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Published by Enhelion, 2020-07-28 08:57:01

Module_6

Module_6

MODULE 6
AIRCRAFT FINANCING

CAPE TOWN CONVENTION AND ITS PROTOCOL

v Introduction

Ø Cape Town Convention on International Interests in Mobile Equipment
On November 16, 2001, members of 68 states and 14 international organizations from around
the globe attended the diplomatic conference and out of them 53 states firmly braced the
validation and acceptance of the Convention on International Interests in Mobile
Equipment (the “Convention”) by signing it at Cape Town, South Africa.1 The Convention
became effective from April 1, 2004. 2 As on July 27, 2020, there are 81 parties to the
Convention.3

Ø The Convention had four protocols out of which Aircraft Protocol is dealing with Aircraft
Financing.

v Objective of the Convention

Ø The objective of having such a convention was simple: there is a need to have and use
mobile equipment of high value and for the same, countries across the globe need
financial help and assistance. Further the countries participating in the diplomatic
conference at Cape Town felt that the above mentioned needs and wants have to be
universally recognised and protected.

Ø The fundamental aim of the Convention was to harmonize the private laws in respect to lease,
sale and finance of the concerned mobile equipment’s (aircraft objects4). The Convention
positioned to bring confidence among the parties (particularly lessors) associated to such

1 Convention on International Interests in Mobile Equipment (Cape Town, 2001) – Status,
<http://www.unidroit.org/status-2001capetown> accessed on 10 July 2020.
2 Ministry of Civil Aviation (MOCA), Government of India, (Notification: AV.11012/1/2014-A (Vol I)),
https://www.civilaviation.gov.in/sites/default/files/Cape%20Town.pdf.
3 UNIDROIT, Convention on International Interests in Mobile Equipment, https://www.unidroit.org/status-
2001capetown.
4 Article I(2)(l) of the Protocol.

1

interests. The countries attending the diplomatic conference at Cape Town recognized
that such a need can be satisfied by leasing as well as assisting each other financially
based on one’s assets. Further, a uniform set of rules need to be framed to avoid any
sort of ambiguity and by this provide mutual benefits to all.

Ø The intention behind this Convention was simple: to systematize transactions in
movable property on an international scale. In short, the aim of this Convention is to
reduce the cost of raising finance for large, high value mobile assets which routinely
cross borders.

Ø These objectives mentioned above have been very clearly enshrined in the Preamble of
the Convention. 5

v Outcome of the Convention

Ø The main outcome of this Convention is that an internationally accepted form for
registration of contracts of sale, security interests, leases, conditional sales contracts
etc. has been established. Also a standardized form of legal remedy for any default i.e.
any breach in such financial contracts has been recognized.6

Ø Precisely, the Convention and the Protocol has five fundamental objectives which as follows:

a. creation of international interest in an aircraft object 7 (airframes, aircraft engines &
helicopters) which shall be duly recognized in all the Contracting States;8

b. providing creditor range of remedies and system for obtaining speedy interim relief on the
pending final claim;9

c. establishment of an electronic international register for the registration of the international
interests for serving notice to third parties and channelize the order of priority of such interests;10

d. ensuring the specific needs of the industry by researching if it is met by various protocols or

5 Convention on International Interests in Mobile Equipment, http://www.unidroit.org/instruments/security-
interests/cape-town-convention
6 The International Interests in Aircraft Equipment (Cape Town Convention) Regulations, 2015
https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/409074/bis-15-53-international-
interests-aircraft-equipment-cape-town-convention-regulations-2015-draft-guidance.pdf
7 Article 1(2)(c) of the Protocol.
8 Article 2 of the Convention.
9 Chapter III of the Convention and Chapter II of the Convention.
10 Chapter IV and Chapter VIII of the Convention.

2

not; and
e. providing confidence to prospective creditors in relation to extending credit limits to

borrowers.11

v Ratification/accession process

Ø Countries are to complete accession process to the Convention by submitting a series
of declarations to UNIDROIT, the depository for this Convention, also known as the
International Institute for the Unification of Private Law, an intergovernmental
organization trying to bring about standardization in private international law by
drafting international conventions and model laws.12

v Nature of the Convention

Ø This Convention is a Private International Law treaty.13

Ø Private International Law is the legal framework composed of Conventions, Protocols,
model laws, legal guides, uniform documents, case law, practice and customs which
regulate relationships between individuals in an international context.

Ø Since the Convention is Private International Law treaty, the Regulations only affect
private law and public law (law between sovereign nation states in the context of war,
peace, security and protection of territories) is unaffected unless expressly stated
otherwise. 14

v Developments

11 ICAO Legal Seminar at Nairobi Kenya, Overview & Status of Ratification- cape town Convention & Aircraft
Protocol (2001), November, 27, 2017.
12 History and Overview, http://www.unidroit.org/about-unidroit/overview
13 Supra note 6
14 Ibid.

3

The As of now, the Convention contains four protocols which are specific to four types of mobile
equipment’s which as follows:

a. Aircraft Equipment ( signed in 2001, also known as the “Aircraft Protocol” or the “Protocol”)
b. Railways Rolling Stock (duly signed in 2007)15
c. Space Assets (duly signed in 2012)16
d. Mining, Agricultural and Construction Equipment (signed in 2019)17

AIRCRAFT PROTOCOL

v Introduction

Ø The Protocol to the Convention on International Interests in Mobile Equipment
on matters specific to aircraft equipment or the Aircraft Protocol (hereinafter
referred to as ‘the Protocol’) was signed immediately along with the Convention i.e. in
the year 200118 and as the name suggests this Protocol is specific to matters related to
aircraft equipment.

Ø At present 78 countries have ratified to this Protocol.19

Ø Accession process to this Protocol is similar to the process laid down in the Convention.

Ø This Protocol was drafted in compliance with the International Civil Aviation, signed
in the year 1994 at Chicago which deals with coordinating and regulating international
air travel.20

15 The rail protocol is being coordinated by UNIDROIT with the close cooperation of OTIF, 41 member State
(mainly European) Intergovernmental Organization for International Carriage by Rail, headquartered in Berne.
16 The space protocol is being developed by UNIDROIT with the cooperation of the U.N. committee on peaceful
uses of outer space.
17 On November 22, 2019, this protocol was introduced to the Convention, adopted in Pretoria, South Africa. See
https://www.unidroit.org/570-instruments/security-interests/cape-town-convention-mac-protocol-2019/2717-
protocol-to-the-convention-on-international-interests-in-mobile-equipment-on-matters-specific-to-mac-procotol-
test-pretoria-november-2019.
18 Protocol to the Convention on International Interests in Mobile Equipment on Matters Specific to Aircraft
Equipment, http://www.unidroit.org/instruments/security-interests/aircraft-protocol
19 Protocol To The Convention On International Interests In Mobile Equipment On Matters Specific To Aircraft
Equipment - Status, http://www.unidroit.org/status-2001capetown-aircraft
20 History, http://www.icao.int/secretariat/TechnicalCooperation/Pages/history.aspx

4

v Compliance process

Ø A contracting state is said to have complied with the Protocol when the following two
steps take place:
§ When the state takes full steps to ensure that the Protocol has the force of a national
law with priority over any conflicting law i.e. an effective implementation of the
Protocol should take place.
§ When the terms of the Protocol have been applied fully and accurately to all actions
and also to disputes within its ambit be it administratively or judicially.

Thus, in short the Protocol is fully accepted by a contracting state when it is made a law
in the country and is implemented in totality.21

v Protocol’s goal

Ø The Protocol’s main goal is to stabilise the rights and interests of lenders and lessors
(rank of party in matters of lease, the person who lets a property to another - lessee) in
aircraft equipment. Aircraft equipment includes aircraft, aircraft engines and airframes
(the body of an aircraft distinct from its engine) etc.22

Ø Prior to the Protocol, international financers in aircraft equipment had to rely on
differing national laws to protect their interests. In case of default by the
debtor/borrower, the process involved in getting the aircraft or the monetary fund’s
back was tedious as a long-drawn-out legal proceeding in various countries was ahead
of them.23

Ø So, to overcome this problem, the Convention along with the Protocol provide for an
internationally accepted set of rights to the creditors in case of any default i.e. non-
payment or insolvency of the debtor and an international register has been set up
which allows creditors to register their interest thus guaranteeing them a priority of their

21 Compliance with the Cape Town Convention, http://www.awg.aero/projects/capetownconvention/
22 Cape Town Convention – Protocol Specific to Aircraft Equipment,
https://www.caa.govt.nz/aircraft/Cape_Town_Convention.htm
23 Cape Town Convention and Aircraft Protocol,
http://www.transport.govt.nz/air/capetownconventionandaircraftprotocol/

5

claim against non-registered parties or other parties. This Protocol also has the ability
to remove an aircraft from a particular national civil aircraft register and export it.24

v Scope of the Convention

Ø The Convention’s application is limited to airframes, aircraft engines and helicopters
which together forms the definition of “aircraft objects”.25 The aircraft objects are
described as follows:

a) “airframes” that are type-certified to transport at least eight (8) persons including crew or
goods in excess of 2,750 kilograms;26

b) “aircraft engines” having at least 1,750 pounds of thrust if jet propulsion powered or at least
550 rated take-off shaft horsepower if turbine-powered or piston-powered;27

c) “helicopters” that are type certified to transport at least five (5) persons including crew or
goods in excess of 450 kilograms.28

v Role of IDERA

Ø The Protocol reduces creditor’s risks. This is due to the following reasons:
§ They can register themselves in an international register of the International
Registry as mentioned above.
§ The international registry provides for registration of Irrevocable De - registration
and Export Request Authorization (IDERA).
§ This is a creditor’s standard remedy in case of default by the borrower/debtor, it
allows for deregistration of aircrafts and export of the same in the event of debtor
default or insolvency.29

24 Ibid.
25 Article I (2) (c) and II (1) of the Protocol.
26 Article I (2) (e) of the Protocol.
27 Article I (2) (b) of the Protocol.
28 Article I (2) (l) of the Protocol.
29 Supra note 23.

6

Ø Due to the IDERA, the creditors/financial institutions are willing to reduce their lending
charges as this Protocol offers enhanced creditor security.30 IDERA is maintained with
each country’s civil aviation authority, for example, the Civil Aviation Authority of
New Zealand, the UK Civil Aviation Authority (the CAA) and Directorate General of
Civil Aviation (DGCA) of India etc.

Ø As mentioned, a creditor is to register himself in the IDERA, he is to fill the relevant
forms completely and correctly and submit it to his country’s airways authority, and the
same will be recorded and acknowledged by the IDERA within five business days.31

Ø Thus, IDERA is a right that a creditor has and that which can be enforced against the
defaulter but only a registered creditor or his certified designee, a person assigned by
the creditor can enforce the IDERA. The creditor or his certified designee are called the
‘authorized party’.32

v Deregistration

Ø A process to revoke the registration is also laid down: a deregistration form by the
creditor will be sent to the IDERA, the relevant steps are taken and once deregistered,
a confirmation letter will be sent to the submitter.33

Ø When a creditor registers himself at the IDERA, the relevant aircraft or airframe is
registered too and the possession of the relevant equipment is delivered to the borrower,
similarly when he deregisters himself, the relevant equipment is de-registered and the
possession of the aircraft changes.34

v Benefits of IDERA

30 Ibid.
31 Supra note 22.
32 Ibid.
33 Ibid.
34 Ibid.

7

Ø Due to the concept of IDERA, airline companies of all sizes will be able to access
cheaper finance when purchasing aircrafts, jet engines or helicopters. Second hand
aircrafts can be purchased via discounted financing by small and regional airline
companies thus allowing them to upgrade and maintain their fleet.

v Debtor’s/ borrower’s perspective

Ø This Protocol not only protects creditors but also protects debtors; the debtors that have
maintained their financial obligations towards the creditors are protected from
unwanted seizures of their assets by the creditors.35

Ø The debtors are also making savings due to low purchase price offered by the creditors
due to the protection this Protocol offers them.

v International Registry of Mobile Assets

Ø Apart from the IDERA, an International Registry of Mobile Assets exists. This is an
electronic registry which operates under the legal framework of the Convention and the
Protocol. The interest in an asset is registered with them. The main function of this
registry is:

§ Registering an interest in aircraft asset
§ Searching against an aircraft asset to determine what registrations have been made

and their relative priority.36

v Work of AWG

Ø As per the Aviation Working Group (AWG), a non-profit legal entity comprised of
major aviation manufactures, leasing companies and financial institutions that
contribute to the development of policies, laws and regulations that facilitate advanced
international aviation financing and leasing; the Convention and Protocol have great

35 Supra note 23.
36 International Registry of Mobile Assets, https://www.internationalregistry.aero/ir-web/

8

economic benefits as per the survey that they carried out in the year 2009 and
encouraged states that have not ratified to the Convention and Protocol to join the same
to enjoy its benefits.37

Ø Some of the countries that have ratified to this Protocol are Australia, New Zealand etc.

v India and the Aircraft Protocol

Ø India has ratified to this Convention and Protocol in 2008, but has not passed any
legislation to give the provisions of the Convention and the Protocol any effect,
provided that the DGCA has made certain amendment in the Aircraft Rules, 1937.38

Ø Article 73 of the Indian Constitution empowers the Indian Parliament to make laws
with respect to treaties. Also, the Supreme Court of India in the case of Gramophone
Company vs. Birendra Pandey (AIR 1994 SC 667) said that “The comity of Nations
(an association of nations that come together for their mutual benefits) requires that
Rules of international law may be accommodated in the Municipal Law even without
express legislative sanction provided they do not run into conflict with Acts of
Parliament.” So, a convention or a protocol can have effect in India with no law being
drafted to implement them, however if they are against the local laws i.e. the law of
India than the local laws will be followed over the convention and protocol.39

Ø This has led to a lot of controversy and confusion regarding the implementation of the
Convention and the Protocol as there is no hard and fast rule laid down.

Ø The loopholes in India’s legal system in relation to implementation of an international
Convention and Protocol came into light during the Kingfisher Airlines controversy in
2012-13.

37 Economic Assessment of the Cape Town Convention, http://www.awg.aero/projects/capetownconvention/
38 CTC Issues in India, Ajay Kumar, 14th November 2013,
http://www.capetowntreatyforum.com/capetowndubai/presentations/(11)%20International%20Experince%20in
%20India%20-%20Ajay%20Kumar%20Rajinder%20Narain%20and%20Co.pdf
39 Ibid.

9

Ø Kingfisher Airlines in the year 2012 ceased operations. The Convention or the Protocol
could not protect the interests of the creditors and the lessors since no law in its relation
has been made. Further, the courts delayed response to the plea of the creditors and
lessors to deregister and repossess the aircrafts held by the Airlines harmed them
more.40 Since the uniform system established by the Protocol to protect the interests of
the creditors and lessors was not implemented, they were at the mercy of our local laws
and due to this they suffered great losses.

Ø The Kingfisher controversy has not only harmed the creditors but also has harmed
India. The market for aircraft leasing and financing has been greatly affected as the
creditors are not protected and they are forever vulnerable.41

v Efforts to implement the Convention and the Protocol
Ø Releasing that having no local law to give effect to the Protocol is harming India’s
interest, efforts are being made to implement the same.
Ø The AWG along with Federation of Indian Airlines (FIA) and many law firms of the
country have made written representations to the Directorate General of Civil Aviation
(DGCA), India’s civil aviation authority, and the Ministry of Civil Aviation (MoCA).
The representations suggested the amending of India’s Aircraft Rules, 1937 along with
the Civil Aviation Requirements (CARs) to implement the Protocol. Also, a legislation
should be drafted which states that the provisions of the Protocol and Convention will
prevail if there is a conflict with any local laws.42
Ø Also, India has hired a European Consultant to frame rules that will make it easier for
international financing companies to repossess planes in case of any default from the
borrower. This move will instil confidence to creditors to invest in India and also help
airline companies to borrow at low lease charges, prior to such a move finance

40 Aircraft Deregistration and Repossession in India: Lessons from Kingfisher and SpiceJet, May 21 2015,
https://www.kattenlaw.com/Aircraft_Deregistration_and_Repossession_in_India_Lessons_from_Kingfisher_an
d_SpiceJet
41 Ibid.
42 Ibid.

10

companies and lenders levied high lease charges since they found it difficult to recover
their planes.43
Ø The courts in India are also realizing the importance of this Protocol and have given a
judgment in this relation in the SpiceJet Decision in 2015. The Delhi High Court gave
a substantive decision, analysing and applying the Convention and the Protocol. The
decision endorsed the Protocol and its provisions. The SpiceJet Decision stands for the
proposition that the DGCA must de-register an aircraft, without a court order and
whether or not a government lien exists or is asserted, where an IDERA under the
Convention has been properly submitted by a creditor. Neither administrative discretion
nor reference to a general public interest may be invoked to prevent such mandatory
de-registration. This decision was passed after a careful reading of the Convention and
India’s declaration under it and more importantly the Indian Constitution which
requires respect for international law and treaty obligations. Citing the Vienna
Convention on the Law of Treaties, the authoritative text on international treaty law,
the High Court reasoned that India may not cite its internal law as a justification for
failing to perform its obligations under the Convention.44

The Cape Town Convention Bill, 2018.

Acknowledging the conflicting provisions in law and interest of stakeholders, the Ministry Civil of
Aviation (hereinafter referred to as “MOCA”) introduced the Cape Town Convention Bill, 2018
(hereinafter referred to as “Bill”) on October 8, 2018.

The Bill is yet to be cleared by both the houses of the parliament, following which lastly, receive the
assent of the President.45 The MOCA has put out the draft of the Bill for public consultation. Once
implemented, the law will surely provide a fresh lease of life to airlines who have been struggling to
survive, and to aircraft leasing companies who have been struggling in their operations. Since the Bill

43 India to frame rules on aircraft repossession by leasing companies, Tarun Shukla, 17th April 2013,
http://www.livemint.com/Politics/hLE3Dq42E78pKTXUGtjQ1L/India-to-frame-rules-on-aircraft-repossession-
by-leasing-com.html
44 Release related to Major Indian Court Decision applying the Cape Town Convention,
http://www.awg.aero/assets/docs/India%20Summary%20of%20AWAS-BOCA.pdf
45 Sarin & Co., Indian Introduces the Cape Town Convention Bill, 2018, https://sarinlaw.com/india-introduces-
the-cape-town-convention-bill-2018/.

11

came in 2018, it has been 2 years to its introduction and it is yet difficult to wonder how many more
years it may take to finally come out as an Act and actually serve its purpose.

v Conclusion

Ø Thus, we can conclude that the intention behind the Convention and the Protocol are
good and successful implementation of the same in various countries and its benefits
are plentiful.

Ø And in my opinion India should and is taking necessary steps to implement the same to
reap the benefits offered by the Convention and the Protocol.

FINANCING OF AIRCRAFT ENGINE

v Introduction

Ø International equipment leasing has emerged as an important means of economic
development in the global marketplace, particularly where capital intensive acquisitions
such as aircraft, ships, or machinery are involved.46 Due to various conventions, having
an exclusive protocol for aircraft equipment, the aviation finance market is changing,
just like the rest of the world economy. It is becoming more highly regulated and more
international.

Ø Today, when the term aircraft financing is used not just the buying of a new aircraft is
included, the parts of an aircraft, the upgradation processes etc. are also included. It is
for this reason that many aircraft financing companies provide loans for all things
related to aircraft.47

46 Financial Leasing Under the UNIDROIT Convention and the Uniform Commercial Code: A Comparative
Analysis, David A. Levy
47 Financing is Not Just for Aircraft Purchases,
http://finance.aopa.org/Resources/Articles/2015/September/Financing-Is-Not-Just-for-Aircraft-Purchases

12

Ø One such part of an aircraft for which financial help is sought is an aircraft engine.

v Aircraft Engines

Ø Before we look into financing of an aircraft engine, let’s see what an aircraft engine is:
An aircraft engine is the component of the air propulsion system (a means of creating
force leading to movement) for an aircraft that generates mechanical power.48 They are
usually light weight. And we all know that the movement of an aircraft is caused due
to its engine. So it is highly important that a proper, functioning and a good condition
engine is required.

Ø The engine of an aircraft is considered the most expensive part and the price starts at
about $35,000.49 So it is for this reason that not just financial transactions in matters of
aircrafts have increased, but have increased even in relation to aircraft engines.

Ø It has become increasingly important in facilitating cross-border aircraft and engine
finance and leasing transactions 50 and international bodies are working towards
achieving this goal.

Ø For obtaining financial help in all aspects, a typical procedure is followed i.e.
submitting financial information along with tax returns, the purpose of the financial
help, and approximate money along with some sort of security. This process is
applicable to aircraft engines too.51

v Aircraft engine financing

48 Supra note 18.
49 Why are airplanes so expensive?, http://www.get-aviation.com/blog/aviation-thoughts/why-are-airplanes-so-
expensive
50 The Cape Town Convention – key issues for aircraft investors,
http://www.myairlease.com/resources/article_blake_lapthorn_cape_town_treaty.pdf
51 Supra note 47.

13

Ø In modern times, people prefer leasing rather than taking a loan as it is cheaper,
comparatively less complicated procedure wise

Ø This rule applies to aircraft engine financing too. Airlines are preferring leasing of
aircrafts and its equipment over obtaining a loan and purchasing the same, as it is
economically more beneficial.

Ø Regulations in aircraft financing

§ When it comes to a law or a set of rules being followed in financing of aircraft
engines the Cape Town Convention along with the Aircraft Protocol are
followed. 52

§ But prior to the Convention and the Protocol, another convention in the matters of
financial leasing existed: Convention on International Financial Leasing, this
convention was signed in Ottawa in the year 1988. This convention on financial
leasing was a result of a diplomatic conference held amongst 58 states and other
intergovernmental organizations. 53 The Convention and the Protocol have
superseded the convention on financial leasing but the procedures involved are still
similar.54

v Procedure for aircraft financing

Ø As per the Financial Leasing Convention, a lease agreement involves three parties: a
lessor, a lessee and a supplier. The lessor advances the funds for the purchase of the
equipment to the supplier who sells him the equipment and the lessee who will pay rent
to the lessor to use the equipment. The lessee beforehand itself gives the lessor
equipment specifications based on which a supplier is selected. The lessor, as stated
based on the equipment specifications chooses a supplier and enters into a “supply
agreement” to obtain the equipment from the supplier and as stated the lessee pays rent
to the lessor to use such equipment.55

52 Supra note 3.
53 UNIDROIT Convention on International Financial Leasing, http://www.unidroit.org/leasing-ol/leasing-english
54 Supra note 3.
55 Ibid.

14

Ø As stated above, this is the latest trend being followed, one reason is it being
economically cheaper, the other is the hassle of getting the equipment is not on the user
i.e. the lessee, and all he has to do is pay for the equipment.

Ø Three criteria has been laid down that need to be followed for the convention on
Financial Leasing to apply to any situtation:

§ The lessee must specify the equipment and select the supplier without relying
primarily on the skill and judgment of the lessor.

§ The lessor must acquire the equipment in connection with the leasing agreement,
and the supplier must know that the leasing agreement has been, or will be, entered
into between the lessor and the lessee.

§ Rentals under the leasing agreement must “take into account in particular the
repayment of the whole or a substantial part of the equipment.”56

Ø This convention has been drawn in such a manner, so as to accommodate the lessor and
the lessee, even if they belong to two different contacting states. The supplier, the third
essential party to the international financial lease, may have its place of business in the
same Contracting State as the lessor or the lessee, or in a third-party State, provided
that both the supply and leasing agreements are governed by the law of a Contracting
State, either through affirmative choice of law, or by virtue of conflicts rules. There is
also a provision to exclude the entire Convention in total if all the three parties have
agreed to do so.57

Ø The one major change that has been made from the Leasing Convention to the Cape
Town Convention is that when an aircraft object such as an engine is the subject matter
of any transaction whatsoever, then a description that contains its manufacturer’s serial
number, the name of the manufacturer and its model designation are to be specified.58

56 Ibid.
57 Ibid.
58 Supra note 18.

15

v Conclusion

Ø These conventions clearly show how something as minute as aircraft engine and its
financing in such a huge transactional world matter and rules to regulate the same are
needed.

RIGHTS IN AN AIRCRAFT

v Introduction

Ø A right is moral or legal entitlement to have or do something also right means to do the
morally correct, just or honourable thing.59 It is probably for this reason that every
country has a set of fundamental rights guaranteed to its citizens and people alike:
giving people the freedom to do what they want to do, with restrictions because the
government feels it’s the right thing to do. A person has the right to live, speak, vote,
religion etc. no matter where he goes, they have rights on various subject matters.

Ø In terms of airplanes and aircrafts, rights exist. People related to airplanes and its
concerned transactions have rights.

v Aircraft related rights

Ø The International Civil Aviation Conference held at Chicago in 1944, where the
participating countries recommended an early adoption of a convention that deals with
the protection of rights in aircraft must take place in order to protect the interests of
international civil aviation and in the process give such rights an universal acceptation
and recognition.60

59 http://www.macmillandictionary.com/dictionary/british/right_3
60 Convention on the International Recognition of Rights in Aircraft,
http://www.mcgill.ca/files/iasl/geneva1948.pdf

16

Ø And it is for this reason that a convention on this subject matter was drafted. The
contracting states via its accession to the Convention on the International
Recognition of Rights in Aircraft (hereinafter called the Geneva Convention) have
recognised various rights. The diplomatic conference that led to the passing of this
convention was held in Geneva in the year 1948; however it came into effect only in
the year 1953. At present there are over 91 countries that have ratified to this
convention. 61

v Objective of the Geneva Convention

Ø Before going into the details of the Geneva Convention, let us in short take look at the
objective behind having such a convention:

§ Protect interest of international civil aviation, as enshrined in the Preamble of the
Geneva Convention

§ The protection of secured creditors (banks) who lend money on the security of
aircraft (through the standard form of a mortgage).

§ The protection of third parties dealing in or with aircraft against hidden charges.
§ The definition and protection of privileged and priority claims against aircraft.
§ The facilitation of the transfer of aircraft from one nationality to another.
§ Another object of the convention is to safeguard the creditors holding rights in rem

i.e. property rights enforceable against the whole world.62

v Advantages of the Geneva Convention

Ø The Geneva Convention deals with the international recognition of rights in aircraft and
is designed to secure recognition on an international basis of property and other rights

61 Convention on the International Recognition of Rights in Aircraft,
http://www.icao.int/secretariat/legal/List%20of%20Parties/Geneva_EN.pdf
62 A) Supra note 60;

B) Administrative Package For Ratification of or Adherence to The Convention on the International Recognition
of Rights in Aircraft, http://www.icao.int/secretariat/legal/Administrative%20Packages/geneva_en.pdf
C) The Legal Status of Aircraft, Jan Piet Honig

17

in aircraft so that when an aircraft crosses a frontier, the interests of holders of such
rights will still be protected.63

Ø An aircraft is considered as a movable property, but the regulations applicable to other
movable property are not applicable to aircrafts. Since a registry is maintained for them
exclusively, they are said to possess a nationality and hence have certain exclusive
rights pertaining to it. Almost all countries that engage in civil aviation have accepted
this extraordinary status of aircrafts. And via the Geneva Convention, the aircraft’s
special status is reiterated.64

Ø States are encouraged to accept the Geneva Convention in order to encourage investors
to make financial assistance possible for the purchase of new aircraft to be employed
in international civil aviation.65

v Accession to the Geneva Convention

Ø Like the Cape Town Convention and the Aircraft Protocol, the accession to this
convention includes the filling up of various applications completely and properly and
submitting the same to a registry/depository i.e. the Secretary General, International
Civil Aviation Organization. Adherence shall be effected by the deposit of an
instrument of adherence in the archives of the International Civil Aviation
Organization, which shall give notice of the date of the deposit to each signatory and
adhering State. Adherence shall take effect as from the ninetieth day after the date of
the deposit of the instrument of adherence in the archives of the International Civil
Aviation Organization.66

v Rights recognised via the Geneva Convention

Ø The Contracting States have via the Geneva Convention undertaken to recognise some
rights laid down in Article 1 of the same convention, they are:

63 Supra note 62 B.
64 Supra note 62 C.
65 Supra note 63.
66 Supra note 62 A.

18

§ Rights of property in aircraft
§ Rights to acquire aircraft by purchase coupled with possession of the aircraft.
§ Rights to possession of aircraft under leases of six months or more.
§ Mortgages, hypothecation and similar rights in aircraft which are contractually

created as security for payment of indebtedness.
The convention clearly states that such rights will have a force only if they are
constituted in harmony with the local laws of the contracting state and are recorded in
a public record, else such rights have no force whatsoever.67

Ø As mentioned above, there is no hard and fast rule that all the rights should be
recognised by the contracting state and any right not in compliance with its local laws
need not be ratified. Similarly. they can make exceptions such as these rights not being
applicable to foreign relations with a particular country.68

v Denouncement

Ø A contracting state can also if it wishes to denounce itself from the Geneva Convention.
They can do so by serving a notification of denunciation to the International Civil
Aviation Organization (ICAO), which shall give notice of the date of receipt of such
notification to each signatory and adhering State. Denunciation shall take effect six
months after the date of receipt by the ICAO of the notification of denunciation.69

Ø India is not a contracting state to the Geneva Convention and hence this convention has
no affect whatsoever in India.70

v Conclusion

67 Ibid.
68 Ibid.
69 Ibid.
70 Supra note 61.

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Ø The want and need of having such rights has been highlighted as early as 1944, even
before legal systems in various countries fully developed, clearly showing its
importance and it is for this reason that India along with the other non-signatories
should ratify to the Geneva Convention.

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