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 has completed the formal accession process to the Cape Town Convention by depositing an Instrument of Accession and a series of declarations with the Institute for the Unification of Private Law (UNIDROIT). The declarations made by Australia are available on the UNIDROIT website.
The Cape Town Convention will come into force in Australia on 1 September 2015.
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.
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.