Government’s insolvent airlines report – what might it mean for stakeholders?

Insolvency Bitesize - September 2019

The Government’s final report on how to deal with insolvent airlines has been criticised by major UK carriers for its headline-grabbing suggestion of a new Flight Protection Scheme which would see a levy of about 50p put on customer fares to cover the costs of any future repatriation exercise.  But the implications of the report are potentially far more significant and wide-ranging for all stakeholders. 

On closer analysis, the report could see changes in:

  • how airlines finance themselves: the report suggests airlines should contribute to possible future repatriation costs by putting up security through bonding/guarantees that would pay out on their insolvency. On paying out, how such amounts would rank on insolvency and/or share in asset security is not discussed;
  • how airline directors comply with their duties: directors could face a new duty to prioritise passenger repatriation as well as sanction for non-compliance with CAA directions to carry out contingency planning. Key will be to understand exactly when the duties are triggered given distress is a sliding scale.
  • how airlines report and monitor financial information: the report suggests giving the CAA additional financial monitoring powers and requiring airlines to give additional financial information as part of an annual certification of financial fitness needed for continued licensing, as well as requiring firms to notify the CAA of a financial MAC;
  • how airlines plan their operations: airlines may be required to prepare and maintain repatriation plans, and potentially ensure that any “rescue fares” they provide would meet a new code of conduct which could arguably impinge on commercial considerations around the setting of such fares and passenger eligibility;
  • how creditors are impacted by airline insolvency: a new special administration regime could restrict lessors’ ability to detain aircraft during a new moratorium or the ability of suppliers to demand repayment or terminate supplies; and
  • how IPs run an insolvent airline: the new special administration regime would prioritise passenger repatriation regardless of whether it is loss making, look to minimise personal liability concerns, enable payments to priority staff/suppliers/management and force regulatory changes to enable the airline to continue to fly during insolvency to carry out repatriation exercises.

It’s of course unclear how much, if any, of the Report the Government will eventually take on board and we will have to wait to see the next steps now that the more general consultation on the Future of UK Aviation has closed.