DfT plans overhaul of airline insolvency rules

The Department for Transport (DfT) has launched a call for evidence as part of its airline insolvency review to ensure airlines can wind down with the minimum impact on passengers and the taxpayer, and says there may need to be changes to insolvency regulations

The move follows the collapse of Monarch last year, which hit 2,000 staff and 860,000 passengers, and saw the government become involved in repatriating thousands of holidaymakers at a cost of £60m because insolvency rules meant the airline could not bring them back using its own aircraft.

The review will assess consumer protection in the event of an airline or travel company failure. It will consider both repatriation and refund protection and identify the market reforms necessary to ensure passengers are protected. This will include full consideration of 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 review will also consider alternative models for the provision of refund protection, including through the travel insurance market.

Options under consideration include mandatory personal travel insurance paid for when purchasing an airline ticket (whether as part of a package or by itself), or a legal requirement on airlines to protect their passengers from their own insolvency through insurance, bonding or other methods.

The review says that during peak holiday season or where a large airline or an airline with a large proportion of capacity on certain routes fails, the immediate transport needs of passengers might be such that the only way to fulfil them without significant detriment would be to keep the fleet of the insolvent airline operating through administration.

This would usually be for a temporary period only to allow passengers and industry to adjust and for any sale or asset realisation to take place. This might be done by the airline itself, through the agency of a court appointed-administrator or by the directors under a debtor-in-possession regime (such as Chapter 11 of the US bankruptcy code), or by a receiver or other agent of the creditors.

Changes could also be made to the legal framework surrounding the insolvency of airlines to ensure there is access to the data and airline systems needed to run these operations effectively and efficiently in administration. Changes could also be made to place the emphasis on those administering an insolvent airline to ensure passengers’ welfare, with the aim of improving the ability of passengers to find replacement fights and reducing the financial impact of the failure.

The DfT review is to be led by an independent chair, and supported by a secretariat comprising of government officials and CAA staff, supported by professional advisers.  It will provide an initial report on potential options to tackle the immediate repatriation of passengers of an insolvent airline by summer 2018.

There will be a final report by the end of 2018 offering recommendations on repatriation, refunds and on how the current financial protection arrangements for air-travel holidays can be put on a more commercial basis.

The call for evidence is seeking participants for working groups to discuss the issues.  Interested parties should email airlineinsolvency@dft.gsi.gov.uk  by 30 April

Airline insolvency review call for evidence is here.

Report by Pat Sweet

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