European Union (Definition of Treaties) (Convention on International Interests in Mobile Equipment and Protocol thereto on matters specific to Aircraft Equipment) Order 2014

Viscount Younger of Leckie Excerpts

Monday 12th May 2014 Grand Committee

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[Viscount Younger of Leckie]

That the Grand Committee do consider the European Union (Definition of Treaties) (Convention on International Interests in Mobile Equipment and Protocol thereto on matters specific to Aircraft Equipment) Order 2014.

Relevant documents: 26th Report from the Joint Committee on Statutory Instruments

[The Parliamentary Under-Secretary of State, Department for Business, Innovation and Skills (Viscount Younger of Leckie) (Con)]

My Lords, this is quite a technical order whose purpose is to specify the Convention on International Interests in Mobile Equipment and the Protocol thereto on matters specific to Aircraft Equipment as a European treaty under Section 1(3) of the European Communities Act 1972. For the ease of discussion, I shall refer to the convention and the protocol as “the treaty”. Once the order has been made by the Privy Council, it will enable the Government to make regulations to implement the provisions of the treaty using the powers in Section 2 of the European Communities Act.

I shall take a few moments to explain the background to the treaty to which the order refers. The treaty aims to make it easier to finance the purchase or lease of helicopters, airframes and aircraft engines over a certain size and engine capacity. It excludes military, police and customs equipment. Light aircraft are unlikely to meet the treaty’s minimum size and engine capacity requirements.

The treaty supports an important part of the UK economy—the aviation and aerospace sectors. Before outlining the treaty itself, I shall take a step back and consider these sectors, which make a significant contribution to the UK economy. The air transport sector’s annual turnover is £26 billion. This refers to the aviation sector, which provides around 120,000 jobs in the UK and supports many more indirectly.

Aerospace was among the first of the joint industry/government industrial strategies—one of 11—to be published last year. The aerospace sector, which covers manufacturing, has an annual turnover of £24 billion and supports 230,000 jobs across the UK. UK aerospace has a 17% global market share, making it the number one aerospace industry in Europe, second globally only to the US.

UK companies have key strengths in the most complex parts of aircraft such as wings, engines and advanced systems. The UK is also one of the few countries that can build and design advanced helicopters. The joint government and industry Aerospace Growth Partnership is investing in research and development projects through the Aerospace Technology Institute to keep the UK aerospace sector at the forefront of technology developments.

The Government recently announced a series of projects to be funded through the ATI. This includes £60 million of investment in a new aerospace facility at the manufacturing technology centre at Ansty, near Coventry; £13 million to improve the research capacity of wind tunnel facilities at seven universities—Imperial, Southampton, Oxford, Cambridge, Cranfield, City University London and Glasgow; and £60 million investment in seven new R&D projects spanning all four pillars of the ATI—wings, engine, aerostructures and advanced systems.

Having set the treaty in context, I return to the purpose of the treaty itself and how it supports the aviation and aerospace industries. The aviation and aerospace sectors are growing, and Airbus estimates that air traffic will increase globally by 4.7% over the 20-year period 2013-32, requiring approximately 29,000 new aircraft with a total value of approximately $4.4 trillion.

Purchasing or leasing the aircraft equipment is very expensive. Boeing estimates that global aircraft financing requirements in 2014 will be $112 billion. Average prices of aircraft can range from around $60 million to $400 million, depending on factors such as aircraft size, engine choice, performance capability and other design requirements. When purchasing or leasing aircraft equipment, most airlines are likely to raise finance through third parties, such as banks or capital markets, or, on occasion, manufacturers may provide financial support.

Airlines may also seek support in the form of guarantees from government or government-supported export credit agencies. ECA guarantees or insurance may be used in cases where banks are reluctant to lend the full amount due to the large risks associated with the loan and the airlines. Many of these financing sources are on an asset-secured basis. Should an airline default on its loan or enter insolvency, the financier would usually step in and repossess the aircraft to make recoveries against the debt.