Aviation has long been recognised as one of the fastest growing sectors in the world economy. Most of the world's airline owners, lessors and financiers protect ownership rights and security interests under the Convention on International Interests in Mobile Equipment and its related Protocol on Matters Specific to Aircraft Equipment (together the Cape Town Convention).  Under Australian law however aircraft is regulated by the Personal Property Securities Act 2009, new and relatively untested legislation that is much more limited in scope. 

The Australian Government foresaw the need to consider the application of international laws by drafting relevant aircraft definitions in the Personal Property Securities Regulations 2010 to allow larger aircraft to be regulated by the Cape Town Convention. On 11 October 2012, Mr Albanese, the Federal Minister for Infrastructure and Transport, announced that the Australian Government will take the final step and ratify the Cape Town Convention.

Major development

On 12 October 2012 Mr Albanese, Federal Minister for Infrastructure and Transport, announced that the Australian government will accede to the Cape Town Convention1.

This is a major development in the aviation finance industry and will have the advantage of:

  1. covering the field in aircraft regulation;

The Cape Town Convention will apply to larger aircraft equipment. Aircraft objects outside its scope will continue to be regulated by the Personal Property Securities Act 2009 (Cth) (PPSA) which commenced operation in Australia on 30 January 2012.

Financiers, both domestic and international, will find comfort in the protection of their interests and reduction of risk;

  1. aircraft operators having access to fee discounts from export credit agencies;

Australian airlines will be entitled to the fee discounts provided the OECD is satisfied that Australian law has been modified to reflect the Cape Town Convention.

  1. possible harmonisation of personal property and aviation laws between Australia and New Zealand;

More than a decade ago New Zealand introduced its own Personal Property Securities Act 1999 (NZPPSA) but amended its Civil Aviation Act to create an exception to the application of the NZPPSA to aircraft2 from 1 November 2010.

Accession will assist with the harmonisation process that was recently proposed by representatives of Australian and New Zealand Governments who are keen to establish a single trans Tasman register for PPSA personal property by the end of 2014.


In November 2010 Norton Rose made a submission to the Australian Department of Infrastructure and Transport suggesting declarations that the government may make should it accede to the Cape Town Convention.

If the suggested declarations are adopted, international financiers and lessors will welcome permitting self-help remedies under article 54(2). Election of Alternative A (applicable to all types of insolvency proceedings for the purpose of article XI of the Protocol3) will mean that there will be a reduction of risk associated with financing, legal predictability will be introduced and the risk of further delays will be eliminated by providing 60 days’ waiting period (under article XXX(3) of the Protocol).

In our submission we also suggested that the government consider opting for dual registration rather separate registrations. This has the benefit that one registration under the Cape Town Convention would be an automatic registration under the PPSA.

Other important declarations suggested by Norton Rose include:

  • article XXXI(1) applying article XIII on deregistration and export request authorisations which are not available under the PPSA; and
  • article XXX(1) applying article VIII on the choice of law.

Compliance with these declarations is essential for the reduced premiums under the OECD Sector Understanding on Export Credits for Civil Aircraft to apply for export credit financing for Australian airlines.

Benefits for financiers and creditors

Once the Cape Town Convention enters into force in Australia, Australian airlines’ international creditors will benefit from a much clearer and more predictable priority regime for “international interests” in Australia. Lessors and financiers will welcome the recognition of “self-help” remedies and take comfort from the right to the return of the aircraft in insolvency proceedings.

Changes ahead

We expect that accession to the Cape Town Convention may result in an increase in the number of locally registered aircraft requiring changes to current financing structures for Australian-operated aircraft.