The increase in people’s mobility in recent years has been made possible by the development of commercial aviation and the growth of aircraft fleets. From a legal and financial perspective, it is necessary to have instruments that facilitate aircraft financing and ensure, through efficient legal mechanisms, the enforcement of security interests, which in many cases are secured by the financed aircraft themselves.
Since the regime governing security interests—and that of property used as collateral—is regulated very differently in each legal system, the international financial community has felt the need to seek a harmonizing mechanism so that these types of transactions can be conducted within a more secure legal environment. This harmonized legal framework is essential for fostering new investments in the sector, which not only allows for the fleet necessary to meet the growing demand for air transport but also ensures that the fleet is maintained in proper safety conditions, with equipment being renewed and updated to incorporate the latest technological advancements. [1]
It is in this context that the Cape Town System (CTS) emerged, comprising the Convention on International Interests in Mobile Equipment and the Protocol on Matters Specific to Aircraft Equipment, both signed-on November 16, 201 in Cape Town (South Africa), hereinafter referred to as the CTC—the Cape Town Convention and its Protocol.
The CTC and its Protocol are international legal instruments designed to facilitate financing and leasing based on high-value mobile equipment assets, particularly aircraft. The main economic benefits of the Convention stem from the reduction of financial risk for creditors and the improvement of legal predictability in cross-border transactions.
Risk Reduction for Lenders
The Convention enables the prompt enforcement of creditors’ rights, particularly through Variant A of Article XI of the Protocol, which allows for the recovery of aircraft within a maximum of 60 days in the event of the debtor’s insolvency. [2]
This reduces the average delay in aircraft recovery from ten months (global average) to two months, which can reduce losses in the event of default on aircraft loans by 25 to 30 percent.
The reduction in risk leads to lower risk premiums (spreads) in aircraft financing, making loans more affordable for airlines.
Lower Financing Costs
Airlines and other borrowers in countries that ratify and implement the Treaty can access lower financing costs. For borrowers with ratings below investment grade, the reduction in the risk spread is equivalent to a one- or two-notch upgrade in their credit rating.
The “Cape Town Discount” allows export credit agencies to offer a 10% discount on financing when the debtor is in a CTC contracting state.
Greater Access to Capital
By improving legal certainty and reducing risk, the Convection encourages more lenders and investors to participate in aircraft financing, thereby increasing the overall availability of capital for airlines and leasing companies.
Since 2006, more than 1.5 million registrations have been made in the Aircraft Protocol Registry, representing more than $1 trillion in collateral value.
Positive Externalities
The Treaty’s implementation supports the acquisition and use of newer, safer aircraft, contributing to greater safety in air travel and greater economic benefits for the aviation industry.
It also facilitates cross-border leasing and sales, making it easier for airlines to expand and modernize their fleets.
Legal Harmonization
The Convection establishes a uniform legal framework for secured transactions involving aircraft, overcoming the challenges posed by diverse national laws and conflict-of-laws issues. This harmonization is particularly valuable in international transactions, where assets frequently move across borders.
In summary, the CTC offers substantial economic benefits by reducing risk and financing costs for airlines, increasing access to capital, and promoting legal certainty and harmonization in international aircraft financing.
Situation in the Dominican Republic.
Over the past two decades, commercial aviation in the Dominican Republic has experienced significant growth, establishing the country as one of the most dynamic markets in the Caribbean. Currently, more than 16 commercial airlines operate both scheduled and charter flights. Among the major players are Sky High and Arajet; the latter, as the first Dominican low-cost carrier, aims to develop a regional hub in the country.
In a highly competitive regional environment, it is essential that Dominican commercial airlines have access to financing on attractive terms that allow them to expand and renew their fleets. In this regard, the CTC plays an essential role.
The Dominican Republic was not a signatory to the Cape Town Convention at the time of its initial adoption; therefore, the applicable mechanism for its incorporation into domestic law is accession. Under domestic law, the procedure requires that, first, the President of the Republic issue a formal document of intent to accede, expressing the State’s willingness to be bound by the treaty and submitting it to the competent authority as established in the convention itself.
The first part of the accession process was completed; consequently, the CTC and its Protocol were subjected to constitutional review, resulting in Constitutional Court Decision No. 0181/26 of April 13, 2026, which declared the CTC and its Protocol to be in accordance with the Constitution of the Dominican Republic, so the next step will be to refer the agreement to the National Congress, so that this body may review and either approve or reject the agreement.
Given the significant benefits that the CTC and its Protocol offer in supporting the development of Dominican commercial aviation, we urge our Congress to act without delay to review and approve the CTC and its Protocol.
It is important to note that, in order to implement the CTC and its Protocol, the country must properly address the enabling declarations required by the Agreement. These declarations regulate, among other aspects, the speed and effectiveness of remedies in the event of default, the debtor’s insolvency, and the removal of unnecessary legal obstacles to the recovery of aircraft pledged as collateral. Given the importance of this topic, we will continue our analysis in a future article.
[1] Morillas Jarillo, M. J., Petit Lavall, M. V., and Guerrero Lebrón, M. J. (2014). Air and Space Law. Marcial Pons.
[2] Vadim Linetsky, Economic Benefits of the Cape Town Treaty (Oct. 18, 2009) (unpublished manuscript) (on file at Northwestern University).