The Protocol claims to want to help satellite financing by providing new legislation to cover financial interests in space assets.

The purpose of the Protocol is to satisfy "the need for a uniform and predictable regime governing the taking of security over space assets and facilitating asset-based financing of the same." More specifically, the purpose is to establish an International Registry to record and determine priority among creditor rights in space assets on a first-to-register basis. This means that a creditor who has recorded his interest in the Registry first, will have priority rights over all other creditors, even if there are prior interests, which are not registered. It is not intended to become an ownership registry, nor a catalogue of assigned spectrum or orbital slots. It is meant to capture only secondary transactions of sale, not the original satellite purchase agreement for a satellite.

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The International Institute for the Unification of Private Law (UNIDROIT) is an intergovernmental organization whose mandate is to find areas to modernize and harmonize private international law. UNIDROIT has focused much attention on facilitating financing of high-value mobile assets such as aircraft and rolling stock (trains) for which protocols were completed. Approximately a decade ago, when high-cost asset-based financing of satellites was thought to be possible, UNIDROIT started looking at financing of space assets including, in particular, satellites.

The UNIDROIT Space Assets Protocol has been drafted by respected lawyers, who are however independent from the business of satellite finance. The 63 Member States of UNIDROIT have yet to state their views on the draft Protocol, however so far there has been a broad lack of awareness or participation by Member States. This is of concern to the satellite industry as the Protocol may, as a result of this lack of awareness, be easily adopted. The Member States will meet to discuss and vote the Space Assets Protocol at a UNIDROIT diplomatic conference in February 2012 in Berlin.

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In the early days of the drafting process, satellite operators and banks did not concern themselves with the Protocol. This was because protecting security interests in operational satellites was not considered important, as lenders did not see much value in repossessing satellites in orbit. In addition, and importantly, satellite financing was not limited or facing problems that might have indicated the need for such a Space Assets Protocol. On the contrary and unlike other sectors where similar protocols have been implemented (aircraft and rolling stock), there is little asset-based financing in the satellite sector, and in any event, not enough to justify imposing a new supra-national regime relating to security interests in space assets.

Industry did not seek the Protocol. The Protocol was not developed as a result of a problem facing the satellite sector. Existing as well as start-up operators / first time space players were and continue to access space asset financing without difficulty and without concern as to whether there is a clear way to register security interests via the Space Assets Protocol. Any concerns regarding securitization of assets are successfully addressed contractually under existing national legal regimes.

Industry became more engaged in recent years upon becoming aware of worrying drafts of the Protocol – a Protocol that industry viewed as unnecessary and harmful to space asset financing. Industry continues to believe that the current space financing structure serves the sector very well. Unfortunately, industry’s serious concerns regarding the Protocol were not addressed by UNIDROIT and, as a result, are not reflected in the current draft Protocol that will be sent to the Member States for consideration and approval in February. Today, there is broad satellite industry opposition to the draft Protocol, including satellite operators, manufacturers, launch services providers, insurers and brokers, lenders, trade associations from around the world.

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The Protocol would become law in those nations that ratify it. It will then require creditors (banks / others - whether public or private entities) to register their interests in the Space Assets Registry if they wish these to be enforceable. However creditors will first need to determine whether or not the assets over which they have security can be protected by the Protocol. This will not be easy, as the definition of a "space asset" under the Protocol remains unclear.

Remember also that national laws that apply to financing already address matters of grant and perfection of security interests and ownership rights for space objects adequately. A new, supra-national legal regime that will not replace existing national laws will:

1. result in overlap and potential conflicts with applicable national laws resulting in rights being qualified and conditional, and
2. give rise to another requirement for duplicative and supplemental filings under national laws, likely in more than one jurisdiction given that investors in a satellite are often from different countries.

In the end, the Protocol will cause an additional layer of burdensome law, regulation, and bureaucracy. Additional legal analysis will be required to find a way through the confusion and problems that the Protocol will cause. This will result in higher transactional costs (legal and financial), increase the likelihood for potential conflicts with existing legal regimes that already work well, may lead to higher insurance premiums, and so on – all of which will hinder rather than facilitate satellite financing. In addition, it is unlikely that a new satellite operator would choose to establish itself in a country that has ratified this Protocol and which as a result of doing so, presents additional regulatory risks, costs and burdens. Contrary to the Protocol's purpose, the resulting conflict may therefore serve to limit commercial opportunities and transactions (particularly for small operators) and have a chilling effect on future financings as creditors may decide that the problems introduced by the Protocol add risks that they are unwilling to assume.

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No. Although there is not a lot of asset-based financing in the satellite sector, there is some. Start-ups or governments seeking to establish a new national operator may seek asset-based financing to develop their satellite network. Numerous examples from the last few years exist to show the successful raising of finance in both developing countries (e.g., Bolivia, Vietnam, Kazakhstan) and by start-up operators (e.g., Avanti, O3b).

In addition, existing satellite operators who largely self-finance but who may host payloads that are subject to lending, may also find their satellites caught by the Protocol. This in itself may serve as a disincentive to satellite operators from offering their satellites to host payloads, a recent activity, which reduces both cost and risk for the payload owner. The situation will be aggravated further if the payload carries public service obligations, where creditors’ rights are even less clear.

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Given the serious concerns regarding the Protocol and at a time when governments should be easing unnecessary regulatory burdens on satellite operators in order to promote economic growth and social benefit, we encourage UNIDROIT Member States to carefully consider opposing the Protocol rather than implementing an additional, unnecessary, complicated, and unsolicited administrative and legal process on the satellite sector.

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