Indonesia’s Directorate General of Civil Aviation (DGCA) is currently drafting a regulation on IDERAs that is expected to favor aircraft financiers.
The existing regulations on IDERAs do not specifically cover IDERAs in favor of financiers or certified designees. As a result, DGCA policy has lacked consistency. While lease agreements previously had to stipulate that the IDERA would be in favor of the financiers, the DGCA now requires consent from all parties (owners, lessors, operators and financiers) before an IDERA can be filed in favor of financiers, particularly when the financier or security trustee is not named in the lease agreement.
The DGCA does not maintain an official registry or records of CDCs. While a simple receipt of the submission of the CDC used to be provided by the DGCA, now the DGCA no longer accepts CDCs.
In response to market developments, the DGCA is considering a regulation that expressly permits an IDERA to be granted in favor of financiers and the recording of CDCs.
Under the draft, financiers would be required to provide a summary of the relevant agreements (aircraft finance documents, headlease and sublease agreements) to record an IDERA in their favor. The DGCA plans to use this summary to understand the linkage between Indonesian operator (as the issuer of the IDERA) and the financier (as the party authorized under the IDERA).
The DGCA wants to allow aircraft deregistration to be processed by exercise of an IDERA, without investigating external facts related to the occurrence of default. While not the intention of the Cape Town Convention, the Indonesia’s Aviation Law suggests that the DGCA should check if an event of default has occurred before deregistering aircraft. To avoid any involvement in determining the occurrence of an event of default, the DGCA expects all necessary information related to the event of default and the default mechanism to be submitted before the IDERA is recorded.
The DGCA plans to establish an official CDC registry. This should benefit financiers, especially if aircraft financing occurs at a later stage of aircraft leasing. Using CDC arrangements, it will not be necessary to revoke the existing IDERA and issue an IDERA in favor of the financiers – a process that can take some time.
Note: This discussion on the draft IDERA regulation is based on meetings held with the DGCA in August 2016. Since the DGCA is still discussing the draft regulation with various stakeholders, the regulation remains subject to change, with the final version expected to be issued by the end of 2016.