How do you get a loan using as security an asset that can literally fly away, like an airplane? How about an asset that cannot be touched and has multiple leases operating at the same time, such as a satellite in geosynchronous orbit? Those are questions that once puzzled private companies, their financiers and lawyers but are routinely dealt with today in transactions around the world. In the case of airplanes, the Rome-based International Institute for Unification of Private Law (UNIDROIT) created a set of uniform commercial rules for “highly mobile capital assets” that have been adopted by scores of member states.
In the early 1990s, in parallel with the privatizations of Intelsat and Inmarsat, it seemed plausible that UNIDROIT could help create a set of uniform commercial rules to facilitate the financing of private satellite operations. Twenty years later, a preliminary draft “space asset protocol” is now being proposed for a diplomatic conference to be held in Berlin from Feb. 27 to March 9. Government and academic experts are said to believe that only a few issues need to be resolved before the protocol is ready for ratification and adoption by member states.
Everyone knows that space projects typically cost a lot and take a long time to build. In the case of mobile satellite services in the 1990s, delays in deploying satellite constellations in low Earth orbit allowed ground-based cellular systems to overtake and displace virtually all of them, bankrupting many firms in the process. In the case of UNIDROIT, it is the lawyers and academics who have taken too long, and the satellite industry has moved on to create its own procedures and legal precedents. The proposed space asset protocol is not only unnecessary but is now worse than useless as it could threaten the introduction of legal uncertainties that would deter investment and create new opportunities for litigation.
A remarkable industry letter was sent to UNIDROIT in December opposing the space assets protocol, saying the draft is “inconsistent with the market practices of commercial space financing, incorporates numerous impractical features that would deter potential investors … and add increased costs to our businesses.” The signatories included virtually every leading satellite operator, spacecraft manufacturer, launch services provider, and insurance and financial company on the planet that works with commercial satellites. From Arabsat to WildBlue, Arianespace to Space Exploration Technologies, including the U.S.-based Satellite Industry Association and the European Satellite Operators Association, the signatories said the UNIDROIT process had consistently disregarded their views in meetings and drafting.
In light of industry opposition, it would be logical to expect the upcoming diplomatic conference to be canceled. However, the lawyers and academics seem to be forging on ahead anyway. While meetings in Rome and Berlin can be pleasant, why would any country, including the United States, attend a conference to discuss an agreement that has been unanimously condemned by the supposed beneficiaries? The government lawyers and academics planning to attend space asset discussions at UNIDROIT seem to be representing only themselves and not commercial interests.
In fairness, governments remain primarily responsible, by treaty, for any liability of a satellite in space, regardless of whether it is owned by a government or the private sector. However, most governments already require private companies to insure their space assets for such financial concerns. Since the private sector has already accepted these licensing rules, the private sector should be listened to in regards to the need for regulatory “help” on asset financing.
The National Space Policy says that U.S. government space activities should not “preclude, discourage, or compete with U.S. commercial space activities, unless required by national security or public safety.” Given the lack of any clear national security or public safety rationale, the administration of President Barack Obama and the U.S. Department of State should heed the views of the international commercial space sector and send the draft space asset protocol back to academia and redeploy its legal and diplomatic resources on more pressing matters.
Scott Pace is a professor of the practice of international affairs at George Washington University and director of the Space Policy Institute.
