Rationalising the Cape Town Convention & Aircraft Protocol's First-to-Register Rule and Its Exceptions in the Context of Aviation Finance

Abstract

For many, aircraft evoke a visceral thrill and sense of romance as they push the limits of human experience and transcend geographical boundaries on a regular basis. To aviation financiers however, the inherent internationality and mobility of aircraft equipment, i.e. airframes, aircraft engines and helicopters, present special challenges. This difficulty is exacerbated by the lack of uniformity across jurisdictions with regards to secured transactions law. Taking into account the high credit risk – the business of aircraft repossession is even said to carry mortal risk – creditors may refuse to lend or charge higher interest on loans.In an effort to “induce the assumption of risk and the release of funds” as well as reduce the cost of financing mobile equipment such as aircraft objects, the Governing Council of the International Institute for the Unification of Private Law (“UNIDROIT”) authorised the creation of a Study Group in 1992 to draft uniform rules on international aspects of security interests in mobile equipment. Over the years, the project developed into a comprehensive international convention accompanied by three protocols, each dealing with a particular category of equipment. The work concerning aircraft equipment was done with the active participation of the International Civil Aviation Organisation (“ICAO”), International Air Transport Association (“IATA”) and the Aviation Working Group (“AWG”) and culminated in the signing of the Convention on International Interests in Mobile Equipment (“Convention”) and the Protocol to the Convention on International Interests in Mobile Equipment on Matters Specific to Aircraft Equipment (“Aircraft Protocol”) in 2001. After receiving the requisite number of ratifications, both entered into force in 2006. The single and restricted objective of this paper is to rationalise and defend the Convention and Aircraft Protocol’s first-to-register rule despite its problems, which this author believes have been adequately considered by the drafters of the Convention and Aircraft Protocol and addressed by the exceptions to the rule.