Last year was a period of significant change in the aviation industry. In the past, cross-border investment in aircraft has been frustrated by the application of differing legal regimes to the perfection of security over aircraft. The introduction of The Cape Town Convention on International Interests in Mobile Equipment and the Protocol to the Convention on Matters Specific to Aircraft Equipment in 2006 (the Convention) dissipated uncertainty among creditors.

The Convention provides a forum for enforceable interests in aircraft, which are recognised by all contracting states. The convention established a 24 hour online
priority-based register, the International Registry of Mobile Assets
(www.international registry.aero).

The International Registry is operated by an Irish company, Aviareto, and has been in operation for less than a year. As one would expect, it experienced some minor turbulence in its infancy.

Anyone can search the register website, but only an authorised and registered user can effect registration of a security interest on the International Registry. However, registration (and any amendment to it) is subject to the prompt electronic consent of all relevant parties. Legal advisers to these parties can provide such consent online (provided the parties have given their prior electronic consent to do so).

During the initial stages of its operation, access to and registration with the online register proved difficult and somewhat frustrating for many prospective users. It is worth noting that user authorisation and registration takes a number of days to process, while the operators carry out identity and other checks. There has also been some confusion about certain aspects of the interplay between the aircraft register maintained by the Irish Aviation Authority (IAA) and the International Registry.

Prior to the introduction of the new register, there was no formal method of ensuring priority of security held over aircraft or aircraft related assets, except for the security filings made under section 99 of the Companies Act 1963. However, the IAA renowned for its commercial approach, attempted to facilitate the needs of secured parties by making an informal notation of their interests on the Irish register of aircraft. This notation became obsolete for those aircraft falling within the ambit of the Convention and so the practice was discontinued. However, the IAA continued to note the security interests of those holding security over aircraft falling outside the remit of the Convention. This resulted in the operation of a dual or hybrid regime for registration of security interests over aircraft in Ireland.

This inconsistency has been resolved in recent months and the IAA will no longer accept applications to register security rights over such aircraft. The Authority is due to issue a statement clarifying this issue in the near future.

The regime introduced under the Convention has led to substantial changes, not merely in the law governing aviation finance but also in the procedures associated with financing transactions. The industry has gone through a steep learning curve to develop best practices in applying the Convention. Global appetite for the new regime is demonstrated by the number of states that have ratified the Convention to date, including such key players in the aviation market as the United States, Britain, Canada, France, Germany and Ireland.

As the demand for private jets in Ireland soars, the myth that light aircraft and helicopters are merely 'toys for rich boys' is quickly disappearing. Economic growth, increased prosperity and perhaps the desire to escape endless traffic congestion has led to an unprecedented increase in sales of privately owned aircraft. Corporate jets have become the ultimate business accessory for the Irish executive, and the prospect of owning your own aircraft has been further enhanced by the favourable tax treatment of aircraft acquisition, chartering and running costs.

The mood at the recent Annual European Air Finance Conference, held at the Four Seasons Hotel in Dublin, was extremely positive and the common view shared by the attending manufacturers, lessors, financiers and airline representatives was that the aviation industry - both on a global and domestic level - can look forward to a buoyant future in 2007 and beyond.

For further information please contact David Williams.

Spring 2007.