Operators who own a share of a fractional aircraft are to be given the same Cape Town Treaty protection as sole owners have had since March 2006. They are to be included in the International Registry of Mobile Assets (IRMA), which provides a single universal point of reference and record, and was set up under the treaty (which comprises the Cape Town Convention and the related Protocol on Aircraft Assets). To date, 16 countries have ratified the international asset-registration procedure (see box), with the most recent, Indonesia, eligible to use IRMA beginning in July.

Initially, the treaty included only sole owners of whole aircraft, helicopters or engines, but now IRMA permits the registration of multiple or partial shares in individual aircraft or engines. It also has introduced registration of sole owners in, say, a fleet of aircraft under arrangements called multiple-asset single transactions.

As the whole ownership of an aircraft must be accounted for, initial registration of individual shareholdings can occur only after all shares have been allocated. For example, 100 percent of a business jet could be registered with a fractional ownership program before specific shares are sold and the program operator’s holding diluted.

The registry reduces financial risk among interested parties since it clarifies ownership and identifies priorities of interest, and so enhances trading in fixed- and rotary-wing aircraft and aircraft engines.

In its first 10 months of operation (ending Dec. 31, 2006), IRMA registered some 33,000 so-called interests (such as sale or loan contracts, or security assignments) in 15,000 “aircraft objects,” according to Niall Greene, managing director of Aviareto, a joint venture set up by SITA and the Irish government to operate the registry.

Both the aviation industry and Aviareto have experienced a steep learning curve, as owners become used to the registry’s procedures and Aviareto overcomes shortcomings in hardware and software. In the early stages of the process, it became apparent that the computer programmers had not anticipated how many engines or aircraft would be involved and had not provided for a sufficient number of discrete serial numbers. Greene said, for example, that initially only 40 Pratt &Whitney Canada PT6 engines could be registered out of a worldwide fleet of 20,000.

Aviareto has executed more than 1,000 corrections or modifications to the system in its first 10 months of operation and expects to introduce further developments this year. It plans a series of 26 software changes to deal with transactions involving full ownership, infrastructure and single ownership of multiple assets.

Meanwhile, the first registrations of sales and leasing contracts covering fractional interests in aircraft ownership are now being made. Thus far, fractional ownership plans, such as those operated by CitationShares, Flexjet and NetJets have not formally used the IRMA system. Rather, banks and leasing companies have adopted “subordination and disclaimer agreements” to protect their interests in such aircraft.

Some fractional ownership programs have already agreed or even required that shareowners log their interests after modification to the IRMA system. Potentially, this could create a backlog of such registrations now that the new procedure is in place, since as many as 32 shares may have been sold in individual aircraft, but Greene assured EBACE Convention News that the system has plenty of capacity.

In practice, people owning a partial or fractional portion will appear on the international register as debtors with precise details about their share, identified as a contract of sale, with creditors’ financial arrangements recorded as international interests, said Greene.

Since the IRMA is designed to provide a trackable sequence of priority interests with a complete history of transactions involving whole or partial aircraft, owners’ names will remain in the system after all interest in the aircraft has been given up. Nevertheless, registration of full or partial ownership or interest in an aircraft is not mandatory; the decision to register remains with individuals.

International Registry Established

The International Registry of Mobile Assets (IRMA) covers airplanes approved for eight seats, helicopters with at least five seats and engines rated at a minimum of 1,750 pounds thrust or 550 hp. The treaty covers international interests in aircraft objects: rights arising under security, lease or title-retention agreements.

Of the 28 countries that signed the Cape Town Treaty that led to the creation of IRMA (plus nine that did not), the following 16 have ratified it: Afghanistan, Angola, Colombia, Ethiopia, Indonesia, Ireland, Kenya, Malaysia, Mongolia, Nigeria, Oman, Pakistan, Panama, Senegal, South Africa and the U.S.