Nepal set to sign Cape Town Convention to revamp aviation sector

KATHMANDU: In a landmark move poised to reshape Nepal’s aviation landscape, the government of Nepal is on the brink of signing the Cape Town Convention, an international treaty designed to streamline aircraft financing and leasing while enhancing transparency and credibility in the global aviation market. The announcement, made by Minister for Culture, Tourism and Civil Aviation Badri Prasad Pandey during a program hosted by the Nepal Tourism Board on Sunday, signals a significant step toward modernizing Nepal’s aviation sector and bolstering its national flag carrier, Nepal Airlines Corporation (NAC).

The Cape Town Convention, formally known as the Convention on International Interests in Mobile Equipment, was adopted in 2001 in Cape Town, South Africa, under the joint auspices of the International Civil Aviation Organization (ICAO) and the International Institute for the Unification of Private Law (UNIDROIT). Its primary purpose is to facilitate asset-based financing and leasing of high-value mobile equipment—such as aircraft, railway rolling stock, and space assets—by establishing a uniform legal framework that reduces risks for creditors and lessors. For Nepal, the convention promises to simplify the complex and often opaque processes surrounding aircraft leasing, a critical need given the country’s reliance on leased fleets to meet growing domestic and international demand.

Speaking at the program, Minister Pandey emphasized that the government is in the final stages of preparing to ink the agreement, which he described as a transformative measure for Nepal’s aviation industry. “The government is reaching the final stage to ink this agreement for a better way to simplify Nepal’s aviation sector transparently,” Pandey stated. “After inking the agreement, the country’s complex aviation sector will somehow breathe freely.” He highlighted ongoing discussions with stakeholders to ensure a smooth process, adding, “We have already discussed with the concerned stakeholders for furthering the process. After the inking of the convention, no one can hide the truth regarding the aviation sector and leasing the aircraft and beyond.”

The minister’s remarks underscore a key benefit of the convention: its ability to enhance transparency. By aligning Nepal with international standards, the treaty will establish a clear legal framework for aircraft transactions, making it harder for irregularities to go unnoticed. This move is expected to rebuild trust among international lessors and investors, who have historically been wary of Nepal’s aviation market due to its regulatory complexities and economic constraints.

Nepal’s aviation sector stands to gain significantly from this development. With the national economy currently unable to support the outright purchase of new aircraft, leasing remains the most viable option for expanding NAC’s fleet. “Due to the national economic health, the government is unable to purchase additional fleet right now,” Pandey admitted. “The second option is that we can bring the planes in the lease process, so that we can address the nation’s demand.” By signing the Cape Town Convention, Nepal will gain access to more favorable leasing terms, as the treaty reduces risks for lessors by guaranteeing their ability to repossess aircraft in cases of default or insolvency—within a stipulated 10-day period in many cases. This assurance could lower leasing costs and attract more international partners to collaborate with NAC.

Moreover, the convention could help address a pressing concern raised by Pandey: the exorbitant airfares charged by international airlines operating in Nepal. “I am unhappy with the international airlines operating in Nepal that they are imposing too much expensive air tickets to the travelers and giving the wrong message that Nepal is a very expensive destination for traveling,” he said. By leasing more international fleets transparently through NAC, the government aims to increase competition, potentially driving down fares and reinforcing Nepal’s image as an affordable and accessible tourist destination. “The government must address such issues very soon for the betterment of the nation and the travelers by leasing more international fleets to the NAC in a transparent manner,” Pandey asserted.

The Cape Town Convention boasts 87 member states as of 2024, including major aviation players like the United States, China, India, and the European Union (as a Regional Economic Integration Organization). Other notable members include Australia, Brazil, Canada, Japan, Singapore, and the United Arab Emirates, alongside several Asia-Pacific nations such as Bangladesh, Indonesia, Malaysia, and Vietnam. Nepal’s entry into this prestigious group would align it with a global network committed to fostering efficient and cost-effective aviation practices, amplifying NAC’s visibility as a national flag carrier on the world stage. “The government is planning to add more domestic and international fleet in the Nepal Airlines Corporation to expand national flag carrier visibility to the world,” Pandey noted, signaling an ambitious vision for NAC’s growth.

For Nepal, the benefits extend beyond economics. The convention’s Aircraft Protocol, which entered into force in 2006, applies to aircraft capable of carrying at least eight passengers or 2,750 kilograms of cargo, as well as helicopters and aircraft engines. By adhering to this protocol, Nepal could modernize its fleet with newer, more efficient aircraft, improving safety and reliability—critical factors in a country where aviation is a lifeline for remote regions and a gateway for millions of tourists visiting the Himalayas each year. Additionally, the treaty’s International Registry will provide a centralized platform to record interests in aircraft, further enhancing Nepal’s credibility in the global market.

While the signing marks a promising leap forward, challenges remain. Nepal must ensure robust implementation to fully realize the convention’s benefits, including enacting domestic legislation to support its provisions—a step India, for instance, has yet to complete despite signing in 2008. Pandey’s optimism, however, suggests a strong political will to see this through. As Nepal prepares to join the ranks of Cape Town Convention member states, the move could herald a new era of transparency, affordability, and global connectivity for its aviation sector, positioning the Himalayan nation as a competitive player in the skies.