The insolvencies of three Australian airlines over the past four years—principally the rescue of Virgin Australia Airlines in 2020 and the failures of Bonza Aviation and Rex Airlines in 2024—have produced a body of legal precedent that demands careful attention from aircraft lessors and lessees alike.

These cases highlight how lessor rights under the Cape Town Convention on International Interests in Mobile Equipment (CTC) can be subordinated to Australian domestic insolvency law, and how lessors’ protections under the Personal Property Securities Act 2009 (Cth) (PPSA) interact with those of aircraft-owners in practice.

Australian courts have shown familiarity with complex lease transactions in the aviation sector and have generally adopted a commercial, pragmatic approach when interpreting lease agreements and insolvency events.

At the same time, in their relative sparsity of precedent, these cases illustrate how Australian judges will look abroad—to English and New York law, and treaty frameworks—for guidance while simultaneously ensuring that local insolvency and public-policy considerations remain paramount.

For lessors operating in Australia, the lesson is that in the event of an operator’s insolvency, their rights under the CTC may not automatically trump domestic law.

As one recent commentary observes: “Lessors should enter into leases with Australian operators on the basis that, in the event of an airline insolvency, their CTC rights would be subordinated to Australian insolvency law.”

One critical area is the tension between redelivery “as is, where is” and what constitutes action in a “commercially reasonable” manner following lease rejection by an administrator.

The high-court ruling in the so-called Willis Lease case established that Australian courts will not interpret obligations purely to advance treaty rights if doing so would erode the local insolvency regime—an outcome binding on all lower courts.

Lessors therefore must assume that even international-registered assets may be subject to the constraints of the Australian insolvency administrator’s regime.

Another major strand of decision-making revolves around registration and priority of security interests.

Under the CTC, an “International Interest” has priority over a domestic PPSA security interest in aircraft objects.

But in a jurisdiction that has implemented a waiting-period moratorium under the treaty and where an airport or service-provider may claim superior rights for unpaid charges, lessors and creditors may face unexpected exposure.

In Australia, for example, airports may detain aircraft on account of unpaid fees even though the state has not made the formal “airport nomination” under the treaty.

Arbitration versus court litigation is also a practical question in this environment.

The speed and commercial clarity with which Australian courts handled the Bonza and Rex administrations suggests that litigation in Australia can be as efficient—depending on the case—as arbitration.

The courts processed complex issues of aircraft leasing, insolvency administrations and CTC enforcement with a level of speed that gives lessors and operators a clear benchmark.

In practical terms, four take-aways emerge for lessors and airlines negotiating future leases involving Australian operators: • Conduct up-to-date jurisdictional analysis that reflects the outcomes from Bonza, Rex and Virgin Australia and clearly defines how CTC rights, PPSA rights and Australian insolvency law interlink.

• Include in lease terms a detailed redelivery regime that defines what “commercially reasonable” conduct means when an administrator rejects a leased aircraft or engine on an “as is, where is” basis.

• Analyse the risk of redelivery in the form of “as is, where is” and ensure maintenance, repossession rights and recovery obligations are contractually robust.

• Register security interests under both the CTC (as an International Interest) and the PPSA where possible—minimising the risk of being subordinated by domestic insolvency outcomes.

These insolvencies and the accompanying case-law have shaped Australia into a jurisdiction offering greater certainty and commercial responsiveness for lessors active in the aviation sector.

While the intersection of international treaty rights and domestic insolvency remains intricate, the body of law emerging from these events offers a clearer roadmap for future transactions and risk-management.