Warren Truss (Wide Bay, National Party, Leader of the Nationals) Share this | Hansard source

In essence, the International Interests in Mobile Equipment (Cape Town Convention) Bill 2013 and the associated consequential amendments bill allow for the ratification of the Convention on International Interests in Mobile Equipment and the Protocol to the Convention on International Interests in Mobile Equipment on Matters Specific to Aircraft, more commonly and collectively known as the Cape Town convention.

The Cape Town convention provides an international legal system designed to protect secured creditors of aircraft objects—planes, engines and the like. In doing so the convention reduces the risks and costs associated with financing these valuable pieces of equipment, which are by their nature rapidly mobile.

The Cape Town convention was established in November 2001 through the work of the International Institute for the Unification of Private Law and the International Civil Aviation Organisation. Australia was a participant in the development of both the convention and the protocol but did not sign the treaty at the time. The Cape Town convention came into force internationally on 1 March 2006 and has currently been ratified by 51 states, including the United States, New Zealand, China, Singapore and Canada. Ratifying the convention will provide access to a voluntary international register for creditors to register their security interest in an object and in doing so obtain a priority ranking in case of default or insolvency.

Unsurprisingly, the convention also establishes remedies in case of default or insolvency, such as the ability to take possession of the aircraft without needing the approval of the courts. The net effect of ratifying the convention will be to improve access to cheaper aircraft and asset financing for Australian airlines. It should also be noted that in addition to the decreased risk to financiers supported by access to the international register, the implementation of the Cape Town convention will allow Australian airlines to be eligible for a discount of up to 10 per cent on their export finance arrangements for the purchase of aircraft or aircraft objects. This is a consequence of a 2007 OECD agreement which provides a unified structure for export credit agencies in the EU, the US, Japan, Brazil and Canada for the provision of export finance for aircraft and aviation objects. As part of this agreement countries that have ratified the Cape Town convention are given a fee discount, which at the moment is 10 per cent. To be eligible for this discount, it is an OECD requirement that the Cape Town convention must have precedence over other Australian laws where there is an inconsistency, and the bills before the House do this.

I must add that I have some discomfort with the concept that treaties might override Australian courts and cede authority to another land or an international organisation. I recognise, however, that to remain outside this convention will disadvantage Australian airlines and make aircraft purchase more expensive. As the minister noted in his second reading speech, depending on the credit rating of the borrower and the purchase price of the aircraft, airlines could save as much as $2½ million on the purchase of a new Airbus A380 and $330,000 on the purchase of a new ATR 72 or Dash 8 or the like, which are in common use in regional fleets.

Additionally, the Cape Town convention applies to aircraft carrying as few as eight passengers or as little as 2,750 kilograms of goods, so there are potential benefits to regional and general aviation operators as well. Many helicopters will also be able to be covered by these benefits.

In considering the financial benefit of ratification, I should point out that the price of registration is modest, with a US$300 fee charged to register an interest in an item of aviation equipment on the international register.

The bill also gives the minister the opportunity to create rules through legislative instrument in the future to assist in the implementation of the Cape Town convention. I understand that this power will be used to give the Civil Aviation Safety Authority a new function, to record what will be known as an irrevocable deregistration and export request authorisation, or IDERA. Under this arrangement, a borrower may agree to lodge an IDERA with CASA in favour of a lender, and in the event of default the lender will be able to exercise the IDERA to secure deregistration and export of an aircraft.

The IDERA process recognises the fact that aircraft and aviation objects, by their innate purpose, are frequently on the move and acknowledges the legal complexities that currently exist for lenders in the case of default. An IDERA will ensure that an aircraft cannot legally be flown to another country to avoid recovery of the asset. I am told that the idea for this convention began following the Pan Am collapse, where it took years to identify and recover assets spread all over the world because of the nature of the way in which the industry operates, where parts are often transferred from one aircraft to another and therefore lose their identity and association with their original owner.

The associated International Interests in Mobile Equipment (Cape Town Convention) (Consequential Amendments) Bill 2013 makes minor changes to the Air Services Act 1995, the Civil Aviation Act 1988 and the Personal Property Securities Act 2009 that are necessary to support the implementation of the Cape Town convention.

I have spoken to a number of different stakeholders in the aviation industry, and all are supportive of the implementation of the Cape Town convention. They can appreciate the financial advantage to their businesses, particularly when many of their main overseas competitors are already taking advantage of the benefits of the convention. Airlines are capital intensive businesses that operate in a highly competitive environment, so any financial advantage that can be gained through the introduction of this convention should be welcomed. The Cape Town convention has also been supported by the parliament's Joint Standing Committee on Treaties and the state governments, which are given some legal jurisdiction under the bill.

For these reasons, the coalition will support the implementation of the Cape Town convention in Australia and will support the bill as it has been presented to the parliament.

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