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The Goal and Structure of This Contribution

The goal of the present article is to investigate four noteworthy legal and practical issues that have played a major role in the worldwide aviation finance and lease practice. More specifically, it briefly[1] addresses the related provisions of the ‘Convention on International Interests in Mobile Equipment’ (Convention) and the ‘Protocol on Matters specific to Aircraft Equipment’ (Protocol) which were realised in Cape Town, South Africa in 2001. In practice, jointly the Convention and Protocol are called the Cape Town Convention. This contribution only discusses the following significant matters which each have a major impact on the international aviation finance and lease industry. It addresses the secured interests of the operator-lessees, the effect of non-consensual interests, the impact of choice of law clauses in agreements and the alleged application of the doctrine of accession to engines. These subjects are all covered by the Cape Town Convention. The present article only considers these four topics as space restraints make it impossible to review the entire regime of this treaty. The general intent of the Cape Town Convention is to

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facilitate the international financing and leasing of aircraft, aircraft engines and helicopters.[2] For this purpose, jointly the Convention and Protocol provide for a solid legal regime protecting the substantial interest of the financiers, lessors and operators of aircraft. It makes the purchase and use of aircraft objects more available and affordable.[3] It is emphasised that only the Cape Town Convention provides for the long-needed aviation-specific international uniform regime covering substantive property law. Nevertheless, some lawyers[4] have proposed that also the ‘Convention on the international recognition of rights in aircraft’ (Geneva Convention, 1948) has established an international substantive property law regime. Their view is erroneous as this instrument is merely a conflict of laws (private international law) treaty which requires that its Contracting States recognize certain rights in aircraft. This matter is further discussed in Sect. 21.6, below.

This contribution is structured as follows. In Sect. 21.3, the existing national secured interests of the lessees (operator-lessees) of aircraft are discussed. For example, in the United States, the Kingdom of the Netherlands and other countries the local airlines can obtain these greatly valued secured rights. This publication argues that also at the global level an operator-lessee needs adequate protection of its financial interests in the event that the lessor defaults or becomes insolvent. In addition, it explains that the national secured interests of operator-lessees fall under the sphere of application of the Cape Town Convention. Sect. 21.4 addresses the major problem of the non-consensual rights that can be established in aircraft. Where certain requirements are met, under the regime of the Cape Town Convention the holders of national liens may be protected. For example, in the United States, United Kingdom, India, Ireland and Malta these third-party rights have priority over the registered international interests of the financiers, lessors and operator-lessees. Anecdotal evidence shows that not all the (large) stakeholders of the aviation finance and lease industry are aware of this important fact which may have a negative impact on their own interests. The popularity and legal effects of choosing the applicable law in aviation finance and lease agreements are reviewed in Sect. 21.5. For example, repeatedly it is contended that New York law and English law offer the most predominant and valuable form of security in aircraft finance transactions. The present publication submits, however, that worldwide many lawyers (purposefully) ignore the fundamental legal concept that any choice of law clause in a contract has a very limited effect. This view is endorsed by the Cape Town Convention. In Sect. 21.6 the grave consequences of the alleged application of the doctrine of accession to aircraft engines finance and lease transactions are investigated. This theory implies that the owner of the airframe becomes the owner of the engine as soon as the latter object is attached to the former. The Cape Town Convention dictates that engines are financed and leased separately from the airframe. Finally, Sect. 21.7 provides some concluding remarks.

  • [1] Due to the scope of this book, in this contribution the five topics can only be discussed summarily. For more extensive publications concerning the intent, need and effects of the Cape TownConvention, see the Introduction and country-specific chapters of this book, as well as the relatedearlier publications. See for example B.P. Honnebier, The Convention on International Interests inMobile Equipment and the Aircraft Equipment Protocol Encourage European Property LawReform, Edinburgh Law Review (ELR), 2004-1, p. 115; The fully-Computerized InternationalRegistry for Security Interests in aircraft and Aircraft Protocol that will be effective toward thebeginning of 2006, Journal of Air Law and Commerce (JALC), 2006-1, p. 63. See also the SpecialIssue concerning the Cape Town Convention and the three different Protocols thereto, ERPL,2004-1.
  • [2] R.M. Goode, The Official Commentary on the Convention on International interests in MobileEquipment and Protocol Thereto on Matters Specific to Aircraft Equipment, 2013; B.P. Honnebier,Review of the Official Commentary, International and Comparative Law Quarterly, 2005-1,p. 268; ASL, 2003-6, p. 334. For the text of the Convention and Protocol in several languages seewww.unidroit.org
  • [3] For the tremendous financial impact of the Cape Town Convention see for example V. Linetsky,Economic benefits of the Cape Town Treaty, 18 October 2009; A. Saunders and I. Walter, Theproposed Convention: an economic impact assessment, 1988.
  • [4] See for erroneous interpretations of the regime of the Geneva Convention B.J.H. Crans, HowMany Engines on a Boeing 737, Air & Space Law (ASL), 2013-3, p. 229; M.L. Jakobsen andL.B. Gabelgaard, The Aircraft Engine Dispute in Denmark, ASL 2014-3, p. 214.
 
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