Airline Insolvency Review Proposals - Plain sailing from here?

Airline Insolvency Review Proposals - Plain sailing from here?

Airline Insolvency Review Proposals - Plain sailing from here?

The shock collapse of Monarch Airlines in October 2017 was the largest scale peacetime repatriation operation in Britain, at a cost to the UK Government of circa £60m. Since then, a number of other airlines such as Cobalt and Wizz Air have also stopped trading, leaving UK passengers stranded abroad with flights cancelled in a number of cases.

As we reported in December 2017, the Department for Transport set up the Airline Insolvency Review with the aim of considering how best to protect passengers in the event of any future airline insolvencies, including proposing a viable framework within which insolvent airlines could repatriate their customers. The final report has now been published, outlining a number of recommendations including a Flight Protection Scheme to repatriate passengers and changes to UK Aviation Regulation to allow insolvent airlines to continue to operate whilst in administration.

The Proposals

The Airline Insolvency Review makes the following key recommendations:

  1. The Introduction of a Flight Protection Scheme

This would be a formal scheme to repatriate passengers following an airline or travel company insolvency. It is recommended that the Civil Aviation Authority (“CAA”) would be responsible for coordinating the scheme, ensuring that passengers are returned to the UK on the day of their original flight and to the same airport as originally booked. Funding for the scheme should be met by airlines providing security (this would become a condition of operating licenses). In addition to the security, it is likely that passengers would be expected to pay of levy of up to 50p per ticket to help fund the repatriation

  1. The Implementation of a Special Administration Regime

The aim of this scheme would be to allow airlines to operate temporarily whilst in administration, for a limited period, providing a wind-down period within with passengers originating from the UK could be repatriated. The scheme would include a moratorium on creditor action and payment agreements with key suppliers and staff, such that the costs would be paid as expenses of the administration. The Special Administration Regime would temporarily align the role of the administrator with the aim of repatriation. Once repatriation is complete the normal administration process will be followed.

  1. New regulatory requirements

It is also proposed that new requirements be introduced into the current regulatory framework. Airlines would, as a requirement of holding an airline operating license, need to provide the CAA with an annual certificate of financial fitness. The CAA would need to be notified of any adverse material changes in the financial situations of airlines and would need to have access to airline’s data as necessary to assess the airline’s position. In addition, airlines would need to develop repatriations plans in the event of an insolvency, although it is likely that these plans would only be required from airlines which are in financial difficulty.

Conclusion

As the number of airlines facing difficulties increases, it seems clear that there needs to be better protection for passengers and a clearer structure in place to allow airlines to repatriate their customers whilst in administration. The overriding objective of the schemes is that the insolvent airline should be able to repatriate its own passengers, rather than the Government stepping in to rescue stranded passengers. One concern, however, is that creditors may seek to repossess an aircraft once it is outside of the UK’s jurisdiction and unprotected by the moratorium.

The report recognises that ministers will want to carefully consider the proposals before deciding how to proceed and there is currently no suggested timeframe for feedback or implementation of the proposals.

The report can be found at https://www.gov.uk/government/publications/airline-insolvency-review-final-report.

Contact our experts for further advice

View profile for David SteinbergDavid Steinberg, View profile for Lucy TrottLucy Trott

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