On 26 May 2015, Australia acceded to the Cape Town Convention: an international convention designed to simplify the aircraft registration process at an international level and protect the security interests of financiers of aircraft objects.

Australia joins 65 states including the United States, New Zealand, China and Singapore, as well as the European Union, already party to it.

The 2001 Convention on International Interests in Mobile Equipment and Protocol to the Convention on International Interests in Mobile Equipment on Matters Specific to Aircraft Equipment (together the Cape Town Convention) entered into force on 1 May 2006.

The Cape Town Convention establishes an international registry for the registration of security interests in aircraft objects and provides creditors with internationally recognised remedies for default or insolvency.

The International Registry of Mobile Assets

The International Registry of Mobile Assets is an online registration system where individuals and organisations can register financial interests in aircraft objects.  It provides for the registration and protection of international interests which are recognised by ratifying states.  It also establishes priority of interests on a “first-to-file” basis.

The cost to register on the International Registry (including user set-up and registration) is currently US$300.

Interests in aircraft objects

The Cape Town Convention applies to transactions involving aircraft, airframes, engines and helicopters where the applicable size/power requirements are met.  That is:

  • airframes certified to transport at least eight persons (including crew) or goods in excess of 2750 kilograms;
  • helicopters certified to transport at least five persons (including crew) or goods in excess of 450 kilograms;
  • jet propulsion aircraft engines with at least 1750 pounds of thrust (or equivalent); and
  • turbine-powered or piston-powered aircraft engines with at least 550 rated take-off horsepower (or equivalent).

Remedies for default or insolvency

Under the Cape Town Convention, creditors party to a security agreement are afforded certain rights in the event of a debtor’s default or insolvency.

Remedies provided to a creditor – after obtaining a court order or as agreed by the debtor – include:

  • repossession of the aircraft object;
  • sale or lease of the aircraft object; and
  • collection and receipt of income or profits arising from management or use of the aircraft object.

In certain circumstances, a creditor may also be able to secure deregistration and export of the aircraft to ensure that it cannot legally be flown to another country to avoid asset recovery.  In Australia, the power to record, remove and exercise an Irrevocable Deregistration and Export Request Authorisation will be conferred on the Civil Aviation Safety Authority.

Interim relief, including preservation, possession, control or custody, immobilisation and lease or management of the aircraft object and the income derived from it, may also be available where the debtor has agreed to it.

Entry into force

Australia passed the International Interests in Mobile Equipment (Cape Town Convention) Act 2013 (and consequential amendments), which received royal assent in June 2013, enabling the country to adopt the terms of the Cape Town Convention. Now that Australia has acceded to the Cape Town Convention, the substance of the Convention will take effect in Australia on 1 September 2015.

Interaction with Australia’s domestic securities framework

Under existing Australian domestic law, security interests in personal property can be registered and searched on the Personal Property Securities Register (PPSR).

The impact of Australia signing up to the Cape Town Convention is that checks for registration on both the domestic and international registries will now be required.

The implementation of the Cape Town Convention does not, however, exclude the operation of the domestic PPSR.  Instead, the international rules simply prevail to the extent of any inconsistency.

Benefits for the aviation industry in Australia

There are a number of potential benefits for the aviation industry, once the Cape Town Convention takes effect in Australia, including that:

  • Australian airlines may have access to a fee discount from international export credit agencies for the purchase of aircraft and aircraft objects;
  • Australian airlines may be able to obtain cheaper finance when purchasing aircraft as a result of reduced creditor risk; and
  • based on a suggestion from the Department of Infrastructure and Regional Development, financial institutions may choose to lower their lending rates in light of enhanced creditor security.
Share This