Govt plans to bring in Cape Town Convention Act for civil aviation sector

The government plans to bring in the Cape Town Convention Act which will help reduce risks related to asset-based financing and leasing transactions in the civil aviation space.

The main objective of the Convention/ Protocol is to ensure efficient financing of high value mobile equipment like airframes, helicopters and engines, in order to make the operations as cost effective and affordable as possible, according to the Civil Aviation Ministry.

The proposed implementation of the Cape Town Convention Act also comes at a time when many Indian carriers have placed large orders for aircraft as they embark on ambitious expansion plans. The country's domestic aviation market is one of the fastest growing in the world and has been registering double-digit growth for more than three years.

In November 2001, the Convention on International Interests in Mobile Equipment and the Protocol to the Convention on Matters Specific to Aircraft Equipment were adopted. Since they were adopted during a conference in Cape Town, they have been named after the city in South Africa.

While Cape Town Convention is for three sectors -- aviation, railways and space equipment --, there are separate protocols for each of the three. The aircraft protocol was adopted at Cape Town in 2001.

The conference was under the auspices of the International Civil Aviation Organisation (ICAO) and the International Institute for the Unification of Private Law (UNIDROIT).

The ministry has put out the draft Cape Town Convention Bill for public consultations and also has a clause that would accord primacy to the provisions of the Convention/ Protocol in case of conflict with any other law.

The Convention/ Protocol provides for basic default remedies for a creditor such as de-registration and export of aircraft as part of speedy interim relief as well as a universally applicable legal regime in case of disputes.

Implementing various measures under the Protocol would help reduce the level of risk for the intending creditors or lessors, This would in turn lead to "reduction in the cost of aircraft financing/ leasing and eventually to reduction in cost of operation", the ministry said in a document posted on its website.

The Organisation for Economic Cooperation and Development (OECD) has set a norm that 10 per cent discount would be given in the processing fee for a loan to acquire aircraft to airlines of any country that is party to the Cape Town Convention/ Protocol. This is subject to the condition that an implementing legislation has been passed by that country, the ministry said.

As per the ministry, there is a need for a separate legislation as certain provisions of the Convention/ Protocol that are in conflict with the provisions of some other laws.

Such laws include the Civil Procedure Code, 2008, the Specific Relief Act, 1963, the Companies Act, 2013 and the Insolvency and Bankruptcy Code, 2016.

"A separate legislation also appears necessary in view of the fact that the international financial institutions are not giving due weightage to accession to the Cape Town Convention/ Protocol by any country unless it is accompanied by an implementing legislation," it noted.

The ministry also said that an Act of Parliament would provide greater confidence to the intending creditors resulting in reduction of the risk applicable to asset-based financing and leasing transactions.

"The risk reduction will result in reduction in the cost of aviation credit and will also bring down the lease rentals... This will be of immense help to the Indian aviation industry. It will also benefit the passengers and other end users by pass-through price reductions and increased levels of service," it added.