The New Hats of Aviation Lawyers in Asia

As airlines grounded fleets, furloughed staff and deferred new aircraft orders in the wake of the global COVID-19 pandemic, aviation lawyers in Asia were forced to quickly pivot from the traditional upward trajectory of aircraft lease financing work that had kept them busy for years.

They are still adapting.

The COVID-19 pandemic has sent the global aviation industry reeling. Several Asian airlines, including Hong Kong’s Cathay Pacific and Singapore Airlines (SIA) have ceased operations. Low-cost carriers like Thailand’s NokScoot and AirAsia Japan have shuttered, and even country flagship airlines like Thai Airways and Malaysian Airlines are contending with bankruptcies.

The nature of the work changed twice last year—from negotiating rental holidays and force majeure clauses to advising on business restructuring and insolvency as the prolonged travel moratoriums strained the industry.

“The initial high-pressure work from March to June was from airlines and leasing companies because of the widespread grounding of aircraft,” said Peter Coles, head of Clyde & Co’s Asia Pacific aviation practice. “With significant drop in passenger demand, airlines didn’t want to pay lease rentals, so they were going to lessors and asking for rental holidays.”

But what made those negotiations particularly challenging, said Coles, was the fact that lease finance agreements are notoriously lacking in get-out clauses.

Simon Wong, a Hong Kong-based partner at Stephenson Harwood, said all lease financing work dried up earlier last year. But what kept his practice going was work from Chinese lessors and banks.

“We’ve been working with 17 airlines across 11 jurisdictions on restructuring leases and defaults,” he said.

In Southeast Asia, Thailand firm Kudun & Partners announced in October that it had been appointed to represent over 80 creditors of Thai Airways, with debts estimated to be in excess of $11 billion.

Law firms in the region are adjusting their teams to meet the potential influx of airline restructuring and insolvency work.

“We do expect more bankruptcy and voluntary administrations in the next few months,” said Coles. “Airlines that were able to get direct money from governments or preferential loans or guarantees from state banks or other forms of support from government are finding that the initial assistance they got is coming to an end.”

Australia, Hong Kong and Singapore had very early on announced a range of support measures for their aviation industries. SIA, along with other aviation companies in Singapore, benefited from government-industry support packages valued at $644 million, including a $299 million job support scheme to cover the majority of employee salaries. Cathay Pacific in June also received $5 billion in government aid.

The pandemic has forced major airlines to streamline their core operations. According to lawyers on the ground, the sector is set to see more consolidation of industry players, which will lead to more work in 2021. “There will definitely be more consolidation in the future, that is already happening,” said Wong “Those that come out on the good side after the pandemic will see less competition but stronger players.”

As the sector right-sizes, law firms are also shifting their focus. International firms in the region that have traditionally specialized in transport sector work are benefiting, while larger firms that had been mulling over whether their aviation finance practices were profitable enough are now being pushed to adjust.

“Transport specialist firms have more tolerance for cycles in the industry,” said Wong. “At larger firms where particular practice areas are not as profitable due to stronger competition and competitors pushing fees down, they are shedding their teams.”

Even as the larger firms build and bolster their disputes and insolvency practices to leverage the pipeline demand that the pandemic will create, aviation-focused law firms still have an advantage, Cole said.

“Some of the law firms that are engaged directly in restructurings very often don’t have aviation regulatory experience, and while they have very good insolvency practices, they’ve ended up engaging aviation specialist lawyers from other firms to assist with advice on ownership and control issues, licensing of operations, market access and routes,” he explained.

Watson Farley & Williams is one of the latest firms to hire a team of aviation lawyers in the region. William Ho and Jackson Chow, who focus on the Chinese aviation finance market, joined the firm as partners with two associates from Bryan Cave Leighton Paisner in Hong Kong in early January.

The revival of the aviation sector will depend heavily on Chinese investments, according to Wong. Western investors are unlikely to pour capital into the industry in the short-to-medium term. Work for aviation lawyers will pick up gradually but significantly as governments lift restrictions on flights and consumer demand resumes.

“There are many legal and risk considerations when it comes to the resumption of flight operations and the restructuring of the supply chain in the aviation manufacturing industry which will result in the need for legal help,” said Coles. “However the main focus right now is in ensuring that the much-needed vaccines can be transported safely throughout the region.”

Read More:

WFW Expands in Hong Kong, London with Six Lawyers

Linklaters, Clifford Chance Advise on $5.3B Cathay Pacific Bailout in Hong Kong

Davis Polk Hong Kong Partner Moves In-House to Flagship Airline Cathay Pacific

Source link

Add a Comment

Your email address will not be published. Required fields are marked *