When Covid tightened its grip on the world between February and April 2020, the effect was devastating on the aviation industry. As borders closed the skies went quiet and airlines searched for somewhere to park grounded aircraft.
The industry had to press pause – but the activity reached fever pitch at companies headquarters as they raised cash, sold assets and, in many cases, restructured their businesses.
The purpose was to avoid the collapse of passenger numbers and survive corporate failures — and lawyers were involved at every stage.
The small airline had no time to spare. With high fixed cost, the industry burnt in about $150 bn in cash within months, says the International Air Transport Association. Calls with lawyers had to be made hastily arranged.
It was obviously a challenging time even to this day, I have never met with clients despite having done this massive job with them, says Craig Montgomery, who is a partner at Freshfields Bruckhaus Deringer in London.
Freshfields helped state-owned Malaysia Airlines to reduce its obligations on leases for aircraft as part of its restructuring. Such leases are a significant focus on any reorganisation in the aviation sector, as they account for a primary chunk of the company's costs.
Montgomery says he wanted to get on with Malaysia Airlines. It was still paying its obligations in full and needed to find a solution as quickly as it could At the same time, the lessors did not want to see sudden return of their assets, especially big airliners, as they faced logistical, storage and maintenance costs with no hope of any new leases for months.
Freshfields turned to the English courts and a scheme of arrangement — a tool which is often used in financial restructuring but never before used with aircraft leases. The leaseholders agreed to a class arrangement as a replacement for the previous ad hoc leases, which made the settlement for Malaysia Airlines more efficient.
The crisis underlined the international nature of industry. While many airlines have the Country s name on their aircraft fuselages, their assets are mobile and they have entities in various jurisdictions.
In Malaysia Airlines's case, English law was ideal, because it is recognized globally. A scheme of arrangement turned out to be an obvious solution for a lease Montgomery says.
Lawyers must hunt for innovative solutions. Allen Overy helped Virgin Atlantic under the first restructuring under the July 2020 Companies Act Update, which allows courts to approve a plan even if not every class of stakeholders has backed it. White Case helped Air France-KLM navigate new ownership and state-aid rules as it refinanced its debt.
Many airlines have shrunk over the past 18 months, and one of the most fragile victims has been Norwegian Air Shuttle NAS The Oslo-based carrier grew rapidly in the 2010 s, moving into low-cost transatlantic flights, but the organization's financial circumstances meant that it was exposed to the effects of the pandemic. In 2020, the bankruptcy proceedings effectively reduced its shareholders and its operation were wiped out dramatically.
The ownership of NAS is complex, but it consists mainly of Norwegian-owned subsidiaries under a complex umbrella company that allowed restructuring to take place in the Republic of Ireland, with a parallel programme in Norway. For the first time an Irish examinership was used to restructure obligations of a non-EU company.
The move reduced the NAS fleet from 150 to 50 aircraft, terminated Norwegian debt by about $7.5 bn, closed a capital raising and reduced aircraft orders worth about $10 bn. Lawyers in the case say the restructuring could not have been achieved under Norwegian law alone, especially the termination of leases that were covered by the Cape Town Convention, which protects high value aviation assets.
Ruairi Rynn, partner at the law firm William Fry, who acts in the Irish process as the examiner, says working with a Norwegian company was unique and successful but ultimately highly profitable Throughout the process, lawyers and airline management became used to meeting virtually and, in some cases, there was no physical face-to-face contact. The rapid adoption of videoconferencing was a success but airline executives, whose fortunes rely on in-person travel, are glad to hear businesses say that they still prefer in-person meetings.
If I could go back and see the client, say Montgomery. There is no substitute for doing that in person — which, of course, is good news for the client, he says.
RSGi ranked, compiled and researched. Winner indicates the organisation won an award FT Innovative Lawyers 2021 - Awards.