24 April 2024

The IATA And ADR - Challenges And The Path Forward For Disputes In Aviation



Founded in 1979, JAMS is the world's largest private provider of alternative dispute resolution (ADR) services. A pioneer in virtual ADR, JAMS has conducted thousands of virtual ADR sessions. Our panel includes over 400 arbitrators and mediators, handling an average of 18,000 cases annually in the US and abroad.
The International Air Transport Authority is a Montreal-based trade organization incorporating 317 airlines from over 120 countries. Its member operations comprise about 82% of available global commercial seat miles.
United States Litigation, Mediation & Arbitration
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The International Air Transport Authority (IATA) is a Montreal-based trade organization incorporating 317 airlines from over 120 countries. Its member operations comprise about 82% of available global commercial seat miles. The organization, along with supporting airline activity, plays an active role in formulating industry standards and policy.

Recently, I attended IATA's annual World Legal Symposium in Vancouver and had the privilege of speaking, together with my colleagues from The Hague Court of Arbitration for Aviation (HCAA), Louise-Hélène Sénécal of Air Canada and Paul Jebely of Withers International, at its pre-event Member Airline Legal Briefing Sessions. Our topic was the use of alternative dispute resolution (ADR) in the airline industry.

Challenges and Complexities

Airlines rely on complex, intermingled webs of suppliers whose seamless coordination is crucial to maintaining maximum aircraft utilization. Supplier performance is a key factor in this formula: Should an aircraft not be flightworthy due to an engine failure or software glitch, or if its departure is delayed due to a lack of gate availability, the aircraft will be underutilized and thus endanger the prospect of achieving peak performance and profitability (as well as cause a suboptimal customer experience, domino effect flight delays and potential crew scheduling challenges).

Further complicating the delicate interaction between airlines and their suppliers is that there often are only few of those suppliers in any niche of the worldwide marketplace. For example, only Airbus and Boeing provide a wide range of large-scale commercial aircrafts. Aircraft engine design and manufacture are dominated by CGM, General Electric, Pratt & Whitney and Rolls-Royce, with typically only two of these providers offering engines certified for any given airframe. Only a handful of maintenance repair and overhaul companies are equipped to provide the major periodic C and D checks required for aircraft certification.

This dynamic produces a certain forced coziness within the industry in which there is great incentive to maintain good relations with as many players as possible in any given sector, lest any airline become beholden to a particular supplier for lack of alternatives.

Spotlight on Industry-Specific Disputes

This also drives the importance of confidentiality in the industry and highlights the advantage of ADR over public court proceedings in that regard. Public spats can produce both galvanization of antagonistic positioning and embarrassment to the parties involved. The recent dispute between Qatar Airways and Airbus over the degradation of exteriors in the former's A350 fleet surely hurt the reputations of both airline and supplier: Both were reticent to back down from their absolutist positions as the light of the public eye was focused on this dispute. Ultimately, they reached a resolution, most likely nurtured by a de facto mediation function, but not before much damage was done.

Of course, there are cases in which an airline might want to make a public statement in order to apply pressure on a supplier. Such likely was the case in the case between American Airlines and Gogo, in which a suit was filed by the airline in an attempt to renegotiate its contract with the defendant in-flight internet provider, based on allegations that its technology was inferior to that of its competitors.

The Role of ADR in Airline Industry Disputes

It is recognized that ADR generally is a faster, friendlier and often more effective alternative to court proceedings. Yet conversations at the IATA conference confirmed that ADR use is uniformly inconsistent across the industry. Some airlines rely on ADR for some of their relationships. ADR is more likely to be used in consumer and employment matters rather than in commercial relationships with suppliers, which is the focus of this article.

Secondly, arbitration is the essential component of ADR, with mediation largely viewed as an option that may or may not be used.

We know that protracted disputes are deleterious to business relations and that the health of business relationships is precious in this industry. Also, we know that disputes between airlines and their suppliers can result in delays, groundings and other service challenges (including customer relations and reputation). In an industry in which relationships are so crucial and standards so exacting, why does the aviation industry not jettison the walking path of traditional dispute resolution in favor of taking flight via ADR?

Barriers to Wider Adoption of ADR

There are numerous explanations for the lag in sector use of ADR, including the far-rippling impact that the Cape Town Treaty has had on the aviation bar's dependence on certain courts' expertise. While certain courts, particularly in the U.K. and U.S., are unquestionably highly competent in aviation matters, this competence is limited to only a small subset of aviation disputes, seen principally in leasing contexts. Yet many aviation attorneys reject the notion of industry ADR utility by conflating the success of this subset of cases with an industrywide phenomenon.

Yet, more importantly, the ADR community traditionally has not provided air transport companies with the tools to make ADR the industry's preferred choice for client-supplier dispute resolution.

The Path Forward for ADR in Aviation

As outlined above, in many ways, the airline and aviation industries are sui generis in the structure of airline-supplier relationships. This particular structure is echoed in the dispute resolution methodologies most apt for adoption in the industry. These methodologies need to respond not to what general commercial activities and relationships require, but to the particular needs of the parties in this industry.

The speed to dispute resolution is critical, where, as here, capital-intense equipment must be kept in operation as close to 24/7 as possible. Speed to resolution for airlines and aviation in the ADR context requires special procedures, industry-informed case administrators and industry-knowledgeable ADR neutrals. While the need for industry-informed administrators and knowledgeable neutrals speaks for itself, here are three key features required for the industry to embrace fully the manifold advantages of ADR.

First, the industry requires a set of arbitral rules that assure a streamlined, quick-to-the-finish-line process, featuring all of the tools necessary to give the process teeth, including robust interim measures and emergency procedures.

Second, it needs a straightforward, default recourse to mediation at strategic points throughout the arbitral process, in order to capitalize on the gains of an evolving dynamic.

Third, it needs mediation procedures that can be integrated with nontraditional mediation tools, such as the use of "friendly experts" to establish common ground for the parties, particularly in common disputes, to accelerate and increase the already-impressive success rate of commercial mediation.

The HCAA, a not-for-profit Dutch entity, has been at the forefront of addressing these issues. With the contribution of a pantheon of individual ADR professionals hailing from such institutions as the International Chamber of Commerce (ICC); JAMS; the London Court of International Arbitration (LCIA); the Singapore International Arbitration Centre (SIAC); the Singapore International Mediation Centre (SIMC); its administrative partner, the Netherlands Arbitration Institute; and academic institutions such as Leyden, McGill and Pepperdine universities, the HCAA has promulgated a set of arbitral rules that speak directly to industry needs.

While the HCAA's efforts are a good start, putting the foregoing into action requires that the industry partner with the ADR profession and institutions to further develop structures and methodologies that respond to the unique structure and dynamic of the industry.

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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