According to official figures from the Maldives Civil Aircraft Registry(1) there are 95 registered aircraft in the Maldives, of which 58 are mortgaged (including operator owned and leased) and an additional 22 are leased. This indicates that 85% of the aircraft registered in the Maldives have third-party rights either as beneficial owners or lessors.
The Cape Town Convention on International Interests in Mobile Equipment and the Aircraft Equipment Protocol 2001 came into force on 1 April 2006. There are currently 79 contracting states to the convention. The convention created a unique international system with uniform rules to increase predictability and certainty for aviation asset-based financing. It also helps:
- to reduce the financial risk to creditors by enabling secure and enforceable rights in high-value mobile equipment, such as aircraft and aircraft engines; and
- with the enforceability and priority ranking of security rights whereby creditors are ensured default remedies.
The convention and protocol create international interests in aircraft and mobile equipment in favour of mortgagees and lessors of aircraft. The convention and protocol allow self-help remedies to mortgagees and lessors of aircrafts enabling successful de-registration and repossession of an aircraft in case of default. The convention has thereby created an international registry for registration, amendment, extension and discharge of international interests and other related rights.
The convention provides for any person, in the manner prescribed by the protocol to make or request an electronic search of the International Registry concerning interests or prospective international interests registered therein. This enables a transparent and speedier search for parties engaged or contemplating to engage in aircraft finance transactions.
Registrable interests under the convention include:
- ownership interests;
- international interests under lease agreements;
- prospective international interests;
- security interests; and
- associated rights, such as under an assignment.
For chargees and lessors of aircraft, the convention and protocol provide expeditious remedies in the event of default from mortgagors and lessees. Such remedies allow predetermined solutions to repossess and recover their aircraft. The convention and protocol also allow aircraft engines to be registered as mobile equipment, which is currently not covered under Maldives law.
Default remedies under the convention include the right to deregister the aircraft and to export and physically transfer the aircraft object from the territory in which it is situated.
If the Maldives ratifies the convention and the protocol, it is likely to have a direct, positive effect on airlines, passengers and the Maldives economy as a whole. As interests of lenders and lessors of aircrafts are registered under the International Registry and default remedies under the convention would be available for lenders and lessors, local airlines may be able to bargain for better financing rates. If borrowing costs reduce this would pave the way for the acquisition of new modern aircraft with less fuel consumption – ultimately enabling airlines to pass on the benefits to passengers in the form of reduced travel costs.
On or prior to the ratification of the convention and protocol, the Maldives could make certain declarations. There are three main declarations to be made under the convention.
These declarations would make certain provisions of the convention binding on the Maldives.
For instance, Article 39 of the convention provides for rights having priority without registration. A contracting state may at any time declare generally or specifically those categories of non-consensual rights or interests which under the state's law have priority over an interest that has been registered in the international registry whether in or outside insolvency proceedings. The term 'non-consensual' is defined in the convention as:
a right or interest conferred under the law of a Contracting State which has made a declaration under Article 39 to secure the performance of an obligation, including an obligation to a State, State entity or an intergovernmental or private organisation.
Under Article 40 of the convention, a state may list the categories of non-consensual right or interest which will be registrable under the convention as if the right or interest were an international interest and is to be regulated accordingly.
Under Article 60 of the convention, a state may declare applicability of the convention to pre-existing rights and interests while retaining the priority it enjoyed under the applicable law before the convention comes into effect in a state.
These declarations will prevent certain provisions of the convention from being binding on the Maldives.
Under Article 8, opt-out declarations may be made on remedies available to chargees and lessors with respect to extra-judicial remedies (eg, selling or granting a lease and collecting or receiving income from the aircraft) or in respect of a change of ownership to a chargee pursuant to Article 9(1).
Declarations may also be made on interim relief pending the final determination of a claim on matters, such as:
- preservation of the aircraft and its value;
- the possession, control or custody of the aircraft; and
- the lease and management of the aircraft's income pursuant to Article 13 of the convention.
Under Article 54(2) of the convention:
A Contracting State shall, at the time of ratification, acceptance, approval of, or accession to the Protocol, declare whether or not any remedy available to a creditor under any provision of the Convention which is not there expressed to require application to a court may be exercised only with leave of the court.
Even if the Maldives ratifies the Cape Town Convention it would not automatically lead to the treaty taking effect as national law; it would merely bind the state itself under international law. Under Article 93(a) of the Constitution of the Maldives, a treaty must be enacted by Parliament as national law and will be enforceable in accordance with such law.
Ratification of the Cape Town Convention and the protocol will benefit the Maldives' domestic aviation industry in several ways, including by financially benefitting airlines and increasing business.
This article was first published by the International Law Office, a premium online legal update service for major companies and law firms worldwide. Register for a free subscription.