R3 responds to Transport Minister’s airline insolvency plans

25 September 2019

More consultation is needed before the Government progresses plans to change how planes are used in airline insolvencies, R3, the insolvency and restructuring trade body, has warned.

Earlier this afternoon, during a ministerial statement on Thomas Cook, the Secretary of State for Transport, the Rt Hon Grant Shapps, said:

"Firms need to be able to look after their customers and we need to be able to ensure their planes can keep flying in order that we don't have to set up a shadow airline. This is where we will focus our efforts in the next couple of weeks. We will require primary legislation, and, dare I say it, a new session of Parliament."

R3 President Duncan Swift warns that, while the desire to 'keep the fleet flying' is understandable, there are practical reasons why this can be difficult to do when an airline is insolvent.

He says: "During an airline or travel company insolvency, planes are vulnerable to being held hostage by overseas creditors and suppliers and other stakeholders, which puts aircraft, crew and passenger safety at risk. Using chartered flights avoids this scenario.

"Changing the law in the UK won't necessarily change the behaviour of creditors overseas. We're yet to see a convincing solution to this potential problem."

The Government is considering proposals made by an independent commission, chaired by Peter Bucks, formed in the wake of the Monarch airlines administration. Among the recommendations is a proposal that airline insolvency procedures prioritise passenger repatriation over repayments to creditors.

Duncan Swift says: "Prioritising passenger repatriation is practical if there is a means to pay for doing so. Without some form of insurance scheme, repatriation efforts would need to be funded by the insolvent airline itself. This would completely deplete what could be repaid to the airline's creditors, and would make lending to or trading with an airline a very risky business. ATOL protection could provide funding for repatriating package holiday travellers, but a solution is needed for flights-only travellers, too.

"The Government's intentions are good, but more detail is needed on its proposed solutions. Like most areas of insolvency, airline and travel company insolvencies are complex and need legislation that considers and caters for the full breadth and depth of people and groups affected, rather than something that is focused just on passengers. Repatriation of passengers is understandably an early priority, but they're not the only stakeholders that have to be considered in the overall process."

• See also: Airline insolvencies - Reforms on the horizon?