The Chinese aviation market continues to expand at a
significant pace, although consolidation appears to be the game
which airlines are playing.
Consolidation of China airline market
In February, Air China Limited and Cathay Pacific Airways
Limited signed a framework agreement to establish a jointly owned
cargo airlines company. This is Air China Cargo and it will operate
In March, Air China, the country's flag carrier, unveiled a
takeover of Shenzhen Airlines in a move that amounted to a
re-nationalisation of the beleaguered private airline, whose owner
and senior executives were under investigation for unspecified
China Eastern Airlines ("CEA") and Shanghai Airlines
have recently merged and analysts have reported that CEA has
applied for additional funding to build a closer relationship with
Guangzhou-based China Southern Airlines. CEA has also announced
that it is joining Skyteam, which China Southern Airlines is a
member of. Separately, CEA and Taiwan-based China Airlines have
signed an agreement to cooperate on cargo and passenger flights,
logistics and maintenance.
Meanwhile, the vultures have been circulating over Macau with
the demise of Viva Macau. It operated regional flights under a
sub-concession from Air Macau and there are a number of investors
looking at establishing a new carrier.
Whether the authorities will seek to apply China's
Anti-Monopoly Law ("AML") to any of these developments
remains to be seen. The AML regulates three forms of monopolistic
conduct: monopolistic agreements, abuses of dominance and
concentrations of business operators. It applies to all
undertakings that engage in manufacturing and/or selling of
products, or the provision of services, in (or to) China. The only
exception stated in the AML is for undertakings operating in the
agricultural sector in China
Interpretation of SGHA provisions by the Chinese
Risk allocation: airlines and airport service providers
Long time readers of this publication will recall prior articles
on the ground handling regime in China and, in particular, the
applicability of key provisions in the IATA standard ground
handling agreement ("SGHA").
Some years ago, the PRC Supreme Court held that, since IATA is
not a permanent arbitral tribunal, any agreement providing for the
resolution of disputes by IATA Arbitration (Article 9 of the main
agreement) will not be valid. That remains the case since China
does not recognise ad hoc tribunals.
Of more significance, however, is how Chinese courts should
interpret the key liability and indemnity provisions in Article 8
of the Main Agreement. Claimants in various ground handling
disputes in China have sought to argue that Article 8 amounts to an
exclusion clause which Chinese law does not permit, alternatively
that the indemnities cannot be upheld on the basis that the other
party has been "grossly negligent"
(words not found in the Agreement) or "reckless with
knowledge that damage will probably result" (Article
8.1). These are important issues as they go to the heart of
regulating risks through contracts. Whilst the SGHA lacks the
detail and teeth of a bespoke contract, it is nevertheless in use
throughout China and is the basic agreement which aviation insurers
expect their insureds to adopt.
There are two significant aviation ground handling disputes
before the Supreme Court of the PRC. The first concerns the
constructive total loss of a Malaysian Airlines A330-200 aircraft
in March 2000. The second case concerns damage to a Cargolux
B747-400 in Shanghai in January 2006. In the former case, the
Beijing High Court ruled in favour of the ground handler but gave
little guidance on how the key indemnity and liability provisions
of the SGHA should be interpreted. In the latter case, the Shanghai
High Court ruled against the maintenance, repair and overhaul (MRO)
provider but gave a long judgment devoid of detail on the key
Whether the Supreme Court is now willing to assist the aviation
industry and its insurers by providing clear guidance on the
meaning and effect of Article 8 of the SGHA remains to be seen. We
will keep readers briefed.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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