Identifier
Created
Classification
Origin
05MONTREAL167
2005-02-14 12:44:00
UNCLASSIFIED
Consulate Montreal
Cable title:  

CAPE TOWN TREATY IMPLEMENTATION

Tags:  EAIR ETRD AORC CA ICAO 
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This record is a partial extract of the original cable. The full text of the original cable is not available.
UNCLAS SECTION 01 OF 02 MONTREAL 000167 

SIPDIS

FROM USMISSION ICAO
STATE FOR IO/T, EB/TRA, EB/TPP, L/EB, L/T AND L/DL
COMMERCE FOR ITA, GCIT
STATE PLEASE PASS TO EXIM

E.O. 12958: N/A
TAGS: EAIR ETRD AORC CA ICAO
SUBJECT: CAPE TOWN TREATY IMPLEMENTATION

UNCLAS SECTION 01 OF 02 MONTREAL 000167

SIPDIS

FROM USMISSION ICAO
STATE FOR IO/T, EB/TRA, EB/TPP, L/EB, L/T AND L/DL
COMMERCE FOR ITA, GCIT
STATE PLEASE PASS TO EXIM

E.O. 12958: N/A
TAGS: EAIR ETRD AORC CA ICAO
SUBJECT: CAPE TOWN TREATY IMPLEMENTATION


1. SUMMARY: The Third Preparatory Commission meeting at
ICAO in Montreal to facilitate establishment of new
international aircraft finance registry made important
progress. The Prep Com approved a contract with the
registrar nominated by Ireland and selected by the Second
Prep Com meeting, as well as draft regulations and other
matters. Common positions of USG, air transportation
industry, and aircraft and engine manufacturing prevailed
with support from all States taking an active role at the
meeting, except for one--Canada. Next test: Council
approval of ICAO assuming the role of the Supervisory
Authority over registry.


2. US ratification brought the number of State parties to
five, with three more needed to bring the aircraft finance
Protocol into force. Approximately six countries are in
late stages of that process, and entry into force is
expected by mid 2005. The Convention rests on asset-based
financing techniques already adopted in the U.S. in the
Uniform Commercial Code (UCC) provisions on secured finance,
which have been well tested by the capital markets and the
air transportation industry.


3. The treaty calls for establishment of a new, electronic
international finance registry, based on modern US
commercial law concepts, in order to determine priority of
financing interests. The FAA will be the entry point for
filings in the U.S. and will interface with but not
otherwise affect existing FAA registry functions. The Cape
Town Diplomatic Conference established a Preparatory
Commission of twenty States, including the U.S., to
undertake the task under ICAO guidance of setting up the new
finance registry, with the expectation that ICAO would
become the Supervisory Authority of the private-sector
operated computer-based registry. Based on an open bidding
process under ICAO procurement procedures, the Prep Com
selected Aviareto to act as registrar, nominated by Ireland,
and teamed up with SITA, a Geneva-based air transportation
services organization.


4. Airline interests, aircraft and engine manufacturers,
aircraft title and other aviation groups have been closely

involved and support the current process. Airline interests
have been represented by IATA (International Air Transport
Association) and manufacturers, aircraft leasing, and
aircraft financing interests have been represented by the
Aviation Working Group (AWG),co-chaired by Boeing and
Airbus Industrie. The USDEL has worked continuously with
industry at all stages and US positions have been reviewed
by the IGIA.


5. Operating costs for the computer-based registry were and
are key to keeping filing costs and fees as low as possible
so as to accommodate airline concerns. An all-computer
operation with few discretionary functions can be managed at
low cost. Operating costs in USD for the successful bidder
(Ireland's Aviareto Co.) were approximately 1.8 million; the
next competitive bid was approximately 3 million
(Singapore's Crimson Logic Co.) and the third bid (Canada's
CSRS) was effectively out of the running at approximately 8
million. A fourth bid from Spain was not competitive. Only
Canada has continuously raised objections at each subsequent
stage of this process, in an apparent attempt to reverse the
selection process.


6. The Convention and Protocol provide priority for finance
interests filed in the new registry, and it is imperative
for the registry to be on-line when the treaty system comes
into force for the U.S. The new registry system established
by Aviareto is now expected to be fully tested and ready
when the treaty comes into force. It is important for
international air transportation and airlines generally and
for US-based interests to push implementation of the new
treaty system, the next test of which will come at a future
ICAO Council meeting when ICAO will be asked to assume the
role of Supervisory Authority over the registrar. Delay by
the ICAO Council however (see paragraphs 7 and 8) could
place in jeopardy the final acceptance, and operational
readiness, of the registry system when the Protocol comes
into force. This could cause the US to seek selection of an
alternate international body to act as Supervisory
Authority. The USG position has been to work to avoid that
scenario and continue the important involvement of ICAO.


7. Key actions by the Prep Com: the contract with Aviareto,
as well as regulations applicable to the registry (which
will be accessible by computer from any country),were
approved by the Prep Com with support from the US and all
states actively participating except Canada. Canada then
raised the level of insurance proposed to be acquired by
Aviareto as the next issue to challenge at the ICAO Council.
The U.S., with the support of most States at the Prep Com,
has stated that that is not a real issue. The probability
of loss due to registry data failure is so low that the
airlines and financing institutions, the ultimate parties at
interest in any loss, have not based their support of the
new system on having insurance. The registry is a "notice
filing" system, in which the parties themselves enter the
data, but in the event of any legal contest over priority,
must still prove their interest, so data kept by the
computer system in any event does not resolve priority.
Therefore, while digitized data held at several remote
locations could not all be lost, since any one location will
suffice, the parties themselves keep computer records.
Thus, even a data loss, itself unlikely, is highly unlikely
to lead to an actual loss of priority. The Prep Com
concluded that the level of insurance available to Aviareto
on the world market is adequate under the treaty system's
provisions with only Canada taking exception.


8. Moreover, informal indications are that Canadian reps
may at the Council meeting raise the possibility that ICAO
or its Member States on the ICAO Council could bear
liability in the event of an uninsured loss, a position
rejected by the US. Canadian reps informally suggested that
the Canadian Justice Ministry, to whom ICAO normally would
turn to defend the immunity of ICAO itself, might decline to
do so, on the grounds that supervising the registry is a
commercial function. Most commentators following the
meeting disagreed with that analysis, since registry
functions are public agency operated or regulated in most
countries, including the US. Moreover, raising such an
issue would jeopardize ICAO on a broad front, since many of
its other functions on behalf of the air transportation
industry are at least as "commercial", if not more so, such
as promoting GPSS and other global positioning and global
time functions, promoting standards for and acceptable
levels of war risk insurance, fixing liability limits under
the Warsaw Convention, and a number of functions under
various annexes to the Chicago Convention.


9. On other fronts related to establishment of the Cape
Town Registry, the FAA on January 3, 2005, published a final
rule in the Federal Register on implementing the Cape Town
Treaty, including the manner by which the FAA's existing
registry system for aircraft interests will interface with
the new treaty registry, the FAA's role in authorizing
filings of international interests, the filing of
prospective interests and other matters. This action goes a
long way toward completing FAA's regulatory task in
accordance with the provisions of the Cape Town Treaty
Implementation Act, P.L. 108-297. Enactment of this
legislation, as well as action by the Senate Foreign
Relations Committee in getting Senate advice and consent to
U.S. ratification and Administration authorization for U.S.
ratification in Rome this past October, were all on a fast-
track basis.

SERWER ALLEN