September 2014 – Cape Town: A Global Treaty with an Advanced Information Base


Cape Town: A Global Treaty with an Advanced Information Base

FLO_aircraft financingIn less than 10 years, the Cape Town Convention, the global treaty on leasing and financing of commercial aircraft, has become the centrepiece of international aircraft trading. It is as well a driving force in attracting more capital to the aviation industry.

The Cape Town Convention came into effect in 2006. The treaty covers commercial mobile assets including aircraft, spacecraft and rail equipment. Its specific Aircraft Protocol has created a legal framework that expands the sources for aircraft financing and reduces costs by minimizing legal risks in the countries that have ratified the treaty.

The convention offers lenders confidence around their aircraft-secured investments by standardizing legal procedures for transactions involving movable property. This includes standards for registering sales contracts, security loans, leases and conditional sales contracts as well as various legal remedies to deal with defaults including repossession and the bankruptcy effects in particular jurisdictions.

According to Scott Scherer, Boeing Capital Corporation Vice President for Strategic Regulatory Policy the Cape Town Convention is among the most successful commercial law treaties ever and is fundamentally shaping how aircraft transactions are done around the world”.

The Cape Town Convention has got a lender risk reduction. In the treaty’s early days, the user benefits were more focussed on fee discounts available to buyers (in ratifying countries) who were using export credit agency (ECA) guaranties from the Export-Import Bank of the U.S., or from the value of having aircraft entered into the Ireland-based International Registry of Mobile Assets established under Cape Town to record international property interests in the covered aircraft equipment.

Today, the Cape Town Convention benefits include a fee discount established by the Organisation for Economic Cooperation and Development (OECD) in the new Aircraft Sector Understanding covering a number of ECAs for ratified countries fully complying with treaty implementation and appearing on the OECD’s eligible-nation list.

FLO_dollar_aircraftAccording to some players in the market the treaty is also the underpinning for the burgeoning arena of international capital markets transactions, which are expected to comprise a growing slice of aircraft funding.

Today, the most significant result from Cape Town Convention are real international capital markets deals, for example, the Emirates transaction mid-2012 and the Air Canada International, Enhanced Equipment Trust Certificate in 2013.

Air Canada’s efforts encouraged several global capital markets deals currently underway and spurred other carriers to think harder about support for Cape Town ratification in their home countries, if it hasn’t been done or finalized yet.

According to Scott Scherer the Cape Town Convention now covers over half the world’s aircraft transactions: “This strong base has allowed it to prove its merits and gives us confidence that its value to aircraft investors is significant and enduring. Cape Town’s benefits are not theoretical. It is a real, tangible process. We are at a tipping point and can see a critical mass. In 2014 one foresees a few international EETC deals. There will probably also be a bigger role for public debt capital markets transactions as a percentage of overall aircraft financing”.

The Cape Town Academic Project

Cape Town supporters have rallied behind it to create a new global platform from which Cape Town learnings and resources can be shared and studied.

Two major institutions, the law schools of Oxford University and the University of Washington, have launched a new website ( to benefit those looking to research Cape Town’s success as the number of ratifying countries continues to rise.

The new project contains a comprehensive database of the Convention, including its legislative history:

  • An annual conference dedicated to the Convention details and developments
  • An electric journal
  • And preparation of materials to enhance Cape Town’s understanding and teaching.

The site contains a searchable Cape Town database of primary and secondary materials on the treaty elements including their preparatory phase, implementation in national law and their subsequent administrative and judicial reporting, instructional materials and law and economics assessments materials.

Several prominent industry organisations, such as ICAO, the International Institute for the Unification of Private Law (UNIDROIT) and the International Society of Transport Aircraft Trading (ISTAT), are supporting the academic project.

The Cape Town Convention was designed to improve the industry’s performance. It provides more efficiency for aircraft owners in moving their aircraft between jurisdictions around the world, which is clearly beneficial.


For further information and comment, please contact Arthur Flieger (, +32 3 238 77 66)

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