The government aims to implement a UK emissions trading system (UK ETS) in January 2021 following Brexit. This article outlines aviation-specific considerations of the proposed UK ETS and the interaction of the proposed scheme with the Carbon Offsetting and Reduction Scheme for International Aviation, the International Civil Aviation Organisation's market-based mechanism for offsetting emissions from aviation.
A recent High Court case demonstrates the utility and importance of including standard representations and warranties regarding power, authority and validity in aircraft leases, including as an estoppel against a defendant's claim that a lease is void and unenforceable as a result of alleged breaches of foreign public procurement legislation and lack of authority. The decision also illustrates the benefit of choosing English law to govern aircraft lease transactions, particularly between international parties.
Although the full effects of the COVID-19 outbreak are unknown, one thing that is certain is that leasing companies are receiving, and will continue to receive, requests from lessees across the globe to defer lease rentals and otherwise restructure leases. Luckily, there are numerous actions that leasing companies can take now, or as part of any rent deferral or restructuring discussion, to ensure that they are as prepared as possible should enforcement or related action be required in the future.
Letters of credit are often issued in aircraft leasing transactions as an alternative to the provision of a cash security deposit and, less frequently, the obligation to pay maintenance reserves in cash. In an airline bankruptcy scenario, it is important to understand the differences that exist between different forms of letter of credit and some of the challenges that may arise for an enforcing lessor or financier.
A recent Court of Appeal decision regarding a claim of economic duress against an airline reinforced the fundamental importance of ensuring contractual clarity and certainty as a matter of English law. For companies operating in the aviation sector, where there may be an unequal power dynamic, parties will be unable to look to economic duress to undo a lop-sided bargain unless there is some unlawful action or provable bad faith on the part of the party with greater power.
In a recent High Court Case, Aircraft Purchase Fleet Limited (APFL) sought $260 million in damages from Compagnia Aerea Italia (CAI) for an alleged repudiatory breach of a framework agreement under which CAI had agreed to lease certain new Airbus A320 family aircraft. APFL had agreed to buy these aircraft from Airbus. However, CAI argued that it had become impossible for either party to perform the framework agreement following Airbus' termination of its obligations to sell aircraft to APFL.
In July 2017 the government released proposals to regulate the use of drones in the United Kingdom. Since then, the regulation of drones has been transferred to the European Union and now falls under the EU Basic Regulation. Many of the UK government's proposals for drone operators are included in the EU Basic Regulation, which sets the groundwork for establishing rules that will require operators of drones that weigh 250kg and above to register them and ensure that they are marked for identification.
Monarch Airlines Limited's administrators have won an appeal with the Court of Appeal regarding Monarch's rights in and to certain 'slots' at Luton and Gatwick airports after it went into administration. The case is significant, as it reaffirms the value ascribed to slots by airlines and their financiers as rights of the airline and the fact that, as a result, they can be traded for value even after insolvency.
With competition among aircraft lessors remaining fierce, airlines are taking an increasing proportion of aircraft on operating leases. The 'wholesaling' of debt financing – where the primary recourse entity on financings is the lessor rather than the airline – is an important recent trend in the aircraft financing market that is likely to continue. Aircraft financiers should be aware of the structural items to consider in executing operating lessor financings and the pitfalls to be avoided.
The inclusion of engine pooling arrangements and rigorous maintenance requirements in operating leases frequently results in engines which formed part of a leased aircraft at delivery being off-wing. Off-wing engines create complications for transaction parties attempting to execute a sale of the aircraft. While these complications are not insurmountable, the marketplace has developed different approaches to address the off-wing engine scenario.
The Department for Transport recently published its response to a public consultation concerning the safe use of unmanned aircraft systems in the United Kingdom. Both in the consultation and the response, it is clear that the government's focus is on ensuring safety, particularly relating to operational issues in the leisure market. However, the response also provides insight into the direction of the government's policy as it affects commercial operators and its determination to develop world-class systems.
At the outset of a transaction, parties often use a commitment letter, letter of intent or memorandum of understanding to set out the principal terms on which they wish to establish their commercial relationship. The principal terms are often non-binding in nature. The High Court recently referred to an objective test established by the Supreme Court to determine whether a party's intentions were accurately reflected in its initial documentation.
The trading of aircraft assets between industry participants is as dynamic, legally complex and fraught with intense negotiation as ever. Although transacting parties go to great lengths to protect their pre and post-closing positions by attempting to account for all eventualities in the applicable transaction documentation, mistakes that fall outside the protective ambit of such documentation can still occur.
The Court of Appeal has delivered its judgment on the appeal by PK AirFinance and GECAS against the Commercial Court's decision in Alpstream v PK AirFinance. The judgment provides a welcome clarification of duties owed by mortgagees to financiers and lessors.
The Cape Town Convention and Aircraft Protocol recently entered into force in the United Kingdom. The disapplication of the historically vexed lex situs rules in the context of UK Cape Town interests is a welcome step, as it means that English law and jurisdiction are likely to be the best choice for any mortgage or bill of sale on a transaction involving parties situated in the European Union.
The Cape Town Convention and Protocol is now set to enter into force in the United Kingdom later this year. Its entry into force was confirmed following the deposit of the instrument of ratification with the International Institute for the Unification of Private Law on July 27 2015 at the UK embassy in Rome.
The International Interests in Aircraft Equipment (Cape Town Convention) Regulations 2015 were recently laid before Parliament, marking the commencement of the final administrative steps to ratify the Convention on International Interests in Mobile Equipment and the Protocol thereto on Matters Specific to Aircraft Equipment in the United Kingdom. It could enter into force by the end of Summer 2015.
The government recently published revised draft legislation designating the Convention on International Interests in Mobile Equipment and Protocol thereto on Matters Specific to Aircraft Equipment as an 'EU treaty', which will allow it to pass legislation to implement the treaty into UK law. However, the European Union made declarations when it acceded to the treaty which will affect UK implementation of the treaty.
As part of the government's ongoing consultation on the ratification of the Convention on International Interests in Mobile Equipment and the Protocol thereto on Matters Specific to Aircraft Equipment, the government response to the call for evidence has been published. The response is positive, but cautious about any benefits that may accompany ratification.
A recent High Court decision highlights the duties of financiers in the context of aircraft repossessions and the associated power of sale in default scenarios, while also raising questions about the level of intention required on the part of a defendant in unlawful means torts. The case garnered significant mainstream media attention, principally because the claimants are controlled by Russian billionaire Alexander Lebedev.