The government’s airline insolvency review, set up in the wake of the collapse of charter operator Monarch last year, has published its interim report setting out its early conclusions and emerging thinking, which include changes to the insolvency regime
Following Monarch’s financial failure, the government launched a two-week repatriation programme at a cost of some £60m. The review states that the risk of airline insolvency in the UK market remains around 25% in any of the next 15 years, while the number of passengers affected by an insolvency was likely to rise over the forecast period from approximately 500,000 to nearly 900,000.
The review’s remit was to look at options to allow airlines to wind-down in an orderly fashion so that they are able to conduct and finance repatriation operations with minimal or no government intervention. The broad aim would be to maintain the airline’s flight schedule using its existing fleet and resources for a short period until the market can cope with demand.
The interim report says there is a significant risk that a successful repatriation using an airline’s fleet in administration will be hampered, unless there is widespread cooperation among several parties. This includes the management of the airline, the airline’s key suppliers and the airline’s major creditors including their financing partners, secured creditors and trade creditors (for example, fuel suppliers and ground handling suppliers).
Creating an environment where the airline rather than the government takes responsibility for repatriation requires a favourable administration regime, which supported a ‘debtor in possession’ approach and allowed the existing business to continue operating in administration. This would support the continuation of key elements for the operation of an airline, including supplier and employee contracts, insurance and licences.
The report points out that the government is conducting a separate review of the insolvency regime, which is considering whether the definition of essential suppliers should be widened, opening the way for more services to continue to operate in the event of administration.
It says the airline insolvency review will await the outcome of that review and will continue to explore the potential for utilising the UK’s existing corporate insolvency framework.
However, it also says it will consider whether there might be benefits in recommending further changes to insolvency laws and rules to support the running of an airline in administration. For example, it might be possible to design a special airline administration regime, to support a continuation of services and ensure passengers can be repatriated if necessary.
This would include an amendment to the purpose of airline administration to include a repatriation exercise, and ensure the administrator’s duties to the creditors do not over-ride this purpose.
The airline insolvency review will now be organising stakeholder workshops to discuss the various options for recommendations in the autumn.
Airline Insolvency Review interim report is here.
Report by Pat Sweet
