LAST MONTH, the controversy and uncertainty surrounding South Africa’s implementation of the Cape Town Convention and its associated Aircraft Equipment Protocol into South African law was discussed. This subject has taken on special significance as many South African airlines are currently purchasing or leasing new aircraft and are hoping to qualify for risk exposure discounts on these transactions. Only if the Convention and Aircraft Equipment Protocol have been properly implemented into South African law will these airlines be able to access these discounts. It was also previously mentioned that the Cape Town Convention can be “interfaced” with a variety of other protocols that deal with the secured financing of movable assets such as satellites and railway rolling stock.
As the saga of the Cape Town Convention is still topical, it is only appropriate to take a peek at another controversy that has erupted in the past month involving the next protocol to be attached to the Cape Town Convention, namely the “Space Assets Protocol”. A group of leading global satellite operators, spacecraft manufacturers, launch service providers and space enterprise finance companies (the “Space Industry”) recently addressed a letter to the head of the international organisation, UNIDROIT, calling on the institute to “halt its plans to adopt the current draft Space Assets Protocol”. This letter was in response to UNIDROIT scheduling a Diplomatic Conference to take place in Berlin this month, to finalise and adopt the latest protocol to the Cape Town Convention. The clear intention of the Space Industry is to derail the Berlin conference and put pay to the completion of the Space Assets Protocol, which the industry neither likes nor wants.
The basic concept behind this protocol is similar to the Aircraft Equipment Protocol. The former is designed to regulate business dealings in space assets such as satellites and provide a structure for registering international interests in space assets. It provides that once an international interest in a space asset is registered in favour of the person financing the asset, then should the insolvency of, or non payment by, a satellite operator take place, the financier will have the strongest and most compelling legal claim to the space asset or the data or signal generated by the satellite.
Although, in most cases it is not possible for a financier to physically re-possess a satellite situated in outer space, the financier is, however, able to take control of and re-assign the use of the sensing data or signal. In the face of arguments from the Space Industry that there is no need for the Space Assets Protocol, it has taken more than 12 years to develop the draft protocol to its current state.
Throughout this time, satellite operators have consistently argued that space assets share very few characteristics with other classes of mobile equipment. They have emphasised that the major dissimilarity between the financing of satellites and other mobile equipment is that financing rates in the space sector are not determined by the risk associated with the transaction, but rather by the cash flows and revenue that will be generated by the satellite. It appears that the
revenue streams generated over the life of a satellite normally exceed the value of the satellite by a ratio of 8:1. On the other hand, as was seen with the insolvencies of the Iridium and Globalstar satellite companies, the actual space company assets have a low recovery value.
From the start of the process to draft the Space Assets Protocol, the Space Industry voiced its concern that (i) the Space Assets Protocol offers no tangible benefits for commercial satellite operators and financiers; (ii) the Space Assets Protocol will impose unnecessary and costly bureaucratic burdens on the satellite industry; (iii) there is no identifiable problem in the current satellite financing environment that is addressed by the Protocol; (iv) the current financing processes have worked consistently well for both new and established satellite operators and (v) no satellite financing transactions have ever failed to proceed or been unduly expensive due to problems with securing a financier’s interest.
The abovementioned letter from the Space Industry concludes by stating that “UNIDROIT has not addressed these concerns in the draft Space Assets Protocol. Indeed, the organisation has consistently disregarded the views of the satellite manufacturing, operator and financing communities in the UNIDROIT meetings and drafting”. The letter to UNIDROIT, has since been followed by a joint press release by the Satellite Industry Association and three other associations from Europe, Australia and Canada questioning why “...unnecessary and totally counterproductive burdens should be placed on the satellite industry when governments are urging industry to create more jobs and enable [economic] growth”.
Although there had been no official response from UNIDROIT on the matter by the time of writing, in the circumstances it would seem foolhardy for UNIDROIT to proceed with the Diplomatic Conference
this month in the face of such substantial opposition to the Space Assets Protocol. So where does South Africa stand on the issue of the adoption of the Space Assets Protocol? At present, South Africa has yet to formulate its position on the Protocol. However, due to South Africa’s historic and close association with the Cape Town Convention, there will undoubtedly be an expectation on the part of UNIDROIT that the country should support the Protocol.
But things will not be as simple as that. South Africa has its own fledgling satellite manufacturing industry in the form of the company, Sunspace, which has already manufactured and launched a few locally produced satellites. The country also has other stakeholders in the space arena such as the South African National Space Agency, whose views on the topic need to be taken into account. The Government will therefore have to consult widely on what approach it should follow. The indications are that a consultative workshop on the protocol will shortly be held under the auspices of the South African Council for Space Affairs which has the mandate for advising the Minister of Trade and Industry on any matter that may have an influence on space affairs including South Africa’s obligations in terms of any space related international conventions and treaties. Although it is unclear at this stage whether South Africa will support UNIDROIT or the global Space Industry, in this fight, the one thing that is certain is that South Africa will adopt a more considered and circumspect approach to the Space Assets Protocol than was the case with its implementation of Cape Town Convention and Aircraft Equipment Protocol.
