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R3 North East responds to Transport Minister’s airline insolvency plans

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

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.”

But R3 North East committee member Chris Ferguson is highlighting the fact 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, 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 and 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 airline administration in 2017.

Among the recommendations is a proposal that airline insolvency procedures prioritise passenger repatriation over repayments to creditors.

Chris Ferguson, who is also joint head of recovery & insolvency at Newcastle-based RMT Accountants, continues: “Prioritising passenger repatriation is practical if there is a means to pay for doing so, but 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 also needed for flights-only travellers.

“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 there are other stakeholders that also have to be considered in the overall process.”