The changing face of aviation finance in New Zealand and Australia: The Cape Town Convention and Aircraft Protocol

The adoption of the Cape Town Convention and the Protocol is intended to improve financial security for participants in cross-border transactions involving high-value mobile equipment such as aircraft. It is intended that the resulting reduction in risk will lead to reduced financing costs for New Zealand airlines on major financing transactions. US Ex-Im Bank already offers a discount on its exposure fee for financing in relation to assets covered by the Cape Town Convention.

The Cape Town Convention and the Protocol allows financiers and lessors to register their interests in mobile aircraft equipment on an international register called the International Registry of Mobile Assets (IR). The IR is a 24 hour online priority-based register based in Dublin.  Registration gives an interest priority over other interests in the same equipment that have either been registered later in time, or not at all.  The parties can vary priorities by registering subordination arrangements at the IR.  Registration (and any amendment to it, including subordination of priority arrangements) is subject to prompt electronic consent received from all relevant parties. 

In addition, the Cape Town Convention and the Protocol offer consistent legal remedies that will apply globally as amongst the Contracting States.  Such remedies include a right to remove an aircraft from a national civil aircraft register and export it from that jurisdiction.

In New Zealand, the Civil Aviation (Cape Town Convention and Other Matters) Amendment Bill (Bill) was introduced to Parliament on 31 May 2010 after consideration by the Transport and Industrial Relations Select Committee.  The Bill amends domestic legislation, including the Civil Aviation Act 1990 and the Personal Property Securities Act 1999, as well as some company, insolvency, and statutory management legislation to enable New Zealand to accede to the Cape Town Convention and the Protocol.

A particular area which has received significant global attention in respect of the adoption of the Cape Town Convention is the inter-relationship between existing national security interest registers such as the New Zealand Personal Property Securities Register and the IR.  Contracting States have taken different approaches to this issue.  The New Zealand approach, as set out in the Bill, simply provides for the paramountcy of the Convention over any other New Zealand law to the extent that the Cape Town Convention or the Protocol applies to a matter to which the relevant New Zealand law applies or does not permit the application of the other law.

In Australia, neither the Cape Town Convention nor the Protocol has been ratified.  However, it has been noted in the Exposure Draft and Commentary to the Personal Property Security Regulations that the Australian government is considering whether to accede to the Cape Town Convention.  As part of the reform of Australia's personal property securities law the Australian government has considered the impact of the Cape Town Convention in the event that it accedes to it and the Protocol at a later date.  Consequently, in the Exposure Draft it was noted that adoption of the same definitions for certain items, such as "aircraft engine", "airframe" and "helicopter" as used in the Cape Town Convention, would be advantageous.

This article was written by Frank Porter and Anna-Louise Oliver for the Australasian Legal Business Magazine (issue 8.6, June  2010).  Frank is a senior partner in the Auckland office of Buddle Findlay and is one of New Zealand’s leading aircraft financing and leasing lawyers.  Anna-Louise is a solicitor in the Auckland office who advises on aircraft financing and leasing matters.