Looking ahead: 2023 and the air freight market

By Simon Spells and Julia Norsetter on 16 March 2023 Posted in Airlines, Freight

In 2022, we discussed an increased demand for air freight, and the resulting need for aircraft prime for conversion from passenger to freighter. The most significant factor leading to this demand was the COVID-19 pandemic and resulting accelerated e-commerce market. After all, the plunge in passenger air travel meant that the 50% of air cargo transported in the hold of passenger aircraft was no longer available. In reaction, logistics companies sought an alternative source for transport of their air cargo, and airlines adapted.

The outcome was significant growth and ingenuity in the conversion of passenger aircraft to freighter aircraft. In our previous article, we discussed some of the challenges faced by stakeholders in the conversion industry, such as the retirement of older aircraft (as airlines sought to invest in more efficient new generations of aircraft). We also discussed the availability of slots at conversion facilities, which faced far more demand than they could accommodate. In 2022, for example, slots at most major conversion facilities were booked up until 2024, or in some instances, until 2026.

U.S. Dept. of Transportation launches online dashboard to address airline family seating charges

By Justin deBettencourt and Oliver Beiersdorf on 15 March 2023 Posted in Airlines, U.S.

On March 6, 2023, the United States Department of Transportation (“DOT”) launched a new online dashboard in an attempt by the Biden Administration to put pressure on U.S. airlines to address customer concerns regarding family seating. The online dashboard represents an effort by the DOT to publicly pressure airlines to eliminate fees related to family seating in the absence of specific rulemaking on this issue.

According to the DOT, the dashboard highlights which U.S. airlines guarantee fee-free family seating, and those that do not. In a press release that accompanied the rollout of the dashboard, the DOT indicated that it has already “begun work on a common-sense rulemaking to ban airlines from charging families junk fees to sit together.”

An analysis of the new Hague Court of Arbitration for Aviation

By Hui Ling Teo, Jody Wood and Julia Norsetter on 13 March 2023 Posted in Airlines, Regulatory

The HCAA (Hague Court of Arbitration for Aviation) is a newly established specialized arbitration center catering specifically to the aviation sector, which was launched at the Farnborough International Air show in July 2022. Earlier this year, we did an overview of our initial views on the HCAA Model Clause and Rules. The HCAA has also recently revised its arbitration rules on 14 February 2023, showing the high level of consultative engagement that the HCAA has with the aviation community.

Like the Court of Arbitration for Sport and the Chambre Arbitrale Maritime de Paris, one of the HCAA’s key advantages is the availability and expertise of aviation arbitrators in their specialist field which is intended to reduce cost and increase efficiency. Drawing references to the construction and maritime industries however, it is worth noting that setting up a specialized arbitration center is not the only method of allowing transacting parties access to specialists. Professional groups of arbitrators such as the London Maritime Arbitrators Association and Society of Construction Arbitrators can also provide a similar advantage to parties to a dispute in an ad hoc forum rather than a fully administered arbitration. In aviation, the American Arbitrations Association has a panel dedicated to Aerospace, Aviation, and National Security.

Investment opportunities in eVTOL

By Simon Spells, Manoj Purush and Julia Norsetter on 7 March 2023 Posted in Advanced Air Mobility, Airlines

Originally published on evtolinsights.com

The aviation industry has had significant shifts in the profitability of different sectors over the past several years. The COVID pandemic brought a significant decline in air passenger travel, but rapid growth in the air freight market as e-commerce rose significantly. It was no surprise, then, to see an increase in investment activity in air freight, as operations turned record profits. Since air freight represented a new sector of aviation for a significant number of investors, last year we provided advice on key considerations for joint venture investments in the industry.

As we look towards 2023, aviation investors desire to seek more environmentally friendly targets and we are seeing an increase in interest in another new sector of aviation: advanced air mobility, or “AAM.” In the near term, many manufacturers are focusing their developments on electric vertical-takeoff-and-landing aircraft (eVTOL) for passenger or cargo carriage. A myriad of manufacturers are seeking to enter the eVTOL market, with significant investment already occurring. For example, market leaders like Joby Aviation and Lilium reported in 2021 investments of 1.6 billion and 1.2 billion USD respectively.

High Court strikes a cautionary note on lease termination: The recent case of Peregrine v Laudamotion

By Andrew Harper and Jody Wood on 21 February 2023 Posted in Airlines, Leasing

Overview

The Covid pandemic placed immense strain on lessors and airlines alike. The recent case in the High Court of Peregrine Aviation Bravo v Laudamotion [2023] EWHC 48 (Comm) sheds some light on the impact the pandemic had on relationships between lessors and airlines, especially amidst the dystopian atmosphere of the early lockdowns, and highlights important issues to take into consideration when looking to terminate the leasing of (or the commitment to lease) an aircraft.

By way of brief overview:

The claimant lessor, acting through various entities (including Peregrine Aviation Bravo) (hereinafter, the “Lessor”), had several existing leases with Laudamotion, a subsidiary of Ryanair (and hereinafter, the “Airline”), under which the aircraft had been delivered (the “Delivered Leases”), and had entered into four new leases for mid-life aircraft scheduled for delivery during Q2 2020 (the “New Leases”).
Whilst the Delivered Leases were guaranteed by Ryanair, only one of the four New Leases was guaranteed by Ryanair (with the apparent intention that the other three New Leases would be guaranteed closer to delivery).
As a consequence of the Covid pandemic which had spread widely across Europe by March 2020, there were extensive discussions and communications between the Lessor and the Airline in March and April 2020 concerning the status of the aircraft already operational under the Delivered Leases and the aircraft scheduled to be delivered under the New Leases.
The Airline sent at times bold communications, two of which were later cited as grounds for an event of default. The first, sent on 18 March 2020, stated amongst things that delivery under the New Leases would be unilaterally deferred until at least the end of June 2020. The second, sent on 20 April 2020, indicated that it would apply a unilateral rent reduction to the Delivered Leases and that it could not accept delivery of the aircraft under the New Leases. It is important to note that the Airline did continue to pay rent (when due) in full under the Delivered Leases.
The Lessor eventually decided to force delivery of the first aircraft, MSN 3361, as a “shot across the bow”, tendering it for delivery on 7 May 2020 having only given notice (in a best-case scenario) on 1 May 2020.
The Airline claimed that, amongst other things, the aircraft was not in the requisite delivery condition and that inadequate notice had been provided. The Lessor terminated the first New Lease and the remaining three New Leases on 15 May 2020.
The Lessor subsequently re-leased the aircraft to SmartLynx, an ACMI operator, on a power-by-the-hour arrangement.

Disputes arose between the parties which fell to be resolved in the High Court of England and Wales. Henshaw J, the case judge, found against the Lessor, deciding that the Airline did not wrongfully fail to take delivery as alleged by the Lessor and that no events of default had occurred. Ancillary claims against the guarantor also failed as a consequence.

Hague Court of Arbitration for Aviation gets off the ground

By Jody Wood, Adam Longney and Suhani Mangal on 6 February 2023 Posted in Disputes

Introduction

There is much buzz around the launch of the Hague Court of Arbitration for Aviation (the ‘HCAA’), a new industry focussed arbitral regime, in Rotterdam. However, it remains to be seen whether the hype is justified and whether the HCAA will gain traction within the aerospace industry and, in particular, with industry participants.

In this alert, we take a closer look at the administration of the HCAA by the Netherlands Arbitration Institute (the ‘NAI’), the model clause and, of course, the proposed rules (the ‘Rules’).

We have questions: Julia Norsetter, Policy and Analysis Lead at Reed Smith

By Ashleigh Standen and Julia Norsetter on 13 December 2022 Posted in Advanced Air Mobility

Julia has recently joined our Transportation team here at Reed Smith, having previously been an attorney and policy advisor at the U.S. Department of Transportation and developing strategy and policy with the U.S. Federal Aviation Administration (‘US Regulator’) – including in relation to emerging transportation and advanced air mobility (‘AAM’).

The regulatory framework being built to facilitate AAM around the world can seem intimidating, and is changing with a speed and agility that those working in more established modes of transport may not expect. Julia shares some helpful thoughts on this, and we will be sharing more detailed insights soon – so watch this space!

We have questions: Chris Proudlove, SVP and Underwriting Executive at Global Aerospace

By Ashleigh Standen on 29 November 2022 Posted in Advanced Air Mobility

Chris leads the Emerging Technology Unit at Global Aerospace, which provides insurance for aviation and aerospace assets with a particular focus on innovation and keeping pace with new technology.

Insurance is a key piece of the puzzle in asset finance, and will be especially important for an entirely new class of assets and supporting infrastructure with their own unique features and risks for owners, operators, passengers, lessors and financiers to understand and accept. Chris very kindly spent some time discussing these risks with us, and provided his thoughts on a few key questions.

We have questions: David Tokoph, President and CEO of mba Aviation

By Ashleigh Standen on 17 November 2022 Posted in Advanced Air Mobility

mba Aviation provides a range of specialist aviation support services, from portfolio management software solutions to technical support to investor due diligence to airport revenue enhancement and beyond.

The team is now looking to the future of aviation, and the opportunities and challenges that advanced air mobility (‘AAM’) will generate. mba recently organised the Alternative Lift Exchange: Financing Future Technologies event alongside the Airline Economics conference in New York, providing a specialised forum for those working in and preparing for AAM to gather and share their experience.

We had questions about how and why mba is contributing to the momentum of AAM, and David kindly agreed to answer them.

We have questions: Jason Pritchard, Executive Editor of eVTOLInsights.com

By Ashleigh Standen on 31 October 2022 Posted in Advanced Air Mobility

As Executive Editor of eVTOL Insights, Jason has a unique perspective on the state of the advanced air mobility space, and helps to connect industry players by gathering and sharing news and views from across this dynamic and rapidly evolving landscape.

For the eVTOL Insights podcast, Jason interviews people working in a range of aspects of advanced air mobility, including everyone from founders and CEOs to engineers and software developers, marketers and certification experts, lawyers and battery designers, and beyond. Given his broad knowledge of this detailed and complex industry network, I thought we might turn the tables and interview Jason – and he kindly agreed.

We have questions: Clem Newton-Brown, founder and CEO of Skyportz Australia

By Ashleigh Standen on 26 October 2022 Posted in Advanced Air Mobility

With a background in law, politics, and transport services, Clem Newton-Brown is well placed to facilitate the development of vertiports in Australia and to help connect the various moving pieces of the local advanced air mobility (‘AAM’) puzzle. Through Skyportz, his team is working to assemble the expertise and investment needed to make this happen, to ensure that the landing infrastructure is available when the eVTOL aircraft are certified to fly.

Advanced Air Mobility: We have questions

By Ashleigh Standen on 25 October 2022 Posted in Advanced Air Mobility

Advanced air mobility, or ‘AAM’, is a concept that seems to grow and evolve on a weekly basis, as hundreds of companies and thousands of people worldwide invest their expertise, their motivation and their money into the project of making the concept a reality.

Walmart continues to expand its drone-delivery program

By Oliver Beiersdorf, Amanda Cunha, Catherine Kiernan and Gregory Speier on 19 July 2022 Posted in Advanced Air Mobility

If you live in Arizona, Arkansas, Florida, Texas, Utah, or Virginia, your recent online Walmart order may have been delivered to your home by a drone. In May, Walmart announced that it completed hundreds of drone deliveries. By this time next year, Walmart hopes to complete over a million drone home deliveries in these states.

In the May press release, Walmart announced that its drone delivery program was made possible through its partnership with DroneUp, a company that offers drone flight services through a network of single pilots and pilot organizations. Through close consultation with DroneUp, Walmart is now able to deliver packages weighing less than 10 pounds, in as little as 30 minutes, between the hours of 8am and 8pm. While Walmart believed most customers would use its drone-delivery service for “emergency items,” it turns out that the top selling item in one hub location is Hamburger Helper.

This demonstrates that consumers quickly become comfortable using drone delivery service for all kinds of goods, including food and everyday household items.

According to recent press releases, Walmart’s delivery process is as follows: a DroneUp delivery hub, with a team of certified drone pilots, is tasked with the safe delivery of packages within the confines of FAA guidelines. When a customer places an order, the item is fulfilled from the store, packaged, loaded into the drone, and delivered to the customer’s home using a cable that gently lowers the package to the ground.

‘Rules of the Air’: EASA Publishes World’s First Air Taxi Rules

By Celine Collis on 5 July 2022 Posted in Advanced Air Mobility

Hail a black cab on a busy London street, and you can assume that the driver will follow the ‘rules of the road’ to your destination. However, what can a commuter expect when taxis begin to take flight?

With Airbus, Boeing and even Uber, amongst others, developing and investing in electric take-off and landing (eVTOL) aircraft, the concept of flying taxis is quickly becoming a reality rather than a concept relegated to Sci-Fi. Test flights are currently being conducted on eVTOL aircraft, and while estimations for their commercial roll-out vary, it is likely we will see flying taxis in the next few years. One market research company has estimated that 430,000 air taxis will be in operation by 2040. As such, ‘rules of the air’ are in order for the safe operation of air taxis.

Vertiports 2022: The story so far

By Luke Drake on 30 June 2022 Posted in Advanced Air Mobility

We wrote earlier this year about vertiports as an asset class, and a perceived potential lag in the development of these assets compared to that of the eVTOL aircraft that vertiports are designed to support (you can read that piece here).

This now seems to be changing, and there has been a real sense of momentum building in this space over the last few months – so much so that it can be difficult to keep up, which is why we set out here a few of the key developments shaping vertiports and eVTOL support infrastructure to be aware of.

SC-VTOL confirmed as basis for eVTOL certification in the UK

By Ashleigh Standen and Celine Collis on 20 June 2022 Posted in Advanced Air Mobility

The UK Civil Aviation Authority (‘CAA’) announced last week that it will use the certification standards informing the ‘Special Condition for small-category VTOL aircraft’ (the ‘Special Condition’ or ‘SC-VTOL’), developed by the European Aviation Safety Agency (‘EASA)’, as the basis for the certification of new models of electric vertical take-off and landing (‘eVTOL’) aircraft in the UK.

What is SC-VTOL?

EASA pioneered VTOL certification through the issuance of the Special Condition on 2 July 2019, which sets out the technical specifications and requirements developers must meet to achieve certification for new models of VTOL aircraft intended to carry passengers.

In doing so it recognised that VTOL aircraft are an entirely new category of vehicle for regulators, noting in the preamble to the Special Condition that ‘despite having design characteristics of aeroplanes, rotorcraft or both, in most cases EASA was not able to classify these new vehicles as being either a conventional aeroplane or a rotorcraft as covered by the existing certification specifications.’

The Special Condition applies to small rotorcraft with:

a passenger seating configuration of nine or fewer; and
a maximum certified take-off mass of 3,175 kg.

It is now confirmed that the CAA will use SC-VTOL as a basis for the certification of eVTOL aircraft in the UK.

Learn to fly: eVTOLs and autonomous flight

By Richard Hakes and Ashleigh Standen on 13 June 2022 Posted in Advanced Air Mobility

“Fly along with me,” sings Dave Grohl, “I can’t quite make it alone.” We can imagine eVTOL developers singing along to this as they work towards autonomous flight, as so many of the vehicle models will have to commence operations – however briefly – with a pilot onboard.

But the ultimate viability of the eVTOL proposition relies in no small part on achieving certification for (and confidence in) autonomous flight as quickly as possible. It will take time for aviation authorities, local councils and the travelling public to get comfortable with this, but the economic reality is that the industry will only be able to operate at a sustainable scale if each vehicle’s full capacity is available for paying passengers or revenue-generating cargo. We need to find a way to facilitate safe pilot-free flight while also managing the technological and operational challenges autonomous flight presents – as Dave sings, hook me up a new revolution.

Distressed Assets: JOLs and JOLCOs

By Andrew Harper on 7 April 2022 Posted in Leasing

As a result of the COVID pandemic, with the resulting payment defaults amongst several airlines , the past few years have seen a surge in interest in distressed debt opportunities within the aviation sector. One particular area which has seen a lot of attention has been Japanese tax leasing – namely the Japanese operating lease (“JOL”) and Japanese operating lease with call option (“JOLCO”) products.

JOLs and JOLCOs have been staples of the aviation market for many years. Both are essentially operating leases with an investment of Japanese equity, typically provided by a Japanese corporation with tax capacity. This is usually twinned with limited recourse senior debt from a Japanese bank or a Japanese branch of an overseas bank, such that the credit of the underlying lessee is integral to the transaction as the revenue flowing from the lease would be used to pay the debt.

Hop to it: Vertiports as an asset class

By Ashleigh Standen on 14 February 2022 Posted in Advanced Air Mobility, Freight

Hop to it: Vertiports as an asset class

The sums invested in the development of electric vertical take-off and landing (‘eVTOL’) aircraft have been well publicised. It seems that not a week goes by without a new partnership announcement, a new SPAC combination, or another large investment being reported in the press – such as the additional $450 million being invested by Boeing in Wisk, announced at the end of last month. The Financial Times recently referred to a McKinsey finding that ‘investors have bought into the dream, pumping more than $7bn into such projects, mainly through special purpose acquisition vehicles (Spacs) listed on US stock markets,’[1] The article goes on to note that ‘while all kinds of vehicles are planned, from cargo planes to surveillance drones, almost 75 per cent of the money went to companies developing manned electric vertical take-off and landing (eVTOL) craft.’[2]

Flying into the future of global air freight

By Oliver Beiersdorf and Richard Hakes on 13 January 2022 Posted in Connectivity, Freight

As the global economy becomes more interconnected, aviation takes on an increasingly central role in our collective economic growth. The aviation industry supports 65 million jobs and enables the best part of $3 trillion in global GDP annually. If aviation were a country, it would rank among the world’s largest economies.

With the loss of nearly two years of passenger traffic, however, the COVID-19 pandemic has hit aviation harder than nearly any other industry. Yet there are reasons for optimism as the industry looks to emerge from the crisis stronger than before. In this report, Reed Smith’s aviation team examines how the industry can reconfigure itself and continue to connect the people and economies of the world, long into the future, with a much different footprint.

The report explores the dynamics in four key areas for the aviation industry:

Tomorrow’s world
Business continuity – ensuring a solid business model
Avoiding unnecessary disruption (increasing number of disputes)
Navigating the given external considerations

We hope you enjoy reading the report and as always, we welcome your feedback and questions. Please feel free to reach out to any of the authors, or to your usual Reed Smith contact.

Please see link to site: Global Air Freight