquely identifiable object. In the case of an aircraft, this identifier is the manufacturer’s name, the serial number, and the model. Once an international interest has been filed by a creditor and becomes searchable at the international registry, that creditor’s interest will have priority over all subsequent registered interests and all unregistered interests. Salman Almasri / Queen Noor College - JO

12. Background information • The underlying premise of the Convention is simple. If you can reduce some of the risk that financiers incur in extending credit, you can reduce the financing costs to the debtor. In many countries of the world, the risk factor is significant because local laws either do not protect lenders in the event of default or bankruptcy or are highly unpredictable. With respect to aircraft, this uncertainty is compounded by the fact that because aircraft can and do move readily between countries – that, after all, is why we make them -- it is virtually impossible for a financier to know where the aircraft will be on the date of default or bankruptcy. It is this uncertainty that drives up the cost of aircraft financing, which is reflected in the interest rate the financier charges the debtor. Salman Almasri / Queen Noor College - JO

13. Background information • The Convention will reduce this uncertainty in a number of ways, and thus reduce financing costs. For example, it provides financiers with a number of key rights with respect to any aircraft financed in a country that has ratified this Convention and Protocol. These include the right, if there should be a default, to deregister the aircraft and procure its export; to take possession or control of the aircraft, or sell or grant a lease in the aircraft; and to collect or receive income or profits arising from the management or use of the aircraft. The extent of these rights and the speed with which they can be exercised will be a function of the declarations a country files at the time it deposits its instrument of ratification. These declarations set out which remedies that state will recognize and the means by which the remedies can be implemented. Very clearly, the greater the remedies a state chooses to recognize in its declarations, the greater the benefits its airlines will realize. Salman Almasri / Queen Noor College - JO

14. Background information • Creditor uncertainty will be further reduced by the operation of the international registry. That is because a search at the time of a financing will allow the creditor to be certain of the priority of his interest. The registry will be notice-based with only basic information included in the system. Because it is a notice-based system, it will be much less expensive to administer, and less prone to errors, than traditional document-based registration systems where the financing documents have to be reviewed and approved before filing. The Convention will allow creditors to file directly with the International Registry, by computer, from anywhere in the world. Salman Almasri / Queen Noor College - JO

15. Background information • The net effect of all these provisions, again, and by far the most important effect, will be to reduce creditors’ uncertainty, and thereby reduce the interest rate they must charge to adequately account for their risk. This will be particularly beneficial for developing economies because of the higher interest rates that their airlines often have to pay. For those countries that still finance aircraft acquisitions through the use of sovereign guarantees, a switch to asset-based financing would free up sovereign guarantees to be used for other national purposes. Salman Almasri / Queen Noor College - JO

16. Background information • ICAO will supervise the International Registry, and a Preparatory Commission, established by the diplomatic conference, will determine its initial Host State. The Host State is expected to fund the creation of the International Registry and users will pay sustaining user fees, which are expected to be low since the system is wholly electronic. The feasibility of the system has already been tested and validated. Salman Almasri / Queen Noor College - JO

17. Cape Town Convention • The 2001 Convention on International Interests in Mobile Equipment and the associated Protocol to the Convention on International Interests in Mobile Equipment on Matters Specific to Aircraft Equipment (together known as the ‘Cape Town Convention’) facilitate the financing of aircraft by: • providing creditors with an internationally recognized set of rights in the event of a debtor’s default or insolvency; and • allowing creditors to register their interests in an international register to guarantee the priority of their claim against other parties. Salman Almasri / Queen Noor College - JO

18. Cape Town Convention • The Cape Town Treaty which: • Recognizes the International Registry as an additional place for the filing of interests, including prospective interests, in certain airframes, helicopters, and aircraft engines. • Establishes the right for owners of these aircraft to grant an Irrevocable De-Registration and Export Request Authorization (IDERA) to a secured party. • Reduces from 750 to 550 rated take-off shaft horsepower the size threshold for aircraft engines eligible to be recorded as collateral in security instruments. • Establishes the Civil Aviation Registry as the Authorizing Entry Point. Salman Almasri / Queen Noor College - JO

19. U S A As adopted in the United States by The Cape Town Treaty Implementation Act of 2004 - August 9, 2004 • Aircraft and Aircraft Engines Eligible for International Registry Recording: • Airframes that are type certificated to transport: • At least eight (8) persons including crew; or • Goods in excess of 2750 kilograms (6050 pounds) • Helicopters that are type certificated to transport: • At least five (5) persons including crew; or • Goods in excess of 450 kilograms (990 pounds) • Jet propulsion aircraft engines with at least 1750 pounds of thrust or its equivalent. • Turbine-powered or Piston-powered aircraft engines with at least 550 rated take-off horsepower or its equivalent. Salman Almasri / Queen Noor College - JO

20. New Zealand • Acceded to the Convention on International Interests in Mobile Equipment (the Cape Town Convention) and the Protocol to the Convention on International Interests in Mobile Equipment on Matters Specific to Aircraft Equipment (the Aircraft Protocol). At the same time, New Zealand made 'declarations' specifying how aspects of the Convention and the Aircraft Protocol would apply, or not apply, when the two instruments came into force for New Zealand on 1 November 2010 Salman Almasri / Queen Noor College - JO

21. New Zealand • The Civil Aviation (Cape Town Convention and Other Matters) Amendment Act amended the Civil Aviation Act 1990 to: • give the Convention and Protocol the force of law in New Zealand, and to ensure these instruments prevail over any inconsistent domestic law • require the Director of Civil Aviation to de-register an aircraft when requested to do so by a creditor in accordance with new processes set out in the Aircraft Protocol. Salman Almasri / Queen Noor College - JO

22. Relationship between Contract Practices and the Treaty • Supporting Materials Countries may make a number of declarations under Cape Town. These are extremely important. AWG has produced a matrix of these declarations, which includes a listing of those declarations that reflect the requirements of international asset-based financing and leasing. Salman Almasri / Queen Noor College - JO

23. Relationship between Contract Practices and the Treaty • The Convention and Protocol, once fully implemented, will bring help to facilitate the modernization of airline fleets around the world. The economic benefits will be truly global. Less-developed countries and their airlines will be able to modernize their fleets through easier access to aircraft at reduced financing costs. The world’s skies will be safer and cleaner as newer aircraft replace those currently in use. And for countries that manufacture aircraft there will be increased exports as the number of aircraft orders increases. Salman Almasri / Queen Noor College - JO