Keeping Wings Level in Turbulent Times: Selected Recent Legal Developments
01 May 2008
Aviation law has always encompassed complex liability questions, expansive regulatory challenges, and multinational financial transactions, and recent developments have provided aviation lawyers a chance to be at the forefront of many of today's most pressing policy questions.
From big corporate deals to terrorism to global warming to the spread of communicable diseases, aviation lawyers must remain prepared to address issues that can quickly land on the front pages of newspapers, and websites, around the world.LIABILITY
The human element combines with public scrutiny and major financial risk to make liability one of the most intense areas of aviation practice.
The introduction of criminal law into aviation accident investigations has always been a contentious area, and recent developments are no exception. In June 2007, prosecutors in Brazil filed charges against two United States pilots and four Brazilian air traffic controllers in connection with the 2006 collision of an executive jet and Gol Airlines B-737. The indictment charges the six defendants with the equivalent of involuntary manslaughter for the mid-air collision that resulted in the death of 154 passengers. The two US pilots had been prevented from leaving Brazil for two months after the crash and were ultimately allowed to leave after agreeing to return if requested to do so by a Brazilian court. The pilots have not returned to Brazil and in early 2008, the Brazilian courts agreed that they could be deposed in the United States at the National Transportation Safety Board. It is an open question whether this compromise will stand or if the Brazilian courts will ultimately demand the pilots' return.
The appeals court verdict in relation to the 1992 crash of an Air Inter flight near Strasbourg was greeted by opponents of criminalisation as a triumph of reasoned analysis over hysteria when all criminal charges were dismissed and civil damages awarded by the lower court were scaled back. It is too early to tell whether the similarly scaled back recommendations regarding criminal charges in relation to the 2000 Concorde crash are further signs of a trend, though it is certain that lawyers in the field will closely watch developments. Recent public statements by the Flight Safety Foundation and the NTSB Bar Association that again encourage consideration of the chilling effect on open data disclosure (which is the currency of aviation safety) of criminal charges will provide food for thought.
Civil liability, not criminal, remains the norm in the United States. Indeed, almost without exception, virtually every single aviation accident is likely to end up as the subject of litigation in the United States in cases that can span many years. In 2007, one of the major liability issues in the United States, litigation surrounding deep vein thrombosis (DVT), did, however, come one step closer to resolution. In an opinion handed down in October 2007, the United States Court of Appeals for the Ninth Circuit held that the Federal Aviation Act pre-empted any state-imposed duty to warn airline passengers about the risks of DVT. Although the Ninth Circuit's ruling disposed of a large portion of the plaintiffs' claims, it did not resolve the case in its entirety. Specifically, the Ninth Circuit held that issues of fact remained regarding whether the Airline Deregulation Act pre-empted the plaintiffs' claims that unsafe seating configurations caused DVT. The case will return to the District Court, which will have to resolve this issue.
A number of fascinating forum non conveniens decisions provided evidence that, while the doctrine is alive and well, nothing is as simple as it seems. The past year saw decisions to reject an attempt to site the litigation in relation to the Russian 2006 Siberia Airlines crash in New York, as well as an attempt to use a single US passenger claim to anchor litigation against Cessna in regard of the Milan Linate disaster in Florida. At the same time, a French court decision sending Flash Air crash-related claims against US defendants back to the United States following initial and conditional dismissal for forum non conveniens shows the risks of assuming that once it is granted, the case will not go back to the US. So too, did the announced settlement by US defendants of US claims in regard of a crash in the Philippines with no American victims balance the intellectual equation on forum non conveniens.
REGULATORY
Aviation lawyers are accustomed to navigating a morass of regulatory mandates, from international treaties that set broad principles of conduct to rules of individual states that govern such minutiae as the service of alcohol. Whatever the subject, however, aviation lawyers cannot afford to overlook any of these regulations, a task that is increasingly difficult as the sheer number and complexity of regulations increases over time. Not surprisingly, this past year saw several significant developments on the regulatory front.
After years of negotiations, the United States and the European Union agreed on final terms for the Open Skies Treaty to replace existing bilateral agreements. The treaty is notable because it replaces long-standing restrictions on service and permits every United States airline to fly to every city in the EU and vice versa. The treaty, which went into effect on 30 March 2008, is expected to lead to increased service on the heavily trafficked transatlantic route and, ultimately, lower prices (subject to fuel costs). Indeed, carriers on both sides of the Atlantic have already announced new routes and more are expected. Additionally, the United States and EU agreed to return to the negotiating table in June 2008, when they will discuss European airlines' ownership of United States carriers and whether they should be able to operate domestic routes in the United States. There are significant differences between the two blocks on these issues and it will be difficult for them to forge a compromise.
Green issues have also been more than a buzzword for aviation lawyers. In November 2007, the European Parliament approved a plan to include airlines flying to and from the EU in a cap and trade system. Fashioned on the EU's existing carbon credit trading system, the parliament's measure would have allowed governments to set carbon dioxide limits and would then permit companies to purchase credits if they exceed the targets. The key issues in the debate focused on when the system would go into effect and the baseline level of emissions that would be permitted - the Parliament determined that the plan would start in 2011 and that emissions will be limited to 90 per cent of previous emissions with further reductions in succeeding years. The parliament, however, did not have the final say on the matter. Barely one month after it approved the cap and trade plan, ministers from EU member states adopted an amended compromise version of the parliament's emissions regulation. The ministers not only delayed implementation by one year to 2012, they also agreed that airlines would only be permitted to auction 10 per cent of their emissions allowances, less than the 25 per cent recommended by the parliament. The ministers also decided to allow emissions at 100 per cent of the average rate of emissions from 2004 to 2006, rather than the 90 per cent figure set by the parliament. These changes were almost certainly necessary to secure ministerial approval. Fierce opposition is expected from the United States.
Although government opposition to greenhouse gas regulations remains strong in the United States, the picture is somewhat different at the state level. Thus, in December 2007, California, New York and several other states, and local governments, filed a petition with the US Environmental Protection Agency seeking the regulation of greenhouse gas emissions from aircraft. The EPA has yet to act on the petition and most commentators think it is unlikely that the current administration will act on the petition before January 2009.
Finally, some in the US renewed calls for a Passenger Bill of Rights after passengers were stranded on aircraft for upwards of eight to ten hours after a series of well-publicised delays at airports in December 2006, caused by unexpectedly large snowstorms. The bills, however, remain stalled in Congress. Seeking to fill the regulatory void left by the US Congress, New York enacted its own Passenger Bill of Rights in August. In early 2008, however, the United States Court of Appeals for the Second Circuit held that the measure was unconstitutional because it had been pre-empted by the Airline Deregulation Act of 1978.
TRANSACTIONAL
As oil prices soared to new heights, rising fuel costs inevitably made their mark. Indeed, over the course of the year, the price of jet fuel nearly doubled. Thus, it is not surprising that fuel has overtaken labour as the single biggest operating expense for US airlines. Accounting for an estimated 27 per cent of the industry's operating budget, and increasing almost daily, fuel costs forced airlines to search for creative new ways to reduce expenses and increase revenue. Consequently, the past year has seen increases in fares, reduced capacity, lay-offs, and the grounding of less fuel-efficient aircraft, as well as prominent bankruptcy announcements.
Spurred in part by escalating fuel prices, as well as the perception that a permissive regulatory environment would welcome consolidation, announcements of a merger between Delta and Northwest and of Lufthansa's acquisition of a 19 per cent stake in JetBlue were significant developments. Prior bankruptcy restructuring paved the way for the Delta/Northwest deal, as Delta had cut over 20 per cent of its workforce and nearly 17 per cent of its fleet. Likewise, Northwest eliminated US$4.2 billion in debt, cut US$2.4 billion in annual costs, and raised its cash balance to more than US$3 billion. Although the Lufthansa deal may be strictly financial, the German carrier will gain a seat on JetBlue's board of directors, and analysts predict that it may use its relationship with JetBlue to gain access to New York's Kennedy International Airport, one of the United States' largest international hubs. Attempts by AirFrance-KLM to find a compromise deal to acquire Alitalia were torpedoed by unions and political manoeuvrings related to the Italian elections, even as once again the European Commission threatened the Italian government with State Aid proceedings, based on announced plans for aid packages. Finally, Textron Inc's Cessna acquired the assets of Columbia Aircraft Manufacturing Company, a producer of high-performance, single-engine aircraft.
In a significant new trend, fuel-efficient turboprops made a roaring return linked to recent fuel prices. Because turboprops
are touted to consume a quarter to a third less fuel than jets, and therefore can boast 30 per cent lower per seat costs, they have become a viable alternative for cost-conscious regional carriers who are increasingly willing to sacrifice speed for efficiency. Consequently, demand for turboprops has quadrupled over the past few years and manufacturers expect another significant increase in demand in the years ahead, even as leaps ahead in technology, including explorations of unducted fans, are also discernible trends.
Despite the turboprop's impressive comeback, the competition among regional jet manufacturers became even more intense in 2007, as Russia (the Sukhoi/Alenia SuperJet), China (the ARJ-21) and Japan (Mitsubishi MRJ) continue their plans to enter the market with jet aircraft even as Canada's Bombardier announced its authorisation to offer its new C-Series regional jet. So far, the new entrants have each announced a number of sales each to support their entry into the market.
The economic downturn notwithstanding, the demand for small executive jets also remains strong. Fuelled in part by the weak dollar, foreign demand for US-manufactured executive jets has been particularly strong, as international orders surpassed North American orders for the first time. Sales over the next decade are predicted to reach approximately 15,000 jets.
***
Lawyers play more or less public roles in all of these developments, but, as those who practise aviation law are constantly reminded, their hands are always on the controls to keep the wings level.