Unifying space financing through space assets protocol to the Cape Town Convention : a desirable effort for the space sector?

Abstract

The Convention on International Interests in Mobile Equipment adopted in 2001 in Cape Town (CTC) is an ambitious project aiming to increase the legal certainties in asset-based financing and leasing and attract more private capital for the acquisition and use of high-value mobile equipment. The regulatory system of the CTC ensures universal recognition and enforcement of international interest vested to the chargee, the conditional seller, and the lessor in the respective category of contract, and it has proved to be successful as applied to the aviation industry.

It took more than a decade to draft the Protocol to the Convention on International Interests in Mobile Equipment on Matters Specific to Space Assets (SAP). Adopted in March 2012, the instrument has aroused many controversies in the space industry. Most of the concerns focus on whether the SAP will promote or hinder space financing. However, the contributions and limitations of the SAP are never fully examined and clarified. So this study conducts an in-depth analysis on the regulatory system of the SAP, taking account of the proposals raised in the treaty-making process and the examples drawn from practice. Since there are few precedents on enforcing security interest in satellite and States refuse to make commitment to facilitate constructive repossession and control of space assets, the SAP subjects the realisation of asset-based remedies to national law so that the financiers have to assess the regulatory risks like what they used to do.

The contribution of the SAP lies in the registration system that encompasses international interest in space assets and assignment of debtor’s rights related to the international interest. Financing space ventures has to address various risks; a security package that can be perfected and enforced at low cost will mitigate the default risk and enhance the creditor’s confidence in recouping its investment. Therefore, contrary to the position of many SAP supporters, this study finds that the SAP does not invent a new financing option, and it will not change the scenario in the acquisition of space assets. Financings backed by the Export Credit Agencies will remain an appealing option for the start-up companies and the developing countries.

In view of the dilemma faced by the SAP, this study also looks into the consensus-building process of the SAP to find out which factors prolonged the negotiation process and undermined the integrity of the SAP. While empirical study and economic impact assessment could have played a more constructive role in the treaty-making process, they are still essential at this stage for the purpose of promoting acceptance of the SAP.