UK: Airline Insolvency Overhaul: A Summary Of The Final Report Of The Airline Insolvency Review

1. Introduction

On 9 May 2019 the Airline Insolvency Review (the AIR), chaired by Peter Bucks, published its Final Report on passenger protections in the context of airline insolvencies, having been commissioned by the Chancellor of the Exchequer in November 2017 following the high-profile collapse of Monarch Airlines. Chief among the report's recommendations are the implementation of a privately funded repatriation scheme, a new Special Administration Regime for airlines, and the commercialisation of the protection that currently exists under EU regulatory framework for customers who have purchased flights as part of a package, or together with other travel products (ATOL protection).

2. Background to the AIR

When Monarch entered administration in October 2017, there were 110,000 passengers situated overseas and 300,000 future bookings were lost. Faced with the prospect of passengers having to wait weeks to return home, the Government instructed the Civil Aviation Authority (the CAA) to repatriate not only the ATOL protected consumers, but all overseas passengers. The consequence of that decision was a £60 million taxpayer bill, which the Government has since struggled to recoup.

Consequently, the AIR was established to consider: i) new forms of repatriation and refund protection; and ii) methods of placing the ATOL scheme on a more commercial footing. The report notes from its outset that significant gaps exist in the protection against airline insolvencies currently afforded to UK air passengers. Indeed, whilst 80% of passengers benefit from some form of protection against financial loss, only one quarter of passengers are fully protected by virtue of the pre-existing ATOL scheme. The ATOL scheme is operated by the CAA and is funded, in part, by contributions from licenced travel companies (ATOL holders). Whilst the ATOL scheme has been effective in mitigating the financial losses sustained as a result of minor airline failures, such as FlyBMI and Wow Air both earlier this year, the Monarch collapse demonstrated the scheme's limitations in the context of large airline failures. Without Government intervention, the majority of passengers would have been left to arrange emergency travel and accommodation for themselves. The need for a scheme that is capable of withstanding such failures is further borne out by the precarious reality that only 13 airlines service 80% of UK travellers, whilst the AIR estimates the risk of an insolvency amongst the top 17 airlines within the next year at 13%.

3. Recommendations

The AIR's key recommendations are:

  • The Flight Protection Scheme (the FPS)

The FPS would be a comprehensive private sector initiative to protect UK air passengers in the event of airline or travel company insolvencies and would be coordinated by the CAA. Under the FPS, funding would be administered by the CAA to effect the same-day repatriation of passengers by both the affected airline and assisting airlines. The FPS is proposed to extend to all UK-originating passengers who have return flights to the UK with an airline that becomes insolvent. It should be noted that the FPS would not cover refunds for lost bookings.

According to the report, the FPS would be funded exclusively by the private sector, with each airline that operates in the UK being required to provide financial protection based on the estimated cost of repatriating its own passengers. The AIR recommends that the majority of funding should be met through requiring airlines to grant security via financial instruments that can be relied on to pay out in the event of an airline's insolvency, which would be supplemented by a small central fund to cover the remainder of the airlines' exposure. To ensure universal participation, the report also recommends that the licences of all airlines operating in the UK should be conditional on making this financial contribution.

These costs are almost certain to be passed indirectly to consumers. Promisingly, however, the report estimates that the FPS would cost no more than 50 pence for each protected passenger. It should also be recognised that this proposed funding arrangement, which is clearly underpinned by the AIR's guiding principle to ensure that the beneficiaries pay, is aimed at ensuring sufficient funds are available to avoid taxpayer bailouts. As such, the proposal is a welcome development in the context of ongoing market turbulence.

  • Legislative and regulatory changes

The report emphasises that, in order to optimise the benefits of the FPS, legislative and regulatory 'toolkits' must be developed to enable airlines to continue to operate aircraft for a limited time after they enter insolvency.

In relation to the legislative toolkit, the report's primary recommendation is the implementation of a Special Administration Regime (SAR) for airlines. Amongst other things, this would involve temporarily changing the legislative purpose of an airline's administration to the repatriation of its passengers, imposing a moratorium on creditors' actions, and arranging payments agreements with staff and suppliers to ensure costs associated with repatriation would be paid as expenses of the administration.

With regard to the regulatory toolkit, the report advances a proposal to grant additional powers to the CAA to enable it to manage repatriation processes effectively. These include the power to require annual certification of financial fitness, grant licenses to insolvent airlines, impose license conditions to encourage repatriating airlines to mitigate consumer risks, and create rules to require the provision of information by insolvent airlines.

  • Enhancing the commerciality of ATOL

The proposal of a comprehensive repatriation scheme raises question marks over the ongoing application of the ATOL scheme. AIR anticipates these questions in its report by making recommendations to enhance the commerciality of the ATOL scheme. These recommendations largely seek to distance the Secretary of State's involvement in the Air Travel Trust (the ATT), being the body that finances ATOL protection through a combination of consumer contributions, insurance policies, and credit facilities. In particular, the report recommends the following changes:

  • Amendments to the Trust Deed to remove the Secretary of State's powers in relation to the ATT;
  • Removing the Secretary of State from the trustee appointment process; and
  • Ensuring at least some of the trustees are independent of the CAA.

The question remains as to whether the ATOL scheme would remain viable alongside the FPS. As the report recognises, the risk of overlapping protection is significant. The AIR seeks to address this by suggesting that the FPS would not cover ATOL protected consumers. However, assuming airlines will build the cost of FPS protection into their pricing structures, this in turn raises the question of whether consumers could be persuaded to forego FPS protection in favour of 'gold standard' ATOL protection.

4. Conclusion

The recommendations of the AIR represent a welcome enhancement to the protection available to consumers that find themselves stranded abroad on the failure of their airline.

The introduction of the SAR, in particular, has the potential to provide passengers with a seamless repatriation service if the insolvent airline's fleet of aircraft are able to operate during insolvency to provide repatriation flights. How this will work in practice will remain to be seen, as the success of such an undertaking is likely to depend largely on the cooperation of creditors who might otherwise seek to repossess aircraft whilst they are outside of the jurisdiction of the English courts, and therefore outside of the protection of the SAR's moratorium.

How effective these measures are will only be truly understood once tested, however they represent a timely enhancement to the current framework in light of the financial volatility experienced recently within the airline sector.

The full report can be accessed here:

Reed Smith LLP provided legal advice to the Airline Insolvency Review on a number of the aspects covered in the Final Report.

This article is presented for informational purposes only and is not intended to constitute legal advice.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Related Topics
Related Articles
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions