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.
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, the Government will deposit an instrument of accession and a series of declarations with the International Institute for the Unification of Private Law (UNIDROIT). The Cape Town Convention would come into operation three months after the documents have been deposited with UNIDROIT.
It is anticipated that the Cape Town Convention will come into force in Australia in mid-2014.
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.
2010 Cape Town Consultation Paper
Following formal stakeholder consultations about the merits of accession to the Cape Town Convention in 2008, the Department of Infrastructure and Transport released a further Consultation Paper PDF: 57 KB on 22 November 2010, inviting stakeholders to comment on specific issues relating to implementation of the Convention.
The consultation period has now closed.