The primary aim of the Convention is to increase the efficiency of financing high-value “mobile equipment” (e.g. aircraft objects, space objects, railway rolling stock, etc.). Because such equipment moves from jurisdiction to jurisdiction, and because not all jurisdictions provide equivalent recognition of creditor’s rights, creditors face higher risks and this increases the cost of obtaining credit. The Convention is based on the principle that a sound legal framework that facilitates the creation, perfection and enforcement of security interests will provide confidence to lenders and institutional investors both within and outside the country concerned, and make it easier to attract domestic and foreign capital.

In fulfilment of this principle, the Convention establishes a sound, internationally-applicable legal regime for security, title-retention and leasing interests: this will reduce the risks faced by creditors and thereby reduce the costs of financing high-value mobile equipment. Financiers will be able to assure themselves that their proprietary interests in a financed asset are superior to all potential competing claims against that asset, and upon default will be able to promptly realise the value of that asset. In particular, the Convention provides for remedies in Contracting State jurisdictions to be capable of expeditious enforcement, and creates a regime for the priority of creditors’ interests to be determined by reference to an electronic, notice-based International Register, with priority to be established on a “first-in-time” basis.

Although the precise economic benefits of the Convention are difficult to predict exactly, a study undertaken during the development of the Convention estimated that the potential world-wide economic benefits of the Convention would be several billion dollars in relation to aircraft alone, with those economic benefits to be widely shared among airlines, manufacturers, and the national economies in which the airlines were located. In advance of the entry into force of the Convention and Aircraft Protocol, these economic benefits have already begun to be realised with the Export-Import Bank of the United States’ announcement in August 2004 that it would offer a one-third reduction of its exposure fees to buyers of US large commercial aircraft in countries that sign, ratify and implement the Convention.

The Convention is based on 5 underlying principles:

Practicality: the regime established by the Convention reflects the practical operation of modern financing transactions;

Sensitivity to National Legal Cultures: the Convention allows Contracting States to lodge declarations to modify the operation of select provisions where those provisions would be incompatible with its principles of national law – this flexibility is particularly important to enable the regime established by the Convention to respond to domestic legal norms;

Party Autonomy: the Convention assumes that parties to transactions involving high-value aircraft objects will be knowledgeable and expertly represented, and so permit maximum contractual flexibility;

Predictability: the Convention establishes concise and clear rules for determining priority, thus reducing uncertainty; and

Transparency: the Convention provides for registration of international interests on an International Registry, which will be searchable by third parties and which will subordinate unregistered interests to holders of registered interests.

The Convention has been designed to apply to a range of types of high-value mobile equipment. It is a framework treaty that establishes core provisions which are capable of being modified by equipment-specific protocols in order to adapt the Convention’s structure to the particular requirements of specific industries.

The first protocol to have been developed is the Aircraft Protocol, which provides for the application of the Convention in relation to aircraft objects, and modifies the operation of the Convention (for example, the Convention’s default remedies) to the particular requirements of aircraft financing transactions.

The second protocol is the Luxembourg Protocol to the Convention on International Interests in Mobile Equipment on Matters specific to Railway Rolling Stock which was adopted by a Diplomatic Conference held in Luxembourg from 12 to 23 February 2007. This protocol will apply the benefits of the Convention to the railway sector, and is expected to be of considerable economic importance to States in Asia, Eastern Europe, Africa and South America for which railways and railway infrastructure play an important role in their economies.

Another protocol dealing with the application of the Convention to space assets is also under development. This protocol will address the difficult task of applying the benefits of the Convention to space assets, which are increasingly being financed by private-sector investors rather than central governments, which are subject to a myriad of existing regulations under international treaties, and which are often physically located beyond terrestrial jurisdictions. The protocol is currently under consideration by an inter-governmental negotiation process which includes representation by private-sector financiers and the space industry.

Preliminary studies are underway to assess the need for a protocol on secured financing of agricultural, construction and mining equipment.

Brief accounts of the development of this project have been published in the Annual Reports on the activity of UNIDROIT.

Select bibliography of UNIDROIT's work on international interests in mobile equipment

[This page was updated on 8 January 2010.]