Aviation has been recognised as one of the fastest growing
sectors of the Australian economy. International scheduled
passenger traffic in the year ending October 2011 was 27.946
million compared to 26.792 million in 2010, an increase of 5.5 per
cent1 and domestic passenger traffic in the year ending
October 2011 was 54.75 million, an increase of 5.8 per
cent2. As a consequence it is expected that airline
growth to accommodate the increasing passenger lists will grow
exponentially over the next decade3.
The Australian Government has recently introduced far reaching
legislation at a national level that will affect personal property,
including aircraft. The Personal Property Securities Act 2009
(PPSA) was passed on 18 December 2009 with operational commencement
on 30 January 2012. The Australian Government is also considering
whether it should accede to the Convention on International
Interests in Mobile Equipment (Convention) and the related Protocol
on Matters Specific to Aircraft Equipment (Protocol) (together more
commonly known as the CTC) that applies to "aircraft
objects". Should the government ratify the CTC, security
interests in all aircraft objects (other than smaller aircraft
objects falling outside of the CTC definition of aircraft objects)
will be regulated by the CTC.
For aircraft registered in Australia, this will mean that
Australian financiers and lessors will obtain significant benefits.
Australia will at last be propelled into the international arena,
when dealing with those other jurisdictions that have already
ratified the CTC. Another benefit will be derived from the 2011
Sector Understanding on Export Credits for Civil Aviation (ASU)
which took effect on 1 February 2011. On accession it will provide
immediate discounts on minimum premium rates to borrowers in
jurisdictions that have acceded to the CTC. In addition if
Alternative A of the ASU qualifying declarations is made, there
will be a reduction of risk associated with financing. Alternative
A (which applies on insolvency) introduces legal predictability and
eliminates risk of further delays and this in turn will reduce loss
given default. At the same time, regulatory reserves under Basel II
will be reduced (and when Basel III commences if reserve
requirements are higher than Basel II the loss given default will
become more valuable to financiers).
The CTC allows creditors to register international, national and
prospective interests on the international register. Standard
remedies will be available to all jurisdictions that have acceded
to the CTC. As a consequence, financiers in the aviation industry
will have confidence to provide risk capital, leading to a
reduction in costs. Debtors will also gain an advantage by
obtaining protection against seizure and detention of aircraft
objects if they have maintained their financial obligations.
Under the PPSA, whilst a creditor has the right to seize and
detain aircraft in the context of default and in the exercise of
its enforcement remedies, there is no provision to assist the
creditor with deregistration and export of the aircraft from the
Civil Aviation Register. The CTC, on the other hand, establishes
clear rules to enable the creditor to seek deregistration and
export in the form of an irrevocable deregistration and export
request authorisation once the applicable CTC declarations have
The Australian Government recognises that aviation is central to
its economy and has undertaken extensive consultation with
stakeholders in the aviation industry. Support by aviation
participants for accession to the CTC has been provided to the
government which is currently working through the legislative
changes required should it take that step. We expect the government
to provide its response later this year.
1International airline activity 2Aviation - Domestic airline activity: Annual 2010 -
2011 3Qantas has recently placed the biggest order in
Australian history for 110 A320 Airbus carriers
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