Unruly passenger numbers have been on the rise, with many of these incidents related to compliance with COVID-19 mask-related regulations. There are concerns of further issues during the holiday period with Omicron on the rise and an increase in travel as people visit family.
As with the rest of the world, the Covid-19 pandemic has not been kind to African aviation industry stakeholders. To paint a broad picture of market performance, the African Airlines Association’s (AFRAA) recent report noted a 50% drop in capacity since April 2019 with the continent facing greater declines in 2020 in passenger numbers, seats offered and aviation-related jobs than the worldwide average. The continent also faces the twin challenges of limited financing options and difficulties with current policies. However, despite these challenges, there are positive aspects to the market’s recovery and opportunities for sustainable growth. There are several initiatives available to market participants and governments to counter the difficulties in the current operating environment, if these are adopted. Opportunities also abound in this unsaturated market for regional growth and in air cargo. …
Continue Reading Supporting the African aviation market to recovery
According to the Centers for Disease Control and Prevention (CDC), those who are fully vaccinated with an FDA-authorized vaccine or a vaccine authorized for emergency use by the World Health Organization can now travel safely within the U.S. Face coverings, however, must still be worn at the airport and during flight. …
Continue Reading FAA and Homeland Security issue warnings as unruly passenger incidents increase
It is now a unanimous conclusion that the COVID-19 pandemic has resulted in the worst ever crisis in the history of the aviation industry. In 2020, we saw major airlines such as Avianca, LATAM, Thai Airways, Virgin Atlantic and Virgin Australia enter into formal insolvency or restructuring proceedings, with the majority of other airlines being kept afloat by a combination of government aid, cost-cutting measures and concessions from shareholders, employees, bondholders, lessors and other creditors. As we enter the spring of 2021, the inevitable question is: what will happen next? Which airline may fail and which will be well-positioned to benefit from an eventual recovery in international air travel?
Continue Reading Hoping for the best but preparing for the worst
After considering whether to implement a COVID-19 testing requirement for domestic travel, including air travel, the United States Centers for Disease Control and Prevention (“CDC”) recently stated that it is not recommending point of departure COVID-19 testing for U.S. domestic travel. Federal officials had indicated that the CDC was considering a rule that would require all U.S. domestic flyers to test negative for COVID-19 prior to boarding a domestic flight. However, following industry opposition, including opposition from U.S. based air carriers, the CDC stated that it was not recommending point of departure COVID-19 testing prior to domestic travel. The statement by the CDC follows its January 29, 2021 Order which requires the wearing of masks by travelers.
Continue Reading Masks but no tests: U.S. CDC requires masks but will not require COVID-19 testing for domestic travel
The aviation financing industry has undergone a monumental shift in the past decade. As traditional bank lenders have come under increasing regulatory pressure, by virtue of their systemic importance in a decade of low interest rates and a search for yield, private capital (private equity, hedge funds, distressed debt funds, etc.) has been attracted to the relative stability of cash flows and value retention of aviation assets. It is no secret that private equity and other alternative funds have long been accumulating capital, waiting for the opportune moment.
The COVID-19 Pandemic (the “Pandemic”) has wreaked havoc on the aviation and travel sectors. As difficult as this has been to be involved in, distress is attractive to private equity. As airlines restructure and revisit their global fleet compositions, the market reprices distressed assets to reflect evolving operating conditions. In this relatively illiquid market, therefore, there are unprecedented opportunities for longer term investors with experience in distressed assets.
Continue Reading 2020 hindsight: Finding opportunity in distress
The French government, through its investment bank Bpifrance, has recently invested in the newly created Ace Aéro Partenaires fund, which aims to support French SMEs in the aviation industry that have been badly hit by the COVID-19 pandemic and the subsequent drop in aircraft deliveries. 630 million Euros have been raised so far, with the French State (through Bpifrance) contributing 150 million Euros, Bpifrance (from its own funds) 50 million Euros, the “big four” French manufacturers (Airbus, Safran, Dassault and Thales) 200 million Euros, and the fund manager, Tikehau, the remaining 230 million Euros.
The investment is part of the French government’s 15 billion Euro plan to revive and transform the sector in three steps:
- providing emergency relief to the industry and its workforce, through export credits, government orders and emergency funding;
- investing in SMEs and the technological transformation of French aviation; and
- investing in R&D to design and build tomorrow’s aircraft.
Developments in environmental regulation for the aviation industry have gathered momentum over the last year, notwithstanding the challenges arising from the pandemic and the related groundings.
Last month saw the publication of plans for the UK Emissions Trading System, which is proposed to take the place of the European Union Emissions Trading System when the UK leaves the EU at the end of 2020. The baseline emissions reference period for the International Civil Aviation Organisation’s Carbon Offsetting and Reduction Scheme for International Aviation has also very recently been adjusted to reflect the dramatic drop in 2020 aviation emissions resulting from responses to the COVID-19 pandemic, in the context of a heated debate over long-term environmental goals and the aviation industry’s survival. You can read more about this in our earlier blog on the topic here.
Aviation is reportedly responsible for 2 per cent of global carbon emissions, and in the last 12 months we have all had to come to terms with Extinction Rebellion protests and ‘flyksgam’ (discussed in this piece by Ashleigh Standen last autumn). The industry is very aware of the need to reduce its carbon footprint – both for green reasons and to help mitigate its exposure to oil price fluctuations. However, the drivers are frequently external factors. We had become familiar with the push by financial institutions, which are subject to increased regulatory requirements and public scrutiny, as part of a drive for increased sustainability. However, as attention turns to what emergence from the pandemic might look like and our prospects of entrenching green imperatives in our recovery infrastructure, one of the major points of discussion in aviation is the ‘green strings’ attached to government bailouts of airlines.
Continue Reading Airline bailouts: a golden opportunity to take balance sheets from red, to black, to green
On 24 May 2020, the German government announced that it had agreed an extensive €9 billion rescue package for Lufthansa, including a significant recapitalisation leading to a government shareholding of 20 per cent. The European Commission indicated that any approval of the proposed bail out would be subject to slot divestitures at Lufthansa’s Frankfurt and…
The COVID-19 pandemic has caused many airlines to temporarily ground aircraft. Due to its dry desert conditions, Arizona is a popular state for airlines and commercial aircraft lessors to park aircraft while not in active use. Airlines and commercial aircraft lessors should be aware, however, that Arizona’s annual aircraft license tax may apply to an aircraft owned by a nonresident of Arizona if the aircraft is based in the state for more than 90 days in a calendar year. The annual license tax is administered and enforced by the Arizona Department of Transportation (“ADOT”).
Continue Reading License Tax May Apply to Aircraft Stored in the State of Arizona
The impact of COVID-19 (“Coronavirus”) on aviation is becoming more pronounced by the day, with the International Air Transport Association (“IATA”) yesterday asking that airport slot allocation rules be suspended to prevent airlines from losing their take-off and landing slots on the basis of failure to meet the required 80% usage rates, as flights continue to be cancelled globally. About 54 countries, including the US, have now introduced travel restrictions to China and the wider Asia/Pacific (“APAC”) region.
Continue Reading Reed Smith update on the impact of Coronavirus on the aviation industry