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Aviation: legislation developments

16 Jun 2024

On June 14, 2024, the Seimas of the Republic of Lithuania ratified the Convention on International Interests in Mobile Equipment, commonly known as the Cape Town Convention. This significant move is aimed at enhancing the operational conditions for Lithuania's aviation sector, particularly in its interactions with aircraft management and leasing companies.

The ratification of the Cape Town Convention is expected to streamline the acquisition of aviation assets for businesses operating within Lithuania, providing more favorable conditions and bolstering their global competitiveness. The government anticipates that this development will elevate the competitiveness of Lithuanian aviation companies and open up broader opportunities for activities related to the purchase, sale, leasing, and pledging of aircraft. By adopting this convention, the Lithuanian aircraft register will become safer and more appealing to companies involved in the financing and management of aircraft acquisitions. The Cape Town Convention establishes international guarantees, enabling creditors to reclaim aircraft from airlines that fail to meet their obligations and to defend their rights through the international electronic guarantee register.

However, it is important to note the reservations made by Lithuania under Articles 39(1)(a) and (b), 40, 54(2), and 56 of the Convention. These reservations include:

  • All non-consensual rights or interests that under Lithuanian law have priority over a registered international interest will continue to have priority, whether in or outside insolvency proceedings, regardless of when the international interest was registered.
  • The Convention will not affect the right of Lithuania or any Lithuanian entity, intergovernmental organization, or private provider of public services to arrest or detain an object under Lithuanian law for payment of amounts owed directly relating to those services.
  • Non-consensual rights or interests arising under Lithuanian law that allow for the seizure or detention of an object will be registrable under the Convention as if they were international interests and will be regulated accordingly.
  • any remedy available to the creditor under any provision of the Convention which is not there expressed to require application to the court may also be exercised in Lithuania without leave of the court.

It should be noted that Lithuania has not yet ratified the Protocol to the Cape Town Convention on Matters Specific to Aircraft Equipment. The law ratifying the Cape Town Convention will come into force on July 1, 2025. By this date, the government and authorized state institutions are required to enact the necessary legislative measures to implement the Convention’s provisions.

Thus, the ratification of the Cape Town Convention is expected to boost the Lithuanian aviation market by creating a secure and predictable legal environment for creditors, thereby enhancing local companies' access to financing. However, the real-world impact of the Convention and its reservations will have to be carefully observed to reach definitive conclusions about the effectiveness of the Cape Town Convention in practice.

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Šulija Partners Law Firm Vilnius, registered office Jogailos street 11, Vilnius, LT-01116, Lithuania, fax +370 52051926, e-mail: info@SulijaPartners.com

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