The State Airports (Shannon Group) Act 2014 (the "Aviation Act") came into force on 27 July 2014. The Aviation Act enhances Ireland's position as a global centre for aviation finance and leasing by, among other things, introducing important reforms in the Shannon Region which will build upon the existing aviation industry of over 40 companies operating in the area.
Significantly for aircraft financiers and lessors, the Aviation Act amends the International Interests in Mobile Equipment (Cape Town Convention) Act 2005 to enable the Irish Government to make an order to give effect to 'Alternative A' in Article XI of the Aircraft Protocol to the Cape Town Convention.
Alternative A requires the insolvency administrator or debtor by the end of the 'waiting period' or any earlier date the creditor would be entitled to repossession of the aircraft object, to either:
- give possession of the aircraft object to the creditor; or
- cure all defaults other than a default constituted by the opening of insolvency proceedings and to agree to perform all future obligations under the relevant agreements.
Accordingly, Alternative A provides the creditor and the debtor or the insolvency administrator with a clear deadline by which they can negotiate the return or retention of the aircraft object. The explanatory memorandum accompanying the Aviation Act provides that the Ministerial order may specify a 60 day period as the 'waiting period' under the Protocol. This represents a significantly improved position for creditors when compared with Ireland's existing domestic insolvency laws which provide for an insolvency moratorium of between 70-100 days.1
Benefits of Alternative A
ECA Supported Financing
Irish operating lessors and airlines may be eligible for a reduction in the ECA premium payable on an ECA supported transaction in accordance with the Aircraft Sector Understanding ("ASU") which provides for a uniform 'Cape Town Discount'. The aircraft must be registered in a Contracting State that has also adopted 'Alternative A' in order for Irish operating lessor to claim the ECA Cape Town Discount.
EETC and Bond Issuances
The adoption of Alternative A should generally reduce financing costs for operators on the basis of more accurate transaction risk pricing from the introduction of orderly and efficient insolvency proceedings whereby the creditor can recover the aircraft object within a set timeline. The certainty in accessing the collateral is likely to open the door to non-US Enhanced Equipment Trust Certificates ("EETCs") Irish issuer entities and makes Ireland an even more attractive jurisdiction for investors and financiers.
As of the time of writing, the Ministerial order implementing Alternative A has not yet been made and the Irish parliament is currently in recess for the summer. The earliest that the Ministerial order may be granted is in the final quarter of 2014 and we will continue to monitor orders made pursuant to the Aviation Act and the progress of all new initiatives.
1 The court has discretion to extend for any period it considers necessary to enable it to reach its decision and may be extended by any period required for an appeal of that decision.
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