The National Council unanimously ratified the Cape Town Convention on matters specific to Aircraft Equipment called the ‘Aircraft Protocol’ on June 5. Of the 22 members present, 17 voted for the convention while five abstained from voting.
Briefing the council on the convention, Information and Communications Minister Nandalal Rai, said the ratification by parliament is a prerequisite for Bhutan to accede to the convention.
Accession to the Convention and Aircraft Protocol supports an international system to protect commercial security interests in aircraft equipment. It potentially enables Bhutan to save transaction costs on aircraft acquisitions by government or private companies and the government also need not issue sovereign guarantees while acquiring aircraft. A sovereign guarantee is when a government has to stand guarantor for any international loan.
The Cape Town Convention (CTC) is an international treaty intended to standardize transactions involving movable property and one protocol to the convention is specific to aircraft equipment (aircraft and aircraft engines), signed in 2001.
Following a diplomatic conference in Cape Town, South Africa in 2001 attended by 68 countries, 58 signed the resolution proposing the treaty. The protocol, which applies specifically to aircraft and aircraft engines, took effect on March 1, 2006 when it was ratified by 8 countries.
The other two protocols to the convention are specific to railway equipment and space assets.
Lyonpo Nandal said CTC will in particular benefit the aviation sector. “Since ours is not a developed country, the convention will benefit our air service sector and especially in acquiring external loans easily and at cheaper rates to purchase aircrafts”.
The convention, he said has been ratified by 51 countries of which four are from Asia.
International investors in equipment such as aircraft have had to depend on varying national laws to protect their investments and when a buyer or the borrower defaults on payment. Recovery of the property sometimes requires protracted legal proceedings across more than one jurisdiction. Consequently, financers seek a premium on their lending as a hedge against risk involved. Premium could also be in the form of sovereign guarantee issued by the government.
Since the Convention and Aircraft Protocol are private legal agreements, supported by the International Institute for the Unification of private Law (UNIDROIT) and the International Civil Aviation Organization (ICAO), they are intended to significantly improve financial security for Investors from cross-border transactions in high-value mobile equipment which in this case is aircraft.