Cape Town Convention Compliance: The Positives, Pessimisms- Emmanuel Olisemeke

The recent compliance of Nigeria to the Cape Town Convention (CPC) Practice Direction, stakeholders in the Nigerian aviation industry say it has numerous benefits for the operating airlines in the country, but still expressed skepticism about its success. Emmanuel Olisemeke writes.

The signing of Cape Town Convention (CTC) Practice Direction by Nigeria in the last quarter of 2024 was unprecedented in the annals of the country’s aviation industry.

The signing spearheaded by Mr. Festus Keyamo, the Minister of Aviation and Aerospace Development, is a step that would enhance the performance of Nigerian airlines – aircraft acquisition, leasing (dry, dump and wet leases) and other business opportunities for the entire aviation industry in Nigeria.

The CTC Genesis

Nigeria had ratified and domesticated the Cape Town Convention in 2007. This came at a time when it was extremely difficult to acquire aircraft on wet and dry leases because of the poor safety record and non-adherence to agreement by the Nigerian aviation industry.

The CTC is an international treaty designed to standardise transactions involving movable property, particularly aircraft, spare parts and other mobile equipment to facilitate asset-based financing and leasing.

The convention aims to create a more secure and efficient framework for international transactions involving mobile equipment, making it easier for lenders and investors to finance such assets. It also simplifies transactions and reduces legal uncertainty for lessor and lessee.

Despite being one of the signatories to the treaty since 2007, Nigeria’s compliance was almost nil.

The indigenous airline operators proved difficult to transact business with. Lessors and other major aircraft manufacturing companies avoided the nation’s airlines like a plague due to protracted legal tussles.

Some of the operators had sought an injunction in law courts, making it extremely difficult for equipment repossession by lessors. This earned the country a bad image in the comity of nations, leading to a blacklist by aircraft lessors, particularly the Aviation Working Group (AWG), co-chaired by Airbus and Boeing.

For instance, the Nigeria Civil Aviation Authority (NCAA), had to intervene before a particular lessor could repossess its equipment from a local operator who had approached the court to halt the return of the aircraft to its original owner.

The Nosedive

The failure of Nigeria and its airline operators to comply with the CTC directive, led to quick slope of the country’s rating in the comity of nations. For instance, out of the maximum of 100 points a country and its operators are expected to earn to indicate their compliance with the treaty, Nigeria’s fortune declined to 49 points, therefore pointing to a hopeless future for the country’s image and airline operators. This point drop, led to high insurance premiums, leasing and access to loans for Nigerian airlines, which made the operating environment toxic and uncompetitive for the operators.

But, in order to ensure its compliance, Keyamo, with the support of President Bola Tinubu, Vice President Kashim Shettima, and Lateef Fagbemi, Attorney-General of the Federation, then reached out to key institutions and offices in the judicial sector, resulting in the signing of the practice directions. The new practice directions issued by the Chief Judge of the Federal High Court is expected to eliminate judicial impediments in the implementation and compliance with the Cape Town Convention. This move, according to Keyamo, would also boost investor confidence and open the floodgates to Nigeria’s air operators to easy access to aircraft acquisition either at outright purchase or leasing at much lower rates.

The Change and Impact

Barely a week after its compliance with the Cape Town Convention, the country’s global rating status soared to 70.5 from 49 points, but the country was still on the watching list of the group.

This was contained in an email by Aviation Working Group (AWG) in London and New York to the Ministry of Aviation and Aerospace Development and signed by Jeffrey Wool, the Secretary General of the group, which is co-chaired by Boeing and Airbus.

This was the largest score the country had ever attained till date to give comfort to financiers and the leasing world.

The letter read in part: “Thank you (and your colleagues) for the time, effort and skill over the past months on the Practice Direction, issued late last week.

“Based on that important legal development, AWG has swiftly and materially increased the Nigeria CTC compliance index score from 49 to 70.5.

Keyamo also expressed optimism that the country had the potential for further increase in the next few weeks, stressing that he had directed the NCAA to immediately adjust its administrative rules called IDERA to also fully align with the convention to further boost the confidence of financiers and lessors across the world.

Removal From Watchlist By AWG

However, a few weeks after the compliance and growth of its points to 70.5 points, the country’s global rating status once again soared to 75.5 points.

As a result of this, the AWG removed Nigeria from its watchlist.

The removal of the country from the watchlist now enables Nigerian airlines to access aircraft on dry leasing basis, while global financial companies would also be able to partner with the airlines for aircraft financing.

In his comment, Keyamo expressed that the government was purposeful with its policies for the country’s aviation industry, assuring that the government would continue to support private investors to thrive through the creation of an enabling environment for all.

He said: “It’s a major market opener for the aviation sector, especially the Nigerian aviation sector around the world. They can then go globally and access the world of aircraft financing and aircraft leasing. We were actually on a blacklist before; at 49.5, a non-compliant figure, we moved on to 70.5, which was a complaint belt, but still on the watchlist.

“With 75.5, we are completely off the watchlist and the Aviation Working Group (AWG) co-chaired by Airbus and Boeing, they termed it a high score for the country and it matches the scores of most of the big nations in the world, which access big aircraft finances. We have that kind of access now I can assure you.

Stakeholders’ Reactions

The increase in points by Nigeria and subsequent removal from the AWG’s watchlist due to its compliance with the treaty, has led to encomiums from stakeholders and international organisations.

For instance, the International Transport Federation (ITF) in a correspondence with our correspondent, congratulated Nigeria for its impressive achievement of 75.5 points from the former abysmal 49 points.

In an email to our correspondent by Stephen Cotton, the General Secretary, ITF, an arm under the International Civil Aviation Organization (ICAO), Cotton said that the attainment gave Nigeria the platform to develop a regional aviation industry based on the principles of decent work, economic development and environmental sustainability.

He further lauded Keyamo for his hard work in this regard and hoped to have an improved working relationship with the Nigerian government.