The Court of Appeal recently made a ruling enabling the administrators of Monarch Airlines to sell the valuable slots which Monarch were allocated in a bid to realise assets for creditors.

The High Court had originally ruled that under the EU Slots Regulation (EEC No 95/93) that as Monarch had ceased to operate as a functioning airline (an “air carrier” for the purposes of the Regulation) when the company entered into administration it was not entitled to a valuable allocation of landing/take off slots.  It was clear that the only reason Monarch wanted to receive the allocation was to sell these on to interested bidders in an effort to increase the administration estate going forward and so the High Court felt that this went beyond the purposes of the Slots Regulation.

The administrators of Monarch, KPMG, appealed the decision in the Court of Appeal and the High Court’s decision was ultimately overturned.  The decision was based primarily on the definition of “air carrier”. Airport Coordination Limited (ACL) who have responsibility for organising and allocating slots at many of the UK main airports, including Monarch’s main hubs of Luton and Gatwick, argued that as Monarch had ceased operating at the time of their administration and had no reasonable prospect of recommencing, Monarch did not fall into the definition of air carrier, as upheld at the High Court and therefore the slots should be returned to the industry pot, for distribution to all other air carriers.

However, the Court of Appeal disagreed and held that the Slots Regulation does not assist in setting a clear definition of “air carrier” in these circumstances.  One crucial aspect of the decision came through comparing the ACL to the Civil Aviation Authority (CAA) who are in charge of giving and revoking airline operational licences.  In this case, the ACL slot allocation meeting came on 26 October 2017 whilst the CAA hearing to revoke Monarchs licence did not occur until 8 November 2017.  Therefore technically at the time of the slot allocation Monarch was still an air carrier, even though it was in administration and no longer operational or with the realistic prospect of becoming operational in the near future. The Court of Appeal noted that the ACL as coordinator could not be expected to investigate the viability of the businesses of the air carriers seeking slots; that was the remit of the CAA.

Joint administrator, Blair Nimmo expressed his delight at the ruling and Monarch’s slot allocation at Gatwick was quickly snapped up by British Airways parent company, IAG, in a deal rumoured to be worth £50m.  This has enabled BA to expand its capabilities at Gatwick by 28%.  The Luton slots are believed to have been sold to Wizz Air.  The Manchester and Birmingham slots were exempt from this appeal ruling and will be allocated by ACL to existing operators or new entrants into the market.

For Monarch and its creditors, the sale of the slots at Gatwick and Luton will go some way to covering the costs of the largest peace time repatriation of stranded holidaymakers when Monarch went into administration in October 2017 and thereby potential securing some return to creditors from the administration estate. 

In terms of airline insolvencies in the future, this ruling may mean that any commencement of insolvency proceedings could be potentially delayed and an airline continue to operate until such times as it is allocated its valuable airport slots to then be used as a commodity in the ensuing insolvency.  Whilst it is right that an insolvent company should not be stripped of assets by a regulatory body during an administration moratorium, it is clear that this scenario was not in the legislators’ mind when drafting the Regulation.  Obviously when Brexit occurs, it remains to be seen fully what will happen to EU regulations such as this one and how the airline industry will operate.  Ryanair ended 2017 by applying for a UK licence to ensure its capabilities to fly between the Republic and the UK post March 2019, for fear of being treated as a “foreign air carrier”.  Airlines are reported to be generally pessimistic about the ongoing freedom to fly domestic and EU routes post Brexit and so it is likely that there will have to be wholesale agreements within the EU about matters such as slot allocation and how to deal with insolvent airlines going forward, without the protection of EU-wide aviation sector deals. Arguably cases such as Monarch could become a regular occurrence if deals cannot be agreed which safeguard consumer confidence and the ability to enjoy freedom of airline travel in a post Brexit world.