The Cape Town Convention
The 2001 Convention on International Interests in Mobile Equipment and the associated Protocol to the Convention on International Interests in Mobile Equipment on Matters Specific to Aircraft Equipment (together known as the ‘Cape Town Convention’) facilitate the financing of aircraft by:
- providing creditors with an internationally recognised set of rights in the event of a debtor's default or insolvency; and
- allowing creditors to register their interests in an international register to guarantee the priority of their claim against other parties.
The Cape Town Convention instruments can be found on the UNIDROIT website.
2014 Consultation with Industry
The Department of Infrastructure and Regional Development, in conjunction with the Civil Aviation Safety Authority, has completed the drafting of legislative rules to be made under the International Interests in Mobile Equipment (Cape Town Convention) Act 2013. The legislative rules primarily deal with the registration of Irrevocable Deregistration Export Request Authorisations.
The Australian Government sought industry views on the proposed legislative rules in August 2014 PDF: 634 KB
The consultation period has now closed.
Australia is in the process of acceding to the Cape Town Convention. The Convention, Regulatory Impact Statement and National Interest Analysis were tabled in Parliament on 1 November 2012.
The International Interests in Mobile Equipment (Cape Town Convention) Act 2013 gives legislative effect to the Cape Town Convention. Copies of the Act and the Consequential Amendments Act can be found at the ComLaw website.
Once the legislative rules have been finalised, tabled in Parliament and the disallowance period has lapsed, formal approval to accede will be sought from the Federal Executive Council. Following this, the Government will deposit an instrument of accession and a series of declarations with the International Institute for the Unification of Private Law (UNIDROIT).
It is anticipated that the legislative rules will be tabled in Parliament in early 2015 and Australia will accede shortly after the disallowance period has lapsed. The Cape Town Convention will come into force three months after Australia has acceded.
Benefits for the Aviation Industry
Because the Cape Town Convention reduces creditor risk, Australian airlines of all sizes will be able to access cheaper finance when purchasing aircraft, jet engines or helicopters. Discounted financing will also be available for purchases of second hand aircraft which will help smaller regional airlines upgrade and maintain their fleet.
Operators may be able to access finance with the assistance of an export credit agency. The 2011 OECD Aircraft Sector Understanding outlines how the discounted rates on export credit financing arrangements will apply under the Cape Town Convention. The level of actual savings will depend on the purchase price of the aircraft and the credit rating of the purchaser.
In addition to discounts to export credit financing, financial institutions may be willing to reduce their lending charges in light of the enhanced creditor security that the Cape Town Convention offers. However, it will be up to individual institutions to determine whether or not (and the extent to which) they lower their rates.
These benefits will be available to purchasers once the Cape Town Convention has come into force in Australia.
Once it is in force in Australia, the Cape Town Convention will apply to the purchase of aircraft, airframes, jet engines and helicopters, provided that:
- airframes can transport at least 8 persons (including crew) or goods in excess of 2750 kilograms;
- helicopters can transport at least 5 persons (including crew) or goods in excess of 450 kilograms; and
- aircraft engines have at least 1750lb of thrust.