US embassy cable - 05MONTREAL167

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