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News regulations in the civil aviation field

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On 13 December 2017, the Law on the accession of Romania to the Convention on International Interests in Mobile Equipment (the “Convention”) and to the Protocol to the Convention on International Interests in Mobile Equipment on Matters specific to Aircraft Equipment (the “Protocol”), which have been adopted at Cape Town on 16 November 2001, was adopted.

Although the accession law has already entered into force, the Convention and Protocol shall enter into force in Romania on the first business day following the expiry of a period of three months of the date of the deposit of the instrument of accession with the depositary of the Convention and the Protocol, the International Institute for the Unification of Private Law. According to the information available on the website of the Institute, both the Convention and the Protocol shall enter into force on 1 July 2018.

The Convention and the Protocol – purpose and impact

The Convention was concluded or the purpose of facilitating the financing of the acquisition and use of high value mobile equipment, of the type of airframes and aircraft engines, by establishing clear rules regulating such transactions and by creating a type of universally recognized and protected interests with respect to such equipment.

There are several mechanisms through which the Convention and Protocol aim to achieve such general objectives:

  1. The system of the international interests recorded in an electronic international register;
  2. The remedies available to the creditor (i.e. the chargee, in the case of a security agreement, the conditional buyer, in the case of a title reservation agreement or the lessor, in the case of a leasing agreement) in case of breach by the debtor of its obligations, including the right to obtain the de-registration, export and physical transfer of the aircraft based on the irrevocable deregistration and export request authorisations, which are issued by the debtor in favour of the creditor and registered with the registration authority;
  3. The creation of two scenarios (for which the states may opt) in relation to the treatment of the creditor in the event of insolvency of the debtor, both of which involve, with some procedural differences, the creditor’s right to recover its asset.

The benefits of the Convention and the Protocol were highlighted in an independent study conducted at an international level. Its conclusion was that the Convention will reduce the risk associated with asset financing and leasing transactions, through the establishment of an international legal framework, backed by other international treaties and internal implementation legislation, where appropriate. The main effect of reducing these risks is the reduction in the credit costs and, implicitly, the creation of multiple credit options for aircraft operators. A greater access to credit may lead to an increase in the efficiency of aircraft operations and in the profitability of aircraft operators. Nor is it negligible that the Organization for Economic Co-operation and Development grants certain benefits upon the contracting of export credits to the aircraft operators located in the states that have made certain declarations at the time when they ratified or acceded to the Convention and the Protocol (benefits mainly related to the financial terms applicable to these credits).

Is the purpose of the Convention and the Protocol achieved in Romania?

According to the accession law, Romania made the following declarations:

  1. no provision of the Convention shall affect the right of Romania, any entity of the Romanian State, any intergovernmental organization or of any other private provider of public services in Romania, to arrest or detain an object, in accordance with Romanian laws, in order to secure the payment of the sums due to such provider or organisation, which are directly related to such services, in respect of such object or other object;
  2. the remedies available to the creditor under the Convention, whose implementation is not expressly conditional, under the Convention, upon the filing of an application with the court, may be exercised in Romania only with the permission of the competent Romanian court (such permission being materialised through obtaining the court’s approval for the commencement of the enforcement of any obligation not deriving from a legal act that is a writ of execution);
  3. that it will apply art. VIII of the Protocol, according to which the parties to an agreement, a contract of sale or related guarantee contract or subordination agreement may agree on the law governing all or part of the contractual rights and obligations.

We believe that the second declaration made under the Convention is not sufficient to bring comfort to the creditors of Romanian aircraft operators. The Convention allows the creditors, among others, subject to the states’ option to this extent, to take possession and take control of the charged object. In Romania, however, creditors will be required to obtain a writ of execution in order to exercise such rights, which could affect the celerity of the exercise thereof.

In addition, we note that the legislator has chosen not to make any declaration regarding art. XI of the Protocol, which allowed an option regarding the treatment of creditors in the event of the debtor’s insolvency. Consequently, the creditors of an insolvent Romanian aircraft operator will be subject to the treatment provided by the national insolvency law, which, for the time being at least, does not enable them a more expedient recovery of their aircraft from their debtor.

The Romanian legislator did not make any declaration for the application of art. XIII of the Protocol governing the regime of the irrevocable de-registration and export request authorisations. The powers-of-attorney granted by the aircraft operator in favour of its creditor from the outset of the contractual relationship and registered with the aviation authority in accordance with this article should also facilitate the exercise by the creditor of the aircraft recovery measures in case of failure of the aircraft operator to fulfil its contractual obligations. In the absence of a declaration given by Romania for the purposes of applying this article of the Protocol, the value of such powers-of-attorney under Romanian law is questionable, given the essentially revocable nature of a mandate under the Romanian Civil Code.

Moreover, these two declarations are among the binding eligible declarations mentioned above, which the Organization for Economic Co-operation and Development takes into consideration when identifying the eligible states for receiving the benefits upon contracting export credits.

In conclusion, we consider that despite the purposes stated in the explanatory memorandum of the law on the accession to the Convention and the Protocol, the means chosen by the legislator are not optimal and will not lead to a real achievement thereof. A real facilitating of credit in the field of civil aviation could be achieved by making additional declarations, whereby Romania opts to apply those articles of the Convention and the Protocol, which will lead, in a practical way, to an improvement in creditors’ position on the market and to a more comfortable position when initiating a transaction with a counterparty operating in Romania.

Author: Camelia Ianțuc, associate PeliFilip

 

 

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