The Irish Government has signed an Order giving the Cape Town Convention Alternative A insolvency remedy force of law in Ireland.
The Cape Town Convention creates an international uniform body of law applicable to interests in aircraft assets for the protection of financiers, lessors and conditional sellers and to establish basic remedies available to them under agreements relating to the aircraft assets.
What is it? By giving force of law to "Alternative A", Ireland will apply a regime substantially similar to the long established Chapter 1110 insolvency remedy in the US to aircraft assets the subject of a lease, a security agreement or a conditional sale agreement registered on the international registry such that:
- within 60 days of an insolvency or threatened insolvency of a lessee, mortgagor or conditional purchaser, the lessor, financier or conditional seller will either get the aircraft asset back or all defaults (other than the default occasioned by the insolvency itself) will have been cured and an undertaking given as to future obligations;
- the aircraft will be preserved and its value will be maintained during the 60 day period;
- the Irish administrative authorities will co-operate in the exercise of remedies subject to aviation safety requirements.
Why is it important? Giving force of law to "Alternative A" in Ireland:
- confirms Ireland's commitment to the aviation industry;
- gives Irish leasing companies and airlines access to reduced cost funding;
- augments Ireland's legal and fiscal regime and enhances Ireland's position as a leading location for financing and leasing aircraft;
- facilitates particular types of financing structures in the aviation sector including
- non-US EETCs
- bond issuances
- other capital market and structured finance transactions.
What does it mean for Ireland? Following today's news Ireland meets all of the key elements to execute a successful and competitively priced EETC:
- it has an established rule of law;
- it is a Cape Town contracting state which has adopted Alternative A;
- its fiscal and legal regime is sufficiently flexible to support the structure and liquidity profile of a US EETC to access and optimise the established investor base.
While EETCs are airline based, the change in Ireland will not just benefit the Irish airlines but will potentially benefit other airlines based in Europe, Asia and the Middle East (particularly those which have ratified and implemented the Cape Town Convention including Alternative A) by providing the opportunity to locate the issuer vehicle in Ireland to avail of our legal and fiscal regime and to maximise the pricing and return to investors.
Looking forward, as the capital markets evolve and the investor base expands and becomes more comfortable with non-US airlines and the non-US legal environment, we would hope to see more non-US EETCs through Ireland and perhaps even non-US dollar denominated issuances.