Malaysia ratifies Cape Town Treaty on aircraft financing

  • Business
  • Tuesday, 08 Nov 2005

MALAYSIA became the required eighth country to ratify the Cape Town Treaty, an international treaty to facilitate cross-border financing and leasing of large commercial aircraft and aircraft engines, enabling the treaty to take effect on March 1. 

The Export-Import Bank of the United States (Ex-Im Bank), in announcing this in Washington DC, said the Malaysian Government had on Nov 2 deposited its instruments of accession to the Cape Town Treaty and the related aircraft equipment protocol with the International Institute for the Unification of Private Law (UNIDROIT), the independent inter-governmental organisation based in Rome, that serves as the depository. 

Eight countries must ratify the treaty for it to come into effect. 

Other countries that have ratified or acceded to the treaty are Ethiopia, Ireland, Nigeria, Oman, Pakistan, Panama and the United States. 

“Ex-Im Bank commends the actions of all nations that have enabled the Cape Town Treaty to move forward. We strongly believe the treaty will reduce certain risks associated with cross-border, asset-backed financing and leasing of aircraft and aircraft engines,” said Ex-Im Bank president and chairman (acting) James H. Lambright. 

“Ex-Im Bank will continue to encourage more countries to ratify the treaty and realise its benefits,” he added. 

Since 2003, Ex-Im Bank has offered a one-third reduction of its exposure fee on asset-backed financing of new US-manufactured large commercial aircraft for buyers in countries that sign, ratify and implement the treaty and the related aircraft protocol (including certain optional provisions specified in letters sent by Ex-Im Bank to such buyers). 

Ex-Im Bank’s offer currently applies to approval given to these buyers through Sept 30, 2006. 

Of the eight countries that have ratified or acceded to the treaty to date, airlines in four of these countries – Ethiopia, Pakistan, Panama and Oman – have benefited from Ex-Im Bank’s reduced exposure fee following their countries’ ratification of the treaty. 

Ex-Im Bank vice-president of transportation Robert Morin said: “The reduced risk justifies a reduction in our exposure fee for airlines based in countries that ratify and implement the treaty. 

“The treaty is intended to expand the sources, increase the amount and lower the cost of financing available to airlines. This will enable airlines to upgrade their fleets, thereby supporting jobs in the aerospace industry,” he said. 

Ex-Im Bank’s offer enables eligible foreign buyers to receive an Ex-Im Bank exposure fee of as low as 2%, a one-third reduction in the current minimum 3% exposure fee on asset-backed financing for new large commercial aircraft. 

More favourable financing terms also apply to asset-backed financing for spare engines to such buyers. 

Ex-Im Bank also extends preferential financing terms to leasing companies but only if the aircraft leasing company and the airline lessee under the initial operating lease are both based in a treaty country and make the appropriate declarations under the treaty and aircraft protocol.  

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