May 29, 2013

Second Reading Speech – International Interests in Mobile Equipment (Cape Town Convention) Bill 2013

Mr ALBANESE (Grayndler—Leader of the House, Minister for Infrastructure and Transport and Minister for Regional Development and Local Government) (09:12):  I move:

That this bill be now read a second time.

This bill is part of the government’s national aviation policy white paper commitment to maintain a vibrant Australian based aviation industry.

The purpose of the bill is to facilitate Australia’s accession to the Convention on International Interests in Mobile Equipment and the associated protocol on matters specific to aircraft equipment.

Together, these are known as the ‘Cape Town Convention’.

The Cape Town Convention is an international legal system that protects secured lenders of aircraft objects such as aircraft, airframes, engines and helicopters and reduces the risk and cost associated with financing these objects.

The Cape Town Convention creates an international registry for lenders to register their interest in an object so that, in the event a borrower is unable to repay a loan, the lenders’ claim has priority over any other claim registered thereafter.

It also outlines internationally-consistent remedies available to the lender in the event of default or insolvency.

They include the right to take possession of the aircraft without needing to seek approval of the courts.

This reduces the time it takes for a lender to be recompensed in the event of a default.

Registering a security interest under the Cape Town Convention is voluntary, so if parties to a transaction don’t want the Cape Town Convention to apply, they need not register their interest.

Of course, with the security that the convention and protocol provides, most parties are expected to register.

The Cape Town system allows countries to make declarations under both the convention and the protocol.

These declarations help determine how the Cape Town Convention will apply in a particular country.

In Australia, for example, by making certain declarations, our airlines will be eligible for a discount of up to 10 per cent on their export finance arrangements for the purchase of an aircraft or aircraft object.

Actual savings will vary depending on the credit rating of the borrower and the purchase price of the aircraft, but it is estimated the airlines could save in the order of $2.5 million on the purchase of a new Airbus A380 or $330,000 on the purchase of a new ATR72 aircraft (similar to that which currently operates by Virgin Australia from Sydney to Canberra).

Regional airlines and the general aviation sector will benefit too.

The Cape Town convention applies to aircraft carrying as little as eight passengers or 2,750kg of goods, meaning that the discounts would be available to purchasers of many smaller aircraft and second-hand aircraft.

As industry has noted, these discounts will ultimately enable airlines to accelerate the upgrade to safer, more fuel-efficient fleets.

Fifty-one countries have signed up to both the convention and the protocol.

By acceding, we follow in the footsteps of countries such as New Zealand, Canada, and the United States of America.

This bill is required in order to make the benefits of the Cape Town convention a reality.

Its primary function is to give the Cape Town convention force of law in Australia.

This will include any declarations that we make under the convention or the protocol.

To ensure that Australia qualifies for the export financing discount, the Cape Town convention will have precedence over other Australian law, to the extent that any inconsistency applies.

This approach also ensures harmony with Australia’s domestic securities framework, the Personal Property Securities Act, meaning that the benefits of both systems will be available to parties involved in a transaction.

The bill will permit the minister to make rules in order to give effect to the Cape Town convention.

It is intended that these rules will be used to introduce a new function for the Civil Aviation Safety Authority—the recording of an Irrevocable Deregistration and Export Request Authorisation or IDERA.

The IDERA is akin to a prenuptial agreement between the lender and the borrower.

The borrower agrees to lodge an IDERA with CASA in favour of the lender.

In the event of a default, the lender will be able to exercise the IDERA to secure deregistration and export of an aircraft.

This ensures that an aircraft cannot legally be flown to another country to avoid recovery of the asset.

The bill confers jurisdiction on the Federal Court of Australia and the supreme courts of the states and territories.

These are the appropriate courts for considering Cape Town matters.

The financial impact of the bill will be minimal. Individuals or companies seeking to register their security interests on the international registry will need to pay a $200 set-up fee and $100 to register.

In introducing this bill to the House, I note that our colleagues in the Joint Standing Committee on Treaties have recently tabled a report recommending we take binding treaty action in relation to the Cape Town convention.

I also note the favourable responses from the airline industry and state governments to our consultation papers in 2008 and 2010, seeking comment on whether Australia should accede to the convention.

In summary, this legislation means that Australia would join the international community in having an internationally recognised legal framework for aircraft assets that mitigates risks inherent with international aircraft finance.

I commend the bill to the House.

Debate adjourned.