The Joint Standing Committee on Treaties (the “Committee”) recommends the ratification of the Convention on International Interests in Mobile Equipment, done at Cape Town on 16 November 2001 (the “Cape Town Convention”) and the Protocol to the Convention on International Interests in Mobile Equipment on Matters Specific to Aircraft Equipment, done at Cape Town on 16 November 2001 (the “Aircraft Protocol”)

As reported in our previous client alert here, the Australian Government announced in October 2012 that it would support the implementation of the Cape Town Convention and the Aircraft Protocol (together the “Convention”).

On 27 May 2013, the Joint Standing Committee on Treaties of the Australian Parliament handed down a report recommending that binding treaty action be taken with respect to the Convention. A link to the Committee’s report is available here.

The Committee noted recent reforms to the Australian securities framework and concluded that the current legislative framework did not “provide for the unique financing requirements applicable to aviation, resulting from the mobility and depreciative nature of aircraft”.

The next steps will be for the Australian Government to introduce enabling legislation into Federal Parliament. Responsibility for drafting the legislation resides with the Department of Infrastructure and the Attorney-General’s Department. We are liaising with these departments in order to provide guidance as to expectations of industry stakeholders in implementing the Convention in the most efficient and beneficial way.

Key points to take away from the Committee’s report and providing a clear indication of the approach that will be taken when drafting enabling legislation:

  • The likely implementation model will be that used in New Zealand which brought the Convention into their domestic law and provided for the Convention to prevail over their equivalent of the Personal Property Securities Act 2009 (“PPSA”) to the extent of any inconsistency. As noted in the “Regulation Impact Statement” and the “National Interest Analysis” that was tabled to the Committee, this model will require a strong understanding and application of both the PPSA and the Convention to aviation transactions. A link to the “Regulation Impact Statement” is available here and a link to the “National Interest Analysis” is available here.
  • Recognising the Convention provides for treaty countries to “opt-in” or “opt-out” of certain Convention provisions, and/or make modifying declarations in respect of certain Convention provisions, the likely approach will be to:
    • Make a set of declarations (the “qualifying declarations”) that will allow Australian airlines to take advantage of the “Cape Town discount”, a discount provided by the export credit agencies (“ECAs”) in the “exposure fee” payable by the airlines to the ECAs when procuring ECA supported financing of aircraft under 2011 Sector Understanding on Export Credits for Civil Aircraft (“ASU”). Again, Australia is likely to take the lead of the New Zealand experience in its approach to making the qualifying declarations.
    • Ensure as far as possible the preservation of the existing position with respect to the prioritisation of employee entitlements over the rights of secured creditors to the extent domestic law gives such entitlements priority over an interest in an aircraft object over secured creditors. Such a declaration would apply whether in or outside insolvency proceedings.
  • The Civil Aviation Safety Authority will need to be involved in the application of the Convention including allowing for the recordation of an irrevocable de-registration and export request ("IDERA"), and be empowered to co-operate with enforcement remedies available under the Convention.
  • Existing legislation including the PPSA, the Corporations Act 2001 and the Civil Aviation Safety Regulations 1998 will require consequential amendments.