Aviation finance in Australia: overview

A Q&A guide to aviation finance in Australia.

This Q&A provides a high level overview of key practical issues including financing options for purchasing aircraft; registration and deregistration requirements; transfer of title; security, including aircraft mortgages; transfer of security; enforcement of security and repossession; and application of the Cape Town Convention.

To compare answers across multiple jurisdictions, visit the Aviation Finance Country Q&A tool.

The Q&A is part of the global guide to aviation finance. For a full list of jurisdictional Q&As visit www.practicallaw.com/aviationfinance-guide.

Ben Martin and Laura Evans, Norton White Lawyers
Contents

Financing options

1. What are the main options available for financing the purchase of an aircraft? How are aircraft purchases typically financed?

In Australia, there are a number of options available to finance the purchase of an aircraft, which differ in suitability and complexity, including:

  • Secured loan.

  • Hire purchase.

  • Operating lease.

  • Finance lease.

Larger aircraft finance transactions often involve a combination of these financing structures. The type of aviation finance chosen largely depends on the:

  • Preferences of the financier.

  • Value of the aircraft.

  • Rights of the financier on insolvency of the debtor.

 
2. What are the issues arising in relation to the various financing options?

The following issues have an influence on the financing structure that is used:

  • Security.

  • Taxation.

  • Accounting treatment (on/off balance sheet).

  • What is to happen with the aircraft at the conclusion of the financing.

  • The desired degree of financier oversight/management (that is, return conditions and maintenance reserves).

Some of these issues are discussed in more detail in the remainder of this chapter.

 

Registration and deregistration requirements

Registration

3. What is the procedure for registration of an aircraft?

The primary legislation regulating civil aviation in Australia is the Civil Aviation Act 1988 (CAA) and its subordinate regulations and orders, including the Civil Aviation Regulations 1988 (CAR) and the Civil Aviation Safety Regulations 1998 (CASR).

The Civil Aviation Safety Authority (CASA) maintains the Australian Civil Aircraft Register (Aircraft Register), which can be searched online at: www.casa.gov.au/aircraft-register. The prefix for civil aircraft registered in Australia is "VH". Searches can be made online for aircraft on the Register against the prefix, airframe serial number, manufacturer, aircraft model and engine type.

The CASA must enter the following details in the Aircraft Register:

  • Registration mark assigned to the aircraft.

  • Manufacturer, model and serial number of the aircraft.

  • Country and year of manufacture of the aircraft.

  • Names and addresses of the owner and registered operator of the aircraft.

  • Date of registration of the aircraft and, if registration is for a particular period, the date on which it ends.

The registration of aircraft in Australia is primarily regulated under Part 47 of the CASR. An application to register an aircraft must be made by the owner of the aircraft. If the aircraft is owned by more than one person, only one owner can be registered as the registration holder for the aircraft. If the registration holder is an "eligible person" (as defined in Part 47 of the CASR), it can also be registered as operator of the aircraft. If the registration holder does not meet the criteria of an eligible person, another eligible person must be appointed as the operator of the aircraft.

The registration holder of an aircraft in Australia does not need to be an Australian entity, but can be a foreign individual or entity capable of providing evidence of its legal existence. This is in contrast to other aviation registries such as the US Federal Aviation Administration Registry, where an aircraft must be owned by a citizen of the US (as defined in section 40102(a)(15),Title 49 of the United States Code).

By contrast, the registered operator of an Australian registered aircraft can be any of the following:

  • A resident of Australia who is 18 years of age or older and either:

    • an Australian citizen; or

    • the holder of a permanent visa.

  • A corporation incorporated under the Corporations Act 2001 (Cth) (Corporations Act).

  • A body incorporated under a law of Australia (other than the Corporations Act).

  • A foreign corporation that is lawfully carrying on business in Australia.

To make an initial registration of an aircraft on the Aircraft Register, the intended registration holder and intended registered operator (if different from the registration holder), must:

  • Complete and submit Form 29 to the CASA (which now requires a photo of the airframe data plate).

  • Pay the applicable fee (currently A$130).

Before lodging Form 29 with the CASA, the applicant must submit to the CASA an official notification of the aircraft's deregistration from the registry of the country from which the aircraft will be imported.

If the CASA registers the aircraft, it must give a certificate of registration for the aircraft to the aircraft's owner (as registration holder).

The Aircraft Register is not a register of title, that is, an entry on the Register or a certificate of registration cannot be relied on as conclusive evidence of a legal or beneficial interest in the aircraft (regulation 47.055, CASR). Form 29, which is used to apply for registration of an aircraft, does not require proof of ownership to become a registration holder. However, the applicant must make a declaration that it is the owner of the aircraft, or if there is more than one owner, that it was duly appointed to act on behalf of all owners. Only one party can be the holder of a certificate of registration. This requires parties to enter into agreements, if there is more than one party with a proprietary interest in an aircraft.

Flying an unregistered aircraft in Australia is an offence, unless the aircraft is exempt under the limited categories set out in regulation 47.015 of the CASR (section 20AA, CAA). The penalty for this offence is imprisonment for two years.

 
4. What is the procedure for registration of aircraft mortgages?

Aircraft mortgages are not registered on the Australian Civil Aircraft Register, and there is no specific aviation register for recording security interests over aircraft.

Financial and security interests in aircraft must be registered on either or both the:

  • Personal Property Securities Register (PPSR), under the Personal Property Securities Act 2009 (Cth) (PPSA).

  • International Registry, under the Convention on International Interests in Mobile Equipment and its Protocol on Matters Specific to Aircraft Equipment (Aircraft Protocol) (together, the Cape Town Convention).

Australia has had a general register for interests in personal property (that is, the PPSR) since 2012. Before this reform, security interests over aircraft were created by way of mortgage or charges (whether fixed or floating) that were registered on the Register of Company Charges with the Australian Securities and Investments Commission (Australia's corporate regulator) (Corporations Act 2001 (Cth)).

The PPSA came into force in Australia on 30 January 2012 and radically changed the personal property regimes that existed before this date, replacing them with a single national register for the registration of security interests in personal property, the PPSR.

A "security interest" is defined widely as an interest in personal property provided for by a transaction that, in substance, secures payment or performance of an obligation (including a floating charge or a chattel mortgage that secures payment or performance of an obligation) (section 12, PPSA).

"Personal property" is also defined widely and includes all property other than land (PPSA). For the purposes of registering a security interest on the PPSR, "aircraft" is a specific class of collateral, which is divided into the following sub-classes:

  • Aircraft engine.

  • Airframe.

  • Helicopter.

  • Small aircraft.

The Personal Property Security Regulations 2010 (Cth) (PPS Regulations) provide that the definition of aircraft engine, airframe and helicopter must be the same as under the Aircraft Protocol, which is in force in Australia (see Questions 27 to 31). In addition, "small aircraft" include aircraft objects that do not fall within the scope of the Cape Town Convention (PPS Regulations). The following information must be entered on the PPSR when registering a mortgage as a security interest against the collateral class of aircraft:

  • Manufacturer's serial number.

  • Manufacturer's name.

  • Manufacturer's generic model designator.

  • Aircraft nationality code and registration mark, in the case of small aircraft.

An aircraft mortgage can constitute an international interest under the Cape Town Convention if it is granted by a chargor under a security agreement in respect of any of the following qualifying aircraft objects:

  • Airframes that are type certified to transport at least eight persons (including crew) or goods in excess of 2,750 kilograms.

  • Aircraft engines having at least 1,750 pounds of thrust if jet propulsion powered, or at least 550 rated take-off shaft horsepower if turbine-powered or piston-powered.

  • Helicopters that are type certified to transport at least five persons (including crew) or goods in excess of 450 kilograms.

As the Cape Town Convention prevails over the laws of Australia to the extent of any inconsistency, an aircraft mortgage that is registered on the International Registry will take priority over a mortgage registered on the PPSR.

The PPSA regime has a wider application than the Cape Town Convention, as it applies to security interests in all forms of personal property, rather than just "aircraft objects" as defined under the Cape Town Convention. Therefore, floating charges and mortgages that constitute security interests under the PPSA can be registered on the PPSR in respect of spare parts under the collateral class "other goods".

 
5. Can aircraft leases be registered? If so what is the procedure for registration of aircraft leases?

An aircraft lease can constitute an international interest under the Convention on International Interests in Mobile Equipment and its Protocol on Matters Specific to Aircraft Equipment (Cape Town Convention), as an international interest vested in a person who is a lessor under a leasing agreement in respect of qualifying aircraft objects (see Question 4). The definition of a "leasing agreement" under the Cape Town Convention does not specify a minimum term.

An aircraft lease can also constitute a security interest under the Personal Property Securities Act 2009 (Cth) and be registered on the Personal Property Securities Register if either:

  • The transaction uses the aircraft to secure payment or performance of an obligation, such as a finance lease or hire purchase agreement.

  • The lease satisfies the definition of a "PPS lease", which in respect of aircraft (as serial numbered goods) must be for a term of more than one year (from 1 October 2015).

 
6. What is the effect of registration of:
  • An aircraft?

  • An aircraft mortgage?

  • An aircraft lease?

Aircraft

An aircraft must be registered on the Australian Civil Aircraft Register before it can be flown. Once an aircraft is registered, the applicant can apply for a certificate of airworthiness (see Question 7).

Aircraft mortgage

In Australia, aircraft mortgages can be registered as security interests on the Personal Property Securities Register (PPSR). Perfection of a security interest gives it priority over unperfected security interests in the collateral (that is, an airframe, aircraft engine, helicopter or small aircraft). Priority between two or more perfected security interests is determined on a first-to-file basis. For a security interest to be perfected, it must:

  • Have attached to the collateral.

  • Be enforceable against third parties.

  • Be registered on the PPSR.

On registration on the PPSR, the secured party will receive a verification statement confirming the details of the registration. A grantor must be notified of the registration, unless the grantor has waived its rights under section 175 of the Personal Property Securities Act 2009 (Cth) (PPSA).

As the Convention on International Interests in Mobile Equipment and its Protocol on Matters Specific to Aircraft Equipment (Cape Town Convention) prevails over all national laws (including the PPSA) in the case of inconsistency, the Cape Town Convention effectively creates a dual system of registration in Australia. This contrasts with the position in New Zealand, where the New Zealand Personal Property Securities Act is excluded when the Cape Town Convention applies.

A security interest in an aircraft object registered on the International Registry will take priority over a security interest that has been registered on the PPSR, even if the security was registered on the PPSR first. Registration on the International Registry is therefore critical. However, the Cape Town Convention preserves the priority of interests in aircraft objects registered on the PPSR before 1 September 2015, without the need for registration on the International Registry.

Aircraft lease

An aircraft lease can be registered on the PPSR or the International Registry (see Question 5). The same priority rules apply as for aircraft mortgages (see above, Aircraft mortgage).

 
7. What is the procedure for obtaining a certificate of airworthiness?

After registration of an aircraft on the Australian Civil Aircraft Register, an Australian registered aircraft requires a certificate of airworthiness issued by the Civil Aviation Safety Authority (CASA) to be able to fly (section 20AA, Civil Aviation Act 1988 (CAA)). An aircraft registration holder can apply to the CASA for a certificate of airworthiness (regulation 21.173(1), Civil Aviation Safety Regulations 1998 (CASR)). The registration holder can apply for either a:

  • Special certificate of airworthiness, which is issued for aircraft type certified in the primary, intermediate or restricted category, or aircraft in the limited category.

  • Standard certificate of airworthiness, which is issued for aircraft certified in the normal, utility, acrobatic, commuter or transport category.

Form 717 must be used to apply for a standard certificate of airworthiness and Form 718 to apply for a special certificate of airworthiness.

If an aircraft that is being imported into Australia is the first of type or first of model aircraft, the process for issuing a certificate of airworthiness may be longer. This is because the CASA will produce a ground inspection report, based on the certificate of airworthiness issue exercise for a first of type or first of model aircraft. These are normally only carried out by CASA inspectors and are only delegated to authorised persons in special circumstances.

Depending on the quality of the application and the condition of the aircraft, it should generally take the CASA about five to ten working days to assess a certificate of airworthiness application. The CASA should issue the certificate of airworthiness within one working day after the completion of the process.

Deregistration

8. What is the effect of deregistration of:
  • An aircraft?

  • An aircraft mortgage?

  • An aircraft lease?

Aircraft

To deregister an aircraft (for example, for export), the registration holder (or an authorised person) must submit Form 026 to the Civil Aviation Safety Authority.

On cancellation of the aircraft registration, the certificate of airworthiness in respect of that aircraft also ceases to be in effect.

Flying an unregistered aircraft in Australia is an offence, unless the aircraft is exempt under the limited categories set out in regulation 47.015 of the Civil Aviation Safety Regulations (section 20AA, Civil Aviation Act). The penalty for this offence is imprisonment for two years.

Aircraft mortgage

Priority rules apply to aircraft mortgages that are registered on the Personal Property Securities Register (PPSR) and the International Registry as security interests and international interests, respectively (see Question 6, Aircraft mortgage). If a security or international interest is deregistered, the secured party may lose its priority position.

Aircraft lease

Priority rules apply to aircraft leases that are registered on the PPSR and the International Registry as security interests and international interests, respectively (see Question 6, Aircraft mortgage). If a security or international interest is deregistered, the secured party may lose its priority position.

 

Transfer of title

9. How is legal title to an aircraft transferred?

Airframe

Transfer of legal title to an aircraft (including the airframe and engine) can be evidenced by a bill of sale or a contract of sale. A bill of sale is a standalone document and will not disclose the terms of the transaction, such as the price, any conditions precedent and the commercial terms (for example, any limitations of liability and rectifications of discrepancies). The vendor will warrant under the bill of sale that it conveys to the buyer its full legal and beneficial title to the airframe and engines free of any security interest, defined broadly to include any national interests (such as under the Personal Property Securities Act 2009 (Cth)) and any interests registered with the International Registry.

The bill of sale should clearly state the specific time, date and place that the vendor transfers its rights, title to, and interests in the airframe and engines. This is to ensure that, in the event of any damage to the aircraft, the time of title transfer can be determined, which in turn will determine the party that is liable to repair the aircraft under the terms of the sale agreement.

It is now usual practice when purchasing a used aircraft that the vendor provides evidence of title to the aircraft from the first owner through to the vendor, to evidence that the buyer acquires good title to the aircraft.

Engine

See above, Airframe.

 

Security

Mortgages

10. What are the types of aircraft mortgages available? What are the validity requirements for aircraft mortgages?

Prior to the Personal Property Securities regime, chattel mortgages were commonly used by financiers to take security over an aircraft. Financiers also usually sought a first ranking mortgage over the aircraft.

With the enactment of the Personal Property Securities Act 2009 (Cth) (PPSA), the broad definition of "security interest" includes mortgages and other forms of security (see Question 4). For purposes of registration on the Personal Property Securities Register (PPSR), it is not highly relevant to categorise a security as a particular type of mortgage or other security. Accordingly, it is now more common for security to be created by way of either a:

  • General security agreement, applying to all the assets of a debtor.

  • Specific security agreement, such as in respect of certain aircraft.

These interests will be registered as security interests on the PPSR. See Question 4 for further detail on the applicable registration procedure.

 
11. Will a registered mortgage take priority over other mortgages and charges over the aircraft?

Priority rules apply to security interests and international interests registered on the Personal Property Securities Register and the International Registry, respectively. See Questions 4 and 6.

 
12. Can spare parts be subject to an aircraft mortgage? If not, are there any other forms of security that can be taken over spare parts?

Spare parts can be subject to a security interest that can be registered on the Personal Property Securities Register under the "other goods" collateral class (see Question 4).

Leases

13. What forms of security can be granted over an aircraft lease?

An interest in an aircraft lease can be registered on the Personal Property Securities Register or the International Registry (see Question 5).

Other forms of security

14. What other forms of security can be taken over an aircraft?

Security interest is defined widely as any interest in personal property provided for by a transaction that, in substance, secures payment or performance of an obligation (including a fixed charge, a floating charge or a chattel mortgage that secures payment or performance of an obligation) (section 12, Personal Property Securities Act 2009 (Cth)) (see Questions 4 and 15).

Airframes and aircraft engines are sub-classes of the "aircraft" collateral category on the Personal Property Securities Register. Security interests can be registered as described in Question 4.

 
15. What other forms of security over an aircraft can be registered?

Security interests can be registered on the Personal Property Securities Register (PPSR), and international interests can be registered on the International Registry (see Question 4).

A security interest means any interest in personal property provided for by a transaction that, in substance, secures payment or performance of an obligation (without regard to the form of the transaction or the identity of the person who has title to the property) (section 12, Personal Property Securities Act 2009 (Cth) (PPSA)).

For example, security interests include interests in personal property provided by any of the following transactions, provided that the transaction, in substance, secures payment or performance of an obligation:

  • Fixed charge.

  • Floating charge.

  • Chattel mortgage.

  • Conditional sale agreement (including a sale agreement subject to retention of title).

  • Hire purchase agreement.

  • Pledge.

  • Trust receipt.

  • Consignment (whether or not a commercial consignment).

  • Lease of goods (whether or not a PPS lease (that is, a lease for more than one year)).

  • Assignment.

  • Transfer of title.

  • Flawed asset arrangement.

Security interests also include the following interests, whether or not the transaction, in substance, secures payment or performance of an obligation:

  • The interest of a transferee under a transfer of an account or chattel paper.

  • The interest of a consignor who delivers goods to a consignee under a commercial consignment.

  • The interest of a lessor or bailor of goods under a PPS lease/bailment.

A person who owes payment or performance of an obligation to another person can take a security interest in the other person's right to require the payment or the performance of the obligation (section 12(3A), PPSA).

In addition (section 12(4), PPSA):

  • An account debtor, in relation to an account or chattel paper, can take a security interest in the account or chattel paper.

  • An authorised deposit-taking institution (ADI) can take a security interest in an ADI account that is kept with the ADI.

Security interests do not include the following:

  • A licence.

  • An interest of a kind prescribed by the regulations for the purposes of section 12 of the PPSA.

A security interest is not created only by an agreement or undertaking to either:

  • Postpone or subordinate a person's right to payment or performance of all, or any part, of a debtor's obligation to another person's right to payment or performance of all, or any part, of another of the debtor's obligations.

  • Postpone or subordinate all, or any part, of a secured party's rights under a security agreement to all, or any part, of another secured party's rights under another security agreement with the same grantor.

 

Transfer of security

16. Is it possible to transfer security interests over an aircraft? Are there specific issues of local law when transferring security interests?

The terms of the security document will typically govern whether security is transferable. It is common for security agreements to provide that financiers can transfer, assign or novate their security interests without the prior consent of the debtor.

In addition:

  • It is possible to transfer a security interest registration on the Personal Property Securities Register from one individual organisation, as a secured party, to another.

  • A holder of the right to discharge an international interest from the International Registry can electronically transfer to a registry user entity, with the consent of that entity, the sole right to consent to the discharge of that interest.

 
17. Is a transfer of security subject to registration requirements?

If a personal property security (PPS) interest is assigned or purchased, the PPS registration can be transferred from one individual or organisation (who is noted as the secured party on the PPS Register) to another.

Assignments relating to international interests are registrable under the Convention on International Interests in Mobile Equipment (Cape Town Convention). An assignment is defined broadly as a contract that, whether by way of security or otherwise, confers on the assignee associated rights with or without a transfer of the related international interest (Article 1(b), Cape Town Convention).

 

Enforcement of security and repossession

Mortgages

18. What are the circumstances in which a mortgagee can take possession of the aircraft and/or sell the aircraft? What requirements must the mortgagee comply with?

There is no requirement to obtain a judgment before repossessing or selling an aircraft.

The terms of the mortgage will govern the circumstances in which a mortgagee can take possession of or sell the aircraft. In addition, the Personal Property Securities Act 2009 (Cth) (PPSA) set out certain rights of enforcement (and limitations).

Under the PPSA, the secured party can seize and dispose of the collateral if the debtor is in default under the security agreement. The mortgagee must give notice to the mortgagor before repossessing mortgaged property (sections 123 and 124, PPSA).

The requirements of the PPSA do not apply where a receiver or controller has been appointed over the property under the Corporations Act 2001 (Cth).

Additionally, for aircraft objects to which the Convention on International Interests in Mobile Equipment and its Protocol on Matters Specific to Aircraft Equipment apply, the enforcement remedies provided under the Convention will prevail over the remedies provided in the PPSA, to the extent of any inconsistency.

See Question 23 for the restrictions on a mortgagee taking possession of an aircraft where the debtor is in voluntary administration.

 
19. What is the procedure for repossession of the aircraft?

Australia has made an express declaration under Article 54(2) of the Convention on International Interests in Mobile Equipment that, unless expressly required under the Convention, repossession remedies can be exercised without leave of a court.

See also Questions 18 and 31.

 
20. Will local courts recognise a choice of foreign law in an aircraft mortgage? Are there any mandatory local rules that apply, despite a choice of foreign law?

Australian courts will generally recognise a choice of foreign law in an aircraft mortgage. However, an express choice of law will not be given effect if it is illegal or manifestly incompatible with Australian public policy. Additionally, a choice of foreign law will not restrict Australian courts from applying overriding mandatory provisions of Australian law.

The validity, perfection and the effect of perfection or non-perfection of a security interest in goods is governed by the law of a jurisdiction (including the law relating to conflict of laws) if the grantor is located in that jurisdiction when the security interest attaches to the goods under that law and the goods are of a kind that is normally used in more than one jurisdiction (section 238(3), Personal Property Securities Act 2009 (Cth)). This does not apply to goods used for personal, domestic or household purposes.

 
21. Will local courts recognise and enforce a foreign court judgment in favour of a mortgagee?

Australia is not a party to the Hague Convention on the Recognition and Enforcement of Foreign Judgments in Civil and Commercial Matters 1971.

Whether a foreign court judgment can be enforced in Australia depends on the court issuing the judgment and the type of judgment. Under the Foreign Judgments Act 1991, a final and conclusive enforceable money judgment can be enforced from certain courts in countries listed in the Regulations to that Act. An "enforceable money judgment" is a money judgment under which an amount of money is payable, except for the payment of taxes, fines and penalties (section 3, Foreign Judgment Act 1991). A foreign judgment must first be registered with a state supreme court. On registration, the judgment will be enforceable if the foreign country offers reciprocal treatment to Australian judgments. The procedure to register a foreign judgment is contained in each state's Supreme Court practice and procedures rules.

An Australian court will enforce a foreign judgment in favour of a mortgagee provided that the following conditions are met:

  • The judgment meets the criteria listed above and is registered correctly.

  • The judgment debtor does not make an application to set aside the foreign judgment under section 7 of the Foreign Judgment Act.

  • The foreign judgment was not issued more than six years prior to the application to enforce it under the Act.

Certain UK judgments are enforceable under the bilateral treaty for the Reciprocal Recognition and Enforcement of Judgments in Civil and Commercial Matters 1994.

For countries that have no arrangement with Australia, the common law allows the recognition of a foreign judgment in certain instances.

Other forms of security

22. What is the applicable procedure for repossession of an aircraft under other forms of security interests?

In addition to the right of repossession under the Personal Property Securities Act 2009 (Cth) (see Question 18), the terms of a general security agreement or a specific security agreement usually outline the procedure for repossession of secured property.

In addition, a secured creditor may appoint a receiver under the terms of a security agreement, which can grant wide powers of management to the receiver for taking control of some or all of the debtor company's assets.

Leases

23. In the event of a default event under an aircraft lease, can the lessor take possession of the aircraft without judicial intervention?

In the case of a default under an aircraft lease, the lessor can take possession of the aircraft without judicial intervention, subject to the provisions of the Personal Property Securities Act 2009 (Cth) (see Question 18).

Consideration must be given to the terms of the lease document and to the remedies under the Convention on International Interests in Mobile Equipment and its Protocol on Matters Specific to Aircraft Equipment.

In the event that the debtor is in voluntary administration, the lessor may be restricted from taking possession of the aircraft for the following reasons:

  • Unsecured creditors cannot begin, continue or enforce their claims against the company without the administrator's consent or the court's permission.

  • Owners of property (other than perishable property) used or occupied by the company, or people who lease such property to the company, cannot recover their property.

  • Except in limited circumstances, secured creditors cannot enforce their charge over company property.

  • A court application to put the company in liquidation cannot be commenced.

  • A creditor holding a personal guarantee from the company's director or other person cannot act under the personal guarantee without the court's consent.

However, once the administrator is appointed, the administrator has five business days to decide whether to give the owner, mortgagor or lessor of property that is used or in the possession of the company, notice specifying that the company does not propose to exercise its rights in relation to that property. If the administrator makes such a determination, the lessor will be able to recover its property from the company. The courts have extended the five business day-period. For example in the case of Silvia v Fea Carbon Pty Ltd (ACN 009 505 195) (Administrators Appointed) (Receivers and Managers Appointed) [2010] FCA 515 (30 April 2010), the court allowed the administrator a grace period of one month rather than five business days and allowed a further ten days in Silvia v Fea Carbon Pty Ltd (ACN 009 505 195) (Administrators Appointed) (Receivers and Managers Appointed) (No 2) [2010] FCA 572 (4 June 2010). After the relevant period has expired, the administrator will become personally liable for the amounts payable by the company under the relevant agreement.

In addition, Alternative A of Article XI of the Protocol To The Convention on International Interests in Mobile Equipment On Matters Specific To Aircraft Equipment, has force of law in Australia. Alternative A provides that, on the occurrence of an insolvency-related event, the insolvency administrator of the debtor must give possession of the aircraft object to the creditor no later than the earlier of:

  • 60 days.

  • The date on which the creditor would be entitled to possession of the aircraft if the Cape Town Convention did not apply (that is, the five business-day period (as may be extended) mentioned above).

 
24. What is the procedure for taking possession of an aircraft before the expiration of a lease?

The terms of a lease should set out the procedure for taking possession of an aircraft before the expiration of the lease.

A court order is not required to repossess an aircraft under a right under a lease. However, in contested cases, the lessor can obtain a court order and a writ for possession. In this case, an officer of the court can be involved in the recovery of the aircraft.

The Convention on International Interests in Mobile Equipment and its Protocol on Matters Specific to Aircraft Equipment (if applicable) provides for a number of remedies available to the lessor on a lessee's default.

 
25. If recovery of the aircraft is contested by the lessee and a court judgment is obtained in favour of the lessor, how long is it likely to take to gain possession of the aircraft?

Contested court applications can add lengthy delays to the recovery process. While a court can make interlocutory orders to preserve the asset, a contested hearing can still take some months to be finalised. For this reason, most financiers will rely on their rights (under the Corporations Act 2001 (Cth)) to appoint a receiver and manager to an asset, with the aim to preserve the value of the asset pending the outcome of the contested dispute.

 
26. Will local courts recognise a foreign court judgment in favour of a lessor?
 

Cape Town Convention

27. Has your country signed and ratified the Convention on International Interests in Mobile Equipment (Cape Town Convention)?

The Cape Town Convention became law in Australia on 1 September 2015, with the entry into force of enabling legislation, the International Interests in Mobile Equipment (Cape Town Convention) Act 2013.

 
28. Has ratification of the Cape Town Convention caused any conflicts or issues with local laws?

The Cape Town Convention prevails over any law of the Commonwealth and any law of a state or territory, to the extent of any inconsistency (International Interests in Mobile Equipment (Cape Town Convention) Act 2013). This includes any inconsistency with the Australian Personal Property Securities Act 2009 (Cth) (PPSA), which provides for the registration of certain security interests on the Personal Property Securities Register (PPSR).

The PPSA regime, which entered into force in 2012, has a wider application than the Cape Town Convention as it applies to security interests in all forms of personal property, which is defined broadly to include anything other than real estate. Accordingly, the PPSA applies to more than just aircraft objects (as defined under the Cape Town Convention) and extends to other items such as, for example, spare parts, propellers and intangible rights related to aircraft transactions (such as rights under insurance policies).

Therefore, in practice, Australia has a dual system of registration, where qualifying aircraft objects are registered on the International Registry and a number of security interests continue to be registered on the PPSR.

 
29. What is the legal position regarding non-consensual rights and interests under Article 39 of the Cape Town Convention?

The Government of Australia has made a declaration, in accordance with Article 39(1)(a) of the Cape Town Convention, that any statutory liens registered in accordance with the Air Services Act 1995 (Cth) (ASA) must have priority over an international interest registered on the International Registry, whether in or outside insolvency proceedings.

The effect of this declaration is to protect the rights of Airservices Australia for unpaid service charges arising under the ASA in respect of an aircraft, which would otherwise be subordinated to any international interest registered on the International Registry.

 
30. Has your country adopted the remedies on insolvency provided under Article XI of the Protocol to the Cape Town Convention?

Australia has adopted Alternative A under Article XI of the Protocol to the Convention on International Interests in Mobile Equipment on Matters Specific to Aircraft Equipment (Aircraft Protocol). Alternative A provides that, on the occurrence of an insolvency-related event, the insolvency administrator or the debtor (as applicable) must give possession of the aircraft object to the creditor no later than the earlier of:

  • 60 days.

  • The date on which the creditor would be entitled to possession of the aircraft object if Alternative A did not apply.

During the waiting period, the insolvency administrator or the debtor (as applicable) must preserve and maintain the aircraft object (including its value) in accordance with the relevant agreement.

Australia's courts cannot stay the enforcement of this remedy, as the Aircraft Protocol provides that enforcement cannot be delayed or prevented (Articles XI(9) and XI(11)).

The Government of Australia made a further declaration, in accordance with Article 55 of the Convention, that it will not apply the following provisions of the Convention:

  • Article 13 (relief pending final determination).

  • Article 43 (jurisdiction under Article 13).

 
31. What is the procedure to file an irrevocable deregistration and export request authorisation (IDERA)?

An IDERA is a voluntary measure that provides greater security to creditors (as authorised parties) by preventing a debtor from flying an aircraft to a jurisdiction where the Convention on International Interests in Mobile Equipment and its Protocol on Matters Specific to Aircraft Equipment (Cape Town Convention) does not apply. The authorised party or its certified designee is given irrevocable authorisation to deregister the aircraft under the standing direction in the form of the IDERA.

To record an IDERA on the Australian Civil Aircraft Register (Aircraft Register), a borrower or lessee (as registration holder of the aircraft) must correctly complete and submit the original IDERA on CASA Form 1538 to the Civil Aviation Safety Authority (CASA). The creditor, as the beneficiary of an IDERA, must have an aviation reference number (ARN) in order to be recognised on the Aircraft Register.

CASA Form 1538 must be signed and submitted in original hardcopy or a certified true copy to the CASA, along with an associated fee (currently A$137). The CASA does not accept electronic copies sent by e-mail or fax.

An authorised party can transfer its rights under an IDERA to a certified designee by way of a certified designee confirmation letter (CDCL). To record a transfer of rights under a CDLC, the authorised party must complete and lodge an original CASA Form 1539 with the CASA, along with an associated fee, (currently A$112). For the CDCL to be registered on the Aircraft Register, the beneficiary of a CDCL must have an ARN.

To deregister an aircraft from the Aircraft Register pursuant to an IDERA, the authorised party or the certified designee (if a CDCL was lodged) must submit the deregistration Form 1542 to the CASA, together with an associated fee (currently A$73). This form can be submitted electronically or in hardcopy. On confirmation of deregistration by the CASA, the aircraft will no longer possess a certificate of airworthiness and cannot be flown.

 

Reform

32. Are there any proposals for reform in the area of aviation finance?

The Australian Government has not made public any current proposals to reform laws in connection with the financing of aircraft.

 

Online resources

Civil Aviation Safety Authority (CASA)

W www.casa.gov.au/aircraft-register

Description. The CASA maintains the Australian Civil Aircraft Register.

Australia Finance Security Authority

W www.ppsr.gov.au

Description. This website provides access to the Personal Property Securities Register.



Contributor profiles

Ben Martin, Partner

Norton White Lawyers

T +61 2 9230 9435
F +61 2 9230 9499
E ben.martin@nortonwhite.com
W www.nortonwhite.com

Professional qualifications. Solicitor, admitted in the Supreme Court of New South Wales, Australia

Areas of practice. Aviation regulatory, transactional and contentious matters.

Laura Evans, Senior Associate

Norton White Lawyers

T +61 2 9230 9420
F +61 2 9230 9499
E laura.evans@nortonwhite.com
W www.nortonwhite.com

Professional qualifications. Solicitor, admitted in England and Wales; Solicitor, admitted in the Supreme Court of New South Wales, Australia

Areas of practice. Commercial and corporate transactional work, including mergers and acquisitions, corporate finance and high-value mobile asset acquisitions.


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