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"Fly Me." Airplane Seizures In China And Why This Is Important:

By Dan Harris and Steve Dickinson

Bear with me here non-lawyers as I promise there will be some manna for you at the end. Just read a very good article in International Law Office by Harvey Lau of Baker & McKenzie (and no, my firm is not and has never been in merger talks with Baker & McKenzie, though we are honored by the rumors), on airplane seizures/arrests in China. The article is entitled, "Ratification of Cape Town Convention to Boost Finance" [free subscription required] and it talks about how "the National People?s Congress just ratified the Convention on International Interests in Mobile Equipment and the Protocol to the Convention on International Interests in Mobile Equipment on Matters Specific to Aircraft Equipment, known as the Cape Town Convention, which China signed in November 2001." This convention is expected to become law in China in early 2009. So why am I telling you all this? Again, bear with me here. The article describes how this ratification will better protect airplane lenders and thereby reduce overall lending costs:

The ratified convention will provide owners and mortgagees of aircraft equipment with better protection for their interests in terms of perfection and priority of such interests by way of registration, which will be welcomed by existing and potential financiers, leasing companies and other participants in the Chinese aviation industry. US Eximbank had frequently indicated that it would reduce its exposure fee for airlines in China were China to ratify the convention. Given the turmoil in the financial markets, financing structures involving US Eximbank's support may be revived and might again become one of the most popular financing structures in the Chinese market.

I am going to be deliberately vague here, but around five years ago, a vessel finance company client of ours came to us regarding China asset protection issues similar to those involved in this just passed convention We conducted massive China law research and, in tandem with our client, we all eventually decided the protections just were not that to warrant our client financing vessel building in China. And now to the point of this convention. The point is that this is just the most recent example of China's bringing its business laws more in line with the developed world and China's recognizing the benefits of enacting laws that, at first glance may appear to disfavor local Chinese companies. China's business laws are maturing, giving further lie to the idea that "there are no laws in China." What do you think?

Full post as published by China Law Blog on November 06, 2008 (boomark / email).