In July 2018, the Airline Insolvency Review published its Interim Report, which set out the Review’s initial views on potential options for meeting the immediate repatriation requirements following the failure of an airline. The Report represented the end of the formal consultation phase, and the Review is now working to develop its recommendations for publication in the Final Report, which is expected later in 2018 or in early 2019. The focus of the Report is on repatriation of passengers, but it also considers potential alternative models to those currently available for the protection of passengers in the event of airline insolvency and the available options for reform of existing arrangements for passenger protection to put them on a more commercial basis. The principles underlying the review are that
- The beneficiaries of protection available in the case of airline failure should pay for the protection received, with the exposure of taxpayers correspondingly reduced.
- Risk should be allocated efficiently to those passengers which are best-placed to manage them.
- Market distortions should be minimised wherever possible, to avoid putting UK-registered airlines at a competitive disadvantage relative to their foreign competitors.
- Simplicity for passengers is paramount, in terms of understanding the protections available and minimising the impact on them of an airline’s insolvency.
In terms of repatriation of passengers, the Report identifies that a successful repatriation exercise should achieve certainty and clarity in the minds of passengers in terms of the measures in place and expectations on passengers, including through the use of a tailored communication programme, in order to give passengers confidence that their interests are being catered for in an affordable manner. There is a recognition in the Report that there is unlikely to be a one-size-fits-all repatriation solution for every airline insolvency – particularly in the case of large airlines – and that it will likely be necessary in any given case to implement a combination of measures, including
- Self-organised repatriation, where passengers make their own travel arrangements.
- Organised charter, where the airline’s services are replicated by the use of readily-available charter aircraft, a solution which was successfully deployed in the case of Monarch Airlines).
- An orderly wind-down involving the short-term continuation of the airline’s own flight schedule using its existing fleet and resources.
Of these options, it appears that an orderly wind-down was the route preferred by most respondents, which ensures the least amount of disruption to passengers; however, its utility is highly dependent on the continuation of key licences and the successful retention of existing crew and IT and safety arrangements, at a time which is difficult and stressful for many of the airline’s employees. Furthermore, its success would depend on the ready cooperation of third parties which are involved in the day-to-day operation of an airline’s fleet and, since continued operation may not be in those parties’ interests, the Report recognises that it may ultimately be necessary for any proposals for reform to provide for some level of coercion of those critical parties to ensure their compliance. There is also a recognition of the need for administrators to obtain sufficient funding for the prepayment of the significant liabilities required to be incurred for the purposes of any repatriation exercise, and the fact that, under the existing administration regime, administrators’ duties to creditors are not always consistent with the incurring of the substantial operations which are necessary. The Report acknowledges the critical role played by the CAA in effecting a successful repatriation of passengers and notes the desirability of adapting the legal and regulatory environment to allow for the inclusion of a mechanism in the licensing framework that would allow an orderly wind-down rather than – as is usual currently – the speedy suspension or withdrawal of an insolvent airline’s operating licence.
The Report highlights the haphazard nature of the protection measures currently available to passengers, under which the extent of a passenger’s protection in the event of an airline insolvency invariably depends on the manner in which they booked their airline ticket. Certain available protections overlap and some passengers lack protection against insolvency altogether, with many passengers failing fully to understand the options available to them. A number of potential methods of financial protection of passengers are under consideration by the Review, including insurance-based or levy-based solutions which may be made mandatory for all passengers, and certain non-financial measures, such as awareness-raising programmes around available protection for passengers. In regard to the latter, the expectation is that such measures will be more effective if they are introduced to complement any financial solution, rather than operating on a standalone basis.
The Review is operating to a very tight timetable and the findings of its Final Report are eagerly awaited in the airline industry.
The original version of this article first appeared in the October 2018 edition of Corporate Rescue and Insolvency journal, published by LexisNexis.