Turkey has ratified the Cape Town Convention on International
Interests in Mobile Equipment (the
"Convention") and the Protocol to the
Convention on International Interests in Mobile Equipment on
Matters Specific to Aircraft Equipment (the
"Protocol") on 29 March 2011, with
effect from 4 July 2011.
The Convention and Protocol intends to promote certainty and
transparency in cross-border aviation financings by eliminating the
uncertainties and problems that the creditors face under the laws
of various jurisdictions, particularly with respect to the default
or insolvency of the borrowers. Creditors also often find it
difficult to locate aircraft when they need to enforce their rights
on the aircraft as collateral, as the aircraft are fl ying in and
out of countries on a daily basis. Needless to say, these factors
create additional costs to the aircraft financing transactions, let
alone being cumbersome and time consuming.
In an effort to reduce these risks, the Convention and Protocol
introduce an internationally recognized collateral system to be
used in international aviation financings that enables security
interest to be created over the aircraft and related equipment,
upon registration with an electronic global aeronautical registery
in order to guarantee the priority of their claims against other
parties. In this manner, the creditors of the aircraft and related
equipment financings will have more protection against any default
and insolvency risks as the existence and effectiveness of their
collateral will be assured by the registry system.
Hence, while on the one side the creditors will have an
effective collateral system, the airlines will, on the other side,
have the benefit of low financing costs that is proving to be the
case for a number of member countries which have ratifi ed the
Convention and the Protocol thus far. This is especially important
for developing economies such as Turkey that pay relatively higher
interest rates on their financings. Despite its obvious advantages,
the ratification of the Convention and the Protocol may not have an
instant impact in the Turkish aviation market as the Convention and
Protocol do not apply retrorespectively. In other words, the
existing financing agreements would have to be amended in order to
benefit from the registry system. Coupled with the financial
turmoil in the global loan markets, it may take a while to see
aviation financings gaining momentum in Turkey.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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Under Regulation (EU) No. 648/2012 of the European Parliament and of the Council of 4 July 2012 on OTC derivatives, central counterparties and trade repositories ("EMIR")...
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