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15 Int'l Bus. Law. 174 (1987)
Security Interests in Aircraft and Spare Parts II: Australia

handle is hein.journals/ibl15 and id is 208 raw text is: AERONAUTICAL LAW Spare parts holding/pool as security Secured financing of repairable non- consumable spare parts (ie rotables) gives rise to several legal and practical recovery problems. Priority considerations can often be of concern to a security holder of a spares pool, which is intended to be used by an operator on a fleet-wide basis. The 1972 Mortgaging of Aircraft Order does not make provision for priorities in relation to floating charges since the assets affected, whether they be aircraft or spares, cannot be defined. Moreover, there is, under the order, no separate registration available for specific mortgages or charges on a spare part such as an engine. Thus, third parties cannot be fixed with notice of either a specific charge on a spare part or of a floating charge over spare parts on the basis of an entry on the UK public Register of Aircraft Mortgages. Whilst fixed or floating charges over spare parts created by company chargors are registrable at the Companies Registry, floating chargees, in particular, cannot necessarily rely on the doctrine of constructive notice to obtain priority in circumstances where, for example, a subsequent charge is granted by a chargor in violation of the restrictive contents (namely, the negative pledge clause) of a floating charge. Line maintenance requires spares to be located away from main base and often in various jurisdictions, state and national. Difficulties in perfecting security interests in those jurisdictions often ensue. The task of identifying every secured part in each location, and also of monitoring the condition and value of spares should not be underestimated. Initially, of course, secured spare parts (forming part of an initial spares provisioning package) could be identified by reference to serial numbers or other similar information contained in purchase orders or invoices. With the passge of time, the replacement, repair and pooling of parts, it invariably becomes impracticable for the airline to maintain a parts record-keeping system which would determine which parts are encumbered under one particular charge as opposed to another. A second lender should also recognise that spares provisioning packages contain parts not only specific to an aircraft type (ie peculiar-to-type) but also parts, of not insignificant value, which are non-specific and thus compatible for use on aircraft of differing types and manufacture. Given that it would be impracticable to prohibit interchanging, identification of common parts which form part of a security package would be extremely burdensome. Accordingly, whilst engines and avionic items, such as inertial navigation systems, are of significant value and so justify a prospective secured lender's attention, other, lesser valued, rotables (such as say, wheels, an airspeed indicator or an anti-ice valve) can cause management problems of a magnitude disproportionate to their value as security. Conclusion The problems posed in aircraft finance by the mobility of aircraft and lack of an internationally adopted structure to regulate the taking of security imposes formidable challenges for financiers and airlines alike. In practice, a financier clearly takes a pragmatic view of being unable to protect its security in all jurisdictions in which the aircraft is foreseen to operate and, despite the attendant difficulties and uncertainties, aircraft are still seen to provide commercially viable security providing the rewards are good and confidence in the customer well founded. El Security Interests in Aircraft and Spare Parts II: Australia Richard Fisher Dawson Waldron, Sydney ustralia is not a signatory to the 1948 Geneva Convention on International Recognition of Rights in Aircraft, nor has there been any suggestion that it should adopt that Convention. In this respect it has acquiesced in, if not embraced, the approach of most other English common law countries. The question of recognising and enforcing security rights in aircraft becomes, therefore, a matter of domestic Australian law for so long as the subject matter of the security is within its jurisdiction save, perhaps, in the case of a company incorporated in Australia or an aircraft which is registered there. For the most part, recognition and enforcement of securities only arises as an issue when financial ill-health overcomes the mortgagor and it is from this perspective that the problem will be reviewed. Regardless of whether the security being taken is an aircraft, there are two important distinctions to be drawn when considering mortgages or charges in the context of Australian law. Indeed, much of what will be said is equally appropriate for securities which might be regarded as less 'specialised' in their character. The first distinction is whether the charge is in the nature of a fixed charge attaching to specific assets which are capable of identification and are in fact identified or is it that curiosity which seems to be peculiar to the English common law world - the mortgage debenture - and, secondly, is the grantor of the charge an Australian corporation or a foreign institution? In drawing the first distinction, reference has been made to those characteristics which typify a fixed charge. A debenture, however, will most usually attach to all of the assets of the borrower and will include fixed assets (which might be conveniently characterised as those assets which are not traded in the ordinary course of the borrower's business) as well as its other assets such as debtors, stock-in-trade, INTERNATIONAL BUSINESS LAWYER April1987

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