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Pandemic countermeasures affect daily life in many aspects. In this context, its effects hit the regular operation of businesses on various levels. This is particularly true for the aviation sector since when people #StayinHome aircraft stay in hangars. Airline operators’ financial condition has deteriorated as a consequence of travel restrictions imposed by governments. This article aims to provide a brief summary of the topic from the perspective of consumer law, labor law, and contract law perspectives in aviation respectively.
Cancellation of Flights and Reimbursement of Tickets
Airline operators in Turkey suspended their international flights beginning from March 27, 2020 11:59 p.m. in accordance with the Notice to Airmen (“Notam”). Pursuant to the Notam, all flights from/to any aerodromes of all countries with the purpose to operate at any Turkish aerodromes, including business jets, are prohibited. In addition, a communique of Turkish Ministry of Interior dated April 3, 2020 restricted intercity travels which ultimately affected domestic flights as well.
It is uncertain how long the pandemic will continue to threaten public health, so do the travel bans. Passengers already have encountered many canceled flights due to COVID-19 outbreak. The longer travel bans also mean more reimbursement requests considering tickets bought in advance.
Turkish Civil Aviation Authority regulates the passenger rights by relevant articles of its Regulation on Rights of Passengers Traveling by Air (“SHY-Passenger”). As per 6th Article of the SHY-Passenger, passengers have the right to request route change or reimbursement in case of a cancellation. The same article also states that an air transport operator shall not be liable to pay indemnity when cancellation originates from a force majeure. The current pandemic is an unexpected obstacle and flight cancellations have arisen due to legal restrictions. Hence, it is likely for airlines to benefit from such a clause.
On the other hand, a high amount of activity is expected once the restrictions are lifted. Therefore, the responsibility for providing reimbursement or route change alone could be challenging for many companies. However, a provisional clause has been amended to the SHY-Passenger which entered into force as of March 25, 2020 referring pandemic specifically in regard to flight cancelations.
Accordingly, an air transport operator shall be exempted from its certain obligations for 2 months beginning from the lift of the flight ban. In other words, a passenger whose flight was canceled in consequence of the pandemic may reschedule its flight to a future date or request an open ticket depending on seat availability of the airline company. Alternatively, passengers are also granted receive the refund of the unused ticket from the airline operator two months after the flight bans are lifted.
Decrease of Operational Activities and Workforce Loss
International Air Transport Association (“IATA”) estimates that revenue from passenger ticket sales will fall 44% this year compared to 2019. This fall would likely lead to a liquidity crisis which could result in hardship for paying salaries. It is known that spring and summer seasons are regarded as the high season for airlines and employees are not allowed to request paid annual leave during these times normally. However, such a limitation would like to be removed as a consequence of the current situation. On the other hand, flight personnel’s monthly income mostly arises from flight bonuses.
Furthermore, even employees accept to use their annual leave during the pandemic, this wouldn’t be a solution for the liquidity crisis of the airlines. Indeed, many airlines request their employees to take unpaid leave until the lift of travel bans. In case travel bans continue to sustain for a longer period, such a liquidity crisis may result in termination of employment contracts as well. According to an April 7, 2020 dated report of the IATA, 25 million people may lose their jobs worldwide in case travel bans continue for three months or more.
From the perspective of practices in Turkey; such an estimation is scary enough considering its destructive effect on the aviation sector. Moreover, forcing employees to take unpaid leave or terminating their employment contracts may also cause labor law-related disputes for the airlines. Therefore, airlines must make the utmost effort complying with labor laws in order to avoid a new crisis. Flight personnel have been exempted from the Turkish Labor Law numbered 4857 (“Labor Law”) and their labor contracts are subject to Turkish Code of Obligations in principle. Although provisions of the Turkish Code of Obligations are relatively more flexible compared to the Labor Law, employers are still bound by certain principles while conducting their employment relations.
In some cases, flight personnel’s’ labor disputes may also fall into the scope of the Labor Law if such matter is regulated via a collective labor agreement alike Turkish Airlines. In such a scenario, employees would benefit from employment security as per 18th Article of the Labor Law and employers must ground on operational requirements or employee’s performance while terminating their employment contracts as required by Labor Law. Besides, employers must terminate an employment contract only when it is the last resort which means all alternatives should be examined in order to avoid termination. The current situation and its effects on airlines may be argued as a reason to take extraordinary solutions on employment relations. However, there is still a risk to encounter a litigation-related burden for airlines. (For a further read on analyzingof the aviation sector from the perspective of labor law please click)
Operating Lease Contracts
The aviation sector’s biggest need has always been aircraft. However, this situation is likely to change as long as travel restrictions continue. As a matter of fact, while airlines postpone their new aircraft orders, manufacturers temporarily suspend their production activities. Conversely, such rapid measures may not be possible in terms of lease agreements.
As an option to acquiring an aircraft, the challenge is relatively compelling in operating lease contracts. Airlines are unlikely to benefit from operating leasing during travel restrictions, other than using them in “ghost flights” to keep their slots secure. Therefore, the conditions of force majeure may also become part of the discussion within the context of lease agreements.
As general practice if law, an airline lessee may seek relief from its contractual obligations under the COVID-19 outbreak. First of all, the lessee may claim force majeure has occurred. In consequence, the lessee may claim to suspend rent due or to be relieved from the obligation to pay all or part of the rent for the relevant period. But then, the lessor may rely on a hell or high-water clause that provides that lessee’s contractual obligations remain regardless of lessee’s possibility to benefit from the lease contract. After all, the risk of non-operation of the aircraft during the lease term must be assumed by the lessee.
Although some governments issue force majeure certificates due to the COVID-19 outbreak, such certificates are not enough alone for acceptance of force majeure claim from legal perspective. Contract clauses are suggested to be strictly evaluated in view of the restrictions imposed by local authorities. Applicable law in such contracts are also vital since force majeure precedents vary in each jurisdiction. (Click the link for a brief summary of operating lease contracts)
The current situation and uncertainty of travel restrictions alert the aviation sector. Even though state-level aids are also remaining on the agenda, they have not been clarified yet in most parts of the world. Nevertheless, the COVID-19 outbreak may constitute an advantage from a financial perspective for cargo and emergency medical air operators. Moreover, the need for cargo and emergency medical services are likely to increase as a result of the fight against the pandemic.
Author: Kaan Erdoğan
