Originally published by Out-Law.com

The UK government has launched a consultation into insolvency in the aviation sector, examining how airlines can wind down with the minimum impact for passengers and taxpayers alike.

The review, to be chaired by former financial adviser to energy regulator Ofgem Peter Bucks, was established following the collapse of airline Monarch last year.

According to its terms of reference, the review (28 page / 2.4MB PDF) will assess consumer protection in the event of the collapse of an airline or holiday company. It will consider repatriation and refund protection and identify what reforms are needed to ensure passengers are protected, given that the industry has developed faster than the existing consumer protection schemes.

The review will also examine alternative models for the provision of refund protection, including through travel insurance.

In his introduction to the review, Bucks noted that consumer protection schemes such as the UK's ATOL scheme could be overwhelmed by future airline failures, especially given consolidation within the market.

The call for evidence invites views on possible solutions to the problems posed. These include requiring passengers to buy mandatory personal travel insurance, or introducing a legal requirement on airlines to protect their passengers from their own insolvency through insurance, bonding or other methods.

Alternatively, the review suggested that airline ticket sales should be covered by state-sponsored mutual insurance undertakings.

Other problems raised in the review include repatriating passengers in the event of an airline collapse.

The review noted that when Air Berlin collapsed last year, the German government intervened to provide working capital to keep the fleet operating while passengers got home and the industry readjusted. In the UK such action would require legislation to amend existing insolvency laws.

According to the call for evidence document, there could be consideration of amendments to other rules and regulations to protect consumers in the event of airline insolvencies. These include amendments to the airline licensing regime, to enable regulators to intervene earlier; changes to the legal framework surrounding the insolvency of airlines to ensure access to data and systems; or amendments to put the emphasis for administrators on passenger welfare.

The review is seeking evidence until 11 May 2018 and will produce a final report by the end of the year.

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