How the UK signing the Cape Town Convention will affect business aviation

The UK has started the process of formally ratifying the Cape Town Convention with the regulations now laid down before Parliament. Because the European Union has approved the Convention in 2009 it will become law without the need for voting.

Although the UK is already seen as a creditor friendly jurisdiction it allows off-shore UK territories to also ratify, change the way airlines become insolvent and simplify aircraft transactions following the BlueSky Case. In this case the English High Court decided that an aircraft had to be in English airspace in order for an English law mortgage to be recognised.

“It is great news for many reasons, but it would be good for the BlueSky case alone.”

“It is great news for many reasons, but it would be good for the BlueSky case alone,” says Kenneth Gray, a consultant at Norton Rose Fulbright. “BlueSky has forced owners closing English law mortgages to fly aircraft into UK airspace when closing which wasted a lot of time and aviation fuel. It also was a difficult thing to explain to owners that an aircraft flying to China to have to divert during UK airspace in order to be financed.”

“As long as an aircraft is going in to an owner in a country that is a Cape Town signatory, flying into UK airspace is no longer needed,” says Gray.

Gray says that the changes to UK insolvency law, which will happen because the UK has ratified the tougher Alternative A of Article XI, will only affect business jet operators that have financed aircraft but it could also impact on helicopter operators. Under Alternative A, an operator has to return aircraft to financiers within 60 days of filing for insolvency.

“The general system of administration no longer applies to aircraft operating companies. Although airlines entering administration have tended to liquidate and return aircraft quickly, Cape Town gives lenders even more certainty that they will have aircraft back within 60 days,” says Gray.

The other big change is that jurisdictions like Bermuda, Cayman and the Isle of Man can now ratify. Competitors like Aruba, Malta and San Marino have already ratified the treaty and Gray says that this has been an advantage.

“Cape Town makes the lives of lawyers and financiers much easier”

Although the EU approved the Convention in 2009 the only EU members to have ratified it are Ireland, Malta and Latvia. Gray expects other large aviation countries to follow the UK. “The UK is clearly an important business jet market and it is great to see that it is the first large jurisdiction in Europe to have ratified,” he says..

Although Cape Town is sometimes criticised by lenders, Gray believes the Convention has made things easier. “Cape Town is without doubt a good thing. It is still a very young convention and has not been tested in every jurisdiction but it definitely makes things easier for financiers. At the end of the day it has eliminated a lot of uncertainty.”

“Cape Town makes the lives of lawyers and financiers much easier,” says Gray, “and having worked with the government I am delighted that the UK is adopting it this year.”