Financing Space Assets and Private Business Entities – Part II

III. Debtor’s Rights and Related Rights

A. Background  

     Since space assets require huge amount of money, the space industry takes a great effort to get finance for manufacturing and maintaining them. Large scale entities use their own surplus and other smaller ones tend to form a consortium to get finance.[1]  If they don’t get enough finance, they will cooperate with private-sector investors like investment banks but private-sector investors want to have a security agreement on the specific space asset or the future cash-flow from operating the asset or equipment to make sure to collect money.[2]  Most satellite manufacturers such as Boeing Satellite Systems, Motorola, and Mitsubishi Electronic actively participate in the project financing with major investment and commercial banks such as Morgan Stanley Senior Funding, Inc, UBS Investment Bank, Citibank, Deutsche Bank, and Goldman, Sachs & Co.[3] 

     However, it is hard to determine which jurisdiction or law is applied to the security agreement because each State has a different security law and space assets are in the space moving around over the world.[4]  It would be a big hurdle for business entities to get finance easily; private-sector financiers would not want to support financing or charge higher security interest.[5] 
     The Cape Town Convention tries to solve this problem through the Protocol. The main purpose of the Protocol is to make an internationally unified treaty on security agreements and the attached protocol to reflect the unique characteristic of each space asset.[6]  They would solve the problems because of the difference of security laws of each State. The unified policy would make financing easier for space business entities so that it would promote the space commerce and commercialization of space assets ultimately.[7]   

B. Debtor’s rights and Related Rights

     Having discussed above background and the ultimate goal of the Protocol, what do debtor’s rights and related rights mean at all? These are very new and unique concepts only for this Protocol since it regulates particularly space assets which are very different from other assets.[8]  It is difficult to physically move space assets and to use them for other purposes. They are specifically designed to be used in space and the size of space assets is usually huge. Thus, the Space Working Group (SWG) suggested to have new and more specific concepts for space assets, debtor’s rights and related rights, rather than to have a general term, associated rights.

     Debtor’s rights refers “the rights to receive payment and performance” as operating the space asset and related rights means the rights a government grants to debtors, such as permission to use the satellite communication frequency.[9]  However, it has been criticized that the concept of related rights is ambiguous and the Protocol can interfere with each State’s domestic policy. Therefore, the SWG has been working on these issues and tries to reach on consensus on the mechanism of the Protocol.

     The SWG seeks to increase the credit value that the Protocol would provide, specifically it seeks “to facilitate the creditor’s ability to receive performance due to the debtor from the third parties with respect to the space asset” and to reduce the detrimental effects that otherwise would arise from legal constraints when enforcing an international interest.[10] 

     A commentator suggested that the SWG should keep in mind that the Protocol addresses autonomous private parties, which is for those to make sure that they can realize their interest in that they fulfill the requirements necessary according to national laws regarding any authorization or license to operate a satellite.[11]   

IV. Expected Impact to Commercial Space Industry and Businesses

     The space industry primarily consists of mostly satellite-related services and manufacturing, such as satellite communication services, remote sensing, and satellite equipment and manufacturing, launch services, and the related companies which supply the equipments and technology.[12]  The space industry is a lucrative business and many business entities seek to join the industry continuously. This article will discuss the current space industry and tourism, and then will discuss the potential impact of the Protocol.

A. Current Space Industry and Related Business

     Telecommunications is the most essential and largest areas of the space technology. For now, telecommunications conquers the vast majority of space application such as cellular phones, satellite television, satellite radio, and a long-distance communication including video conferences. Satellites provide wireless signal transmission and there is no need for cable or fiber optic systems which, most importantly, allows the long distance transmissions to reach all over the world without wire installation.[13]  The function of satellites is that signals are sent to a satellite from one point and reflected off the satellite to reach their destination.[14]  This technology is very attractive to various industries and business entities, not only telecommunication industry but also the entertainment/media industry, internet service industry and governments. Governmental sectors use a satellite for the national security or defense purpose, military services, and also scientific research purpose. As an example of private entities’ use of satellite, Direct TV achieves a great success through its satellite operating and delivers numerous amount of radio, television and movie service.

     Remote sensing is a technique used to collect data about the earth without taking a physical sample of the earth’s surface.[15]  A sensor is used to measure the energy reflected from the earth. This information can be displayed as a digital image or as a photograph.[16]  Sensors can be mounted on a satellite orbiting the earth, or on a plane or other airborne structure. Remote sensing is mainly used for the coastal applications, oceanic applications, hazard assessment, and natural resource management by governmental organizations.[17] 

     As discussed above, the current space industry focuses very much on the satellite sector. However, there is significant interest of energy industry, pharmaceutical and biotechnology industries to discover novel technology energy sources and health care methods.

B. Tourism 

     Tourism in space could be another potential benefit for the space business. The time is not yet ripe but many governments and business entities jointly invest a lot of money to developing technology for the space tourism due to its potential profit. For example, the Unite States government has stimulated interest and investment in entrepreneurial space ventures especially through the National Aeronautics and Space Administration (NASA), which “aims to use commercially available space vehicles to transport crew and cargo to the International Space Station.”[18]  This is a good example of cooperation of a government and business entities in the operation of space business like the space shuttle.[19] 

     The more people are interested in tourism, the more governments and entrepreneurs will invest in the space tourism industry. As the space tourism is developed, it is necessary to have a uniformed regulation and insurance mechanism.

C. Expected Impact

     Above all, if the Protocol clearly provides the regulation on the space assets and debtors and related rights of the related business entities, it will help to solve a lot of problem of financing and conflicts on the assets and rights on them. The SWG provides expertise to the International Institute for the Unification of Private Law (UNIDROIT) and on educating governments as well as industry and financial institutions about the benefits of the Protocol.[20]  This effort will help to increase interest from the commercial entities and financial assistance from them.[21]  Also, it will help the Protocol to be adopted as an international instrument universally.

     Until recently, the primary parties seeking financing for space industrial projects were the government sector, huge multinational companies, and a consortium.[22]  Financiers were willing to lend to them because the risk is relatively small. However, now they hesitate to lend to the later starters since there seems to be higher risk of non-payment and, therefore, the later starters only get satellites themselves and related rights and licenses.[23] 

     Obviously, the telecommunication industry or satellite related industries are dominated by big companies which are able to afford those risks or convince financiers to lend to them. In contrast, the later starters or smaller companies are subordinated to the big companies or governments passively. Since the Protocol assures repayment, financiers would, at least, reconsider to lend to the later starters positively. Additionally, if the Protocol can provide a clear definition of space assets, it would be more secured to determine which assets are protected by the security agreements in the scope of the Protocol. It will help business entities to get financial support from financiers and open broader access to more companies.

     The SWG and UNIDROIT, first of all, need to define space assets accurately which might solve the conflict between the space industry or manufacturers and the financiers.

V. Conclusion

     The space industry and the related industries are very attractive business field to not only private business entities but also a government since it bears such huge potential development. For example, each State argues on specific matters such as the definition of space assets and scope of the application of the Protocol, especially the regulation of a security agreement which has a critical role for a State to gain or loose its profit and leading. Likewise, space manufacturer and investment bank have a sharp conflict of opinion on those points. Sometimes, an investment bank refuses to finance a space industry unless the Protocol makes sure what kinds of space assets can be subject to the regulation of security agreements and how the bank can be financially protected from the bankruptcy or explosion of the space asset.

     Regarding the definition of space assets, because of new space assets which cannot be expected from the current space technology and knowledge, it should be considered case by case and opened to possible development of space technology. Associated to the debtor’s rights and related rights, the SWG and UNIDROIT might also need to set a regulation on international Space Insurance and Intellectual Property.

     As the Protocol’s main goal is to reduce the costs, and increase the availability of credit to the affected industries and commercialization of space assets, the SWG and each Member State have to keep in mind that it should be flexible to amend the Protocol and gather different opinions from related parties. Also, having the Convention and Protocol on the space assets and security agreement will benefit the countries get into the space industry later. However, the SWG and UNIDROIT as well as the international community in general should consider those countries’ law and interest because of the potential development of the space industry.

[1] Korean Ministry of Foreign Affair and Trade, Examining the Cape Town Convention Special Conference (June 2007).

[2] Id.

[3] Milbank, Recent Satellite Financings, available at (last visited Nov. 9, 2007).

[4] Id.

[5] Id.

[6] Id.

[7] UNIDROIT, Preliminary Draft Protocol on Matter Specific to Space Assets, International Interests in Mobile Equipment – Study LXXIIJ, available at (last visited Oct. 7, 2007).

[8] Korean Ministry of Foreign Affair and Trade, supra note 1.

[9] Id.

[10] Robert Goode, Proposal to Increase the Credit Value of the Space Protocol 1 (June 2007).

[11] Stephan Hobe, UNIDROIT Registry of Space Assets 24 (June 2007).

[12] Ty S. Twibell, Space Law: Legal Restraints on Commercialization and Development of Outer Space, 65 UMKC L. Rev. 589, 620 (Spring 1997)

[13] Twibell, supra note, at 622. 

[14] Id. at 623.

[15] U.S. Department of Commerce, Remote Sensing: An Overview, available at (last visited Nov. 6, 2007).

[16] Id.

[17] Space Commerce, (last visited Nov. 18, 2007)

[18] Id.

[19] Id.

[20] Paul B. Larsen, Future Protocol in Security Interests in Space Assets, 67 J. AIR L. & COM. 1071, 1104 (Fall 2002).

[21] Id.

[22] Stacey A. Davis, Unifying the Final Frontier: Space Industry Financing Reform, 106 COM. L.J. 455, 458 (Winter 2001)

[23] Id.