Nigeria’s recent compliance with the Cape Town Convention (CTC) for aircraft leasing has resulted in a significant increase in the country’s global rating by The Aviation Working Group (AWG), co-chaired by Boeing and Airbus, swiftly adjusted Nigeria’s score after recognising the country’s progress. The group also acknowledged the minister’s directive for the Nigerian Civil Aviation Authority (NCAA) to align its administrative rules, known as IDERA, with the convention.
On September 12th, Nigeria by vice president Kashim Shettima signed a Practice Direction to align with CTC , the global compliance rating has surged from 49% to 70.5%, marking Nigeria’s highest score ever. This milestone will enhance global confidence among financiers and leasing experts. Special assistant on media and communications to the Minister of Aviation and Aerospace Development, Tunde Moshood highlighted that this is Nigeria’s highest compliance score to date.
The improved rating is expected to boost the confidence of international financiers and aircraft lessors.
According to ICAO convention. The Convention on International Interests in Mobile Equipment (pdf) was concluded in Cape Town on 16 November 2001, as was the Protocol on Matters Specific to Aircraft Equipment (pdf). The Convention and the Protocol, adopted under the joint auspices of ICAO and UNIDROIT, shall be read and interpreted together as a single instrument (Article 6(1) of the Convention).
As of 16 June 2016, there are 65 Parties to the Convention. A full list of signatory parties
What is the main agenda in the Cape Town Convention (CTC) in regard to aviation?
The primary aim of the Convention and the Protocol is to resolve the problem of obtaining certain and opposable rights to high-value aviation assets, namely airframes, aircraft engines and helicopters which, by their nature, have no fixed location.
This problem arises primarily from the fact that legal systems have different approaches to securities, title retention agreements and lease agreements, which creates uncertainty for lending institutions regarding the efficacy of their rights. This hampers the provision of financing for such aviation assets and increases the borrowing cost.
Advantages of the Convention and the Protocol
Predictability & enforceability.
By creating an international interest recognized in all of the Contracting States and establishing an international electronic interest registration system, the Convention and Protocol improve predictability with respect to the opposability of the securities and the interest held by sellers of aviation assets. Indeed, it is estimated, based on World Bank data, that the mean worldwide contract enforcement delay is 10 months. The ratification of the Convention and the Protocol reduces this delay to two months (Linetsky , 2009).
Cost savings.
The Convention and Protocol are intended to reduce risks for creditors, and consequently, the borrowing costs to debtors, through the resulting improved legal certainty. This promotes the granting of credit for the acquisition of more modern and thus more fuel-efficient aircraft. The airlines of States that adopt the Convention and the Protocol may receive a ten percent (10%) discount on export credit premiums.
A practical example
In time past, it was calculated that the adoption of the Convention will enable Australian airlines to save $330,000 on the purchase of a new ATR 72 and $2.5 million on the purchase of an Airbus. A380
In Conclusion, Nigeria’s signing of the CTC is a positive step that’ll create enormous opportunities for Nigerian airlines and provide a major boost for the Nigerian aviation sector. This again is a testament to Mr. President’s commitment to ensuring multi-sectoral socio-economic development as set out in the Renewed Hope Agenda.
Tolu Meduna. Public Engagement Executive in the office of the Director General of National Orientation Agency (NOA)
