Repossession is nine-tenths of the law

Boeing helps lead Cape Town Treaty effort

BY WALTER POLT

How do you get a low-cost car loan? It's not just your good credit.

For inexpensive car loans, you need laws that make the lenders feel secure, essentially by protecting their right to the asset as collateral if the buyer can't make payments. The same is true for airplane loans. In the United States, lending laws give airplane financiers security. But there is no equivalent provision in international law.

Scott Scherer, vice president of Aircraft Financial Services for Boeing Capital Corporation, said the lack of guaranteed security in international markets makes aircraft loans difficult to obtain. When loans are granted, they usually come with high financing costs. And if an airline can't afford these terms, it means lost sales for Boeing and lost economic opportunities for international customers and the people they serve. "The more risk there is, the higher the cost," said Scherer.

While 29 countries have signed the treaty, eight must formally ratify it before it can go into full force and effect. In October, the United States became the fifth country to ratify the treaty. This added momentum and is expected to encourage several more countries to ratify it soon. The U.S. ratification ceremony was held in Rome at the headquarters of the International Institute for the Unification of Private Law, the international body that collects and manages the Cape Town Treaty legal documents. Speaking at the ceremony, Rinaldo Petrignani, president of Boeing Italy, said "Boeing commends the United States for its leadership in ratifying the treaty." He encouraged other countries with a strong interest in promoting aviation to follow suit.

Boeing's Scherer is cochairman of the Aviation Working Group, the primary aviation industry organization behind Cape Town. This is an international coalition of aircraft and engine manufacturers, including Airbus and Boeing; leasing companies; and financial institutions. Along with the International Air Transport Association, the Aviation Working Group has helped develop and promote uniform aviation financing laws and regulations. In his leadership role, Scherer frequently speaks at key worldwide conferences, encouraging government officials to ratify the treaty.

Even prior to full ratification, benefits of the treaty (see box at right) are emerging. For example, the U.S. Export-Import Bank has provided a one-year extension to its policy of reduced loan fees for airlines residing in countries that have ratified the treaty.

And when the treaty becomes law, it should become even easier and cheaper to finance airplanes in the international marketplace.

walter.j.polt@boeing.com