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In conversation with... Barbara van Koppen, General Counsel, KLM Royal Dutch Airlines Legal news round-up Significant global developments Sustainable financing in aviation Green shoots or just greenwash? Illegal charter activity across Asia Pacific

APRIL 2021 | EDITION 2 | EDITION 2021 APRIL Our joint survey with the AsBAA Introduction Contents

HFW has been at the forefront of Welcome once again to HFW legal developments in the aerospace Aero, bringing you aviation news and insight with a focus on sector for over four decades. sustainability. Our clients are drawn from all spheres of the industry In this issue we are in conversation with Barbara van and our global team is one of the largest and dedicated Koppen, General Counsel of KLM. To mark its 100th anniversary KLM took the bold step of asking its to the sector of any international law firm. We have one customers to think twice about whether they needed 4 Legal news round-up of the fastest growing international networks, with a to fly at all. Two years on, Barbara tells us how the Significant global developments team of over 80 specialist aviation lawyers, positioned “Fly Responsibly” initiative has developed and why in offices around the world. upscaling the commercial production of sustainable aviation fuel is a cornerstone of KLM’s sustainability strategy. She also explains the theory behind the striking “Flying V” aircraft that you see on the front cover. Our lawyers are able to advise on all forms of dispute resolution, competition and anti-trust issues as well KLM has been in the top three of the “airlines” category of the Dow Jones Sustainability Index for 16 years and counting. On page 10 we look at the evolution of as a complete range of commercial transactions, sustainability benchmarking and how the aviation industry is positioning itself to take from mergers and acquisitions and aircraft sales, to advantage of the growing availability and sophistication of “Green Finance” products. purchases, leases and financing. We provide services to In our news roundup we explain what happened when the use of drones by the the aviation industry, aviation insurers and their brokers French police to enforce Covid restrictions fell foul of data protection law, and 7 In conversation with... Barbara van Koppen, and all major stakeholders. We bring our experience, consider whether governments in Latin America are doing enough to support the General Counsel, aviation industry. market insight, true sector knowledge and passion for KLM Royal Dutch Airlines what we do. We also present to you the results of our groundbreaking survey on illegal charters in Asia Pacific, conducted jointly with the Asian Business Aviation Association. The It’s this continued service to the industry that has been majority of respondents believe that illegal charter activity is on the increase and regulators in Asia are not doing enough to combat it. recognised time and again in the legal and business rankings, and most importantly, by our clients. We do hope that you enjoy reading. Please do get in touch if you’d like to talk to us more about any of the topics or issues that we have featured.

To give any feedback on our Giles 10 Sustainable financing publication please contact GILES KAVANAGH in aviation the editor of HFW Aero: Global Head of Aerospace Green shoots or just greenwash? ASHLEIGH OVLAND [email protected] T +44 (0)20 7264 8311 E [email protected]

13 Survey highlights illegal charter activity www.hfw.com/aerospace across asia pacific Our joint survey with the Asian Business Aviation Association (AsBAA). Americas | Europe | Middle East | Asia Pacific

HFW Aero | March 2021 | 3 the structure of the sector did not make purpose of the measure, i.e. protecting it necessary to help only airlines which the population from the risks inherent to held a particular national licence, given the pandemic. Therefore, there was no that the airlines operating in those serious and unlawful infringement of a Member States under a licence issued constitutional or conventional freedom. by another Member State are just In relation to the GDPR, it held that the as important for the structure of the police were not processing data. aviation sector in the Member State In response, the advocacy groups and the entire European Union. filed an accelerated appeal to the On the contrary, they argued, French Supreme Administrative assisting national airlines leads to the Court, the Conseil d’Etat, which also fragmentation of the internal market rejected the anti-privacy arguments, and the elimination of competitors provided that the drone use complied from other Member States, weakens with Police manual, i.e. a flight competition, aggravates the damage height of at least 80-100 metres caused by the Covid-19 crisis and without the use of zoom lenses. ultimately harms the structure of the However, the Conseil d’Etat concluded airline sector which the aid scheme at that the images collected were issue is supposed to preserve. Sustainable Finance personal data falling within the scope The General Court rejected the of the GDPR and that the collection Disclosure Regulation challenges and said that extending of such images by the police was now in force France’s tax deferral to non-French personal data processing. Such Legal news round-up On 10 March the Sustainable companies “would not… have made processing required a declaration and Finance Disclosure Regulation it possible to achieve the objective of impact assessment to be filed with the (SFDR) came into force in the EU. making good the economic damage Commission Nationale Informatique et Consumer rights to the of their tickets following Covid-related KLM, Lufthansa and TAP Air Portugal. The SFDR is a key component cancellations. The VCP is a voluntary, suffered by the airlines operating in Libertés (CNIL, the French equivalent Sweden made available a loan of the EU’s Green Deal and fore in Latin America expedited process which aims to achieve France in so precise a manner and to the UK ICO). As the police had not guarantee scheme to airlines holding aims to address concerns about an amicable resolution to the dispute without a risk of overcompensation.” made such a filing they were ordered Airlines and consumer agencies have a Swedish operating licence, while “greenwashing” - the practice of within up to six months. If no agreement It held that the Swedish scheme to immediately stop using drones to clashed in Latin America as carriers France agreed to defer the payment by overstating the Environmental, is reached, SERNAC could decide to file a was proportionate, appropriate and monitor Covid-19 restrictions in Paris. struggle to find the cash to reimburse French-licensed airlines of certain taxes Social and Governance (ESG) class action against the airline. SERNAC presumed to have been adopted in the passengers for flights cancelled due on airline tickets due on a monthly Despite this ruling, the Préfet de credentials of investments for is also considering whether to make interest of the European Union. to Covid. In Colombia, an emergency basis during the period from March to Police reinstated the use of drones to commercial or PR reasons. The similar filings against other airlines. law passed at the beginning of the December 2020. Ryanair has confirmed that it will monitor demonstrations and strikes aim is to bolster confidence in pandemic had authorised the option Within the Latin American region, appeal to the CJEU. in Paris in November 2020, once the credibility of ESG claims by State Aid is prohibited under EU law but of offering vouchers instead of cash governments have offered very little again without making the necessary imposing discipline and increasing the Commission may allow a scheme refunds. A previous attempt to financial support to their local carriers. Use of drones for police declaration to the CNIL. A second transparency. It is hoped that this where it satisfies certain conditions. challenge the emergency law in the The continuing trend for expanding ruling of the Conseil d’Etat on 22 will funnel more capital towards Both France and Sweden notified surveillance in France Constitutional Court had failed, but in passenger rights appears to be December 2020 held once again that investment in sustainable activities. their schemes and were granted The use of drones to monitor the the police were in breach of the GDPR. January this year the Superintendence displacing any interest in protecting The SFDR imposes obligations exemptions by the Commission. The observance of the Covid-19-related of Transportation shocked the industry airlines in their time of need. on asset managers to provide Swedish Scheme was approved on lockdown in Paris has been successfully Finally, on 14 January 2021, the by declaring that the issue of vouchers information about ESG risks across the grounds that it was intended to challenged by advocacy groups which enforcement arm of the CNIL issued a violated the passenger’s consumer Ryanair challenges to their entire portfolios, not just those remedy a serious disturbance in the promote digital and human rights. statement condemning the Ministry of rights and fining an airline over which are badged as sustainable EU State Aid rejected economy of a Member State and the The Paris Préfet de Police used a fleet the Interior (under whose remit police US$50,000 for doing so. The reasoning investments. Where enhanced French tax deferral on the grounds that of surveillance drones to watch Paris activity falls) for the illegal use of drones behind this concerning decision is Conversely, in Europe, government ESG performance claims are it constituted aid to make good the citizens from the sky and provide air and requiring it to cease immediately explored in our briefing, in which we assistance has been more forthcoming, made, these must be supported damage caused by natural disasters or support to ground police units. The using drones to record images of the questioned whether other challenges but this has created its own controversies. by more robust evidence than exceptional occurrences. Administrative Court of Paris was asked population unless in compliance with might follow. has been the case to date. The The General Court of the EU has to make an order that the surveillance the applicable data regulations. Unlike Ryanair brought actions to annul both SFDR will not apply to UK firms, This has indeed proved to be the rejected challenges by Ryanair to be suspended, on the grounds the two Conseil d’Etat decisions, which Commission decisions, on the grounds however the UK has separate plans case in Chile, where the National government schemes extended to that it infringed the right to private were limited to their particular facts and that the aid was discriminatory and to develop and implement more Consumer Service (SERNAC) has filed Swedish and French airlines in order life/ privacy under Article 8 of the locations, this order extends to the whole undermined the EU’s single market in robust environmental disclosure a Voluntary Collective Procedure (VCP) to support them in the wake of the European Human Rights Convention of France and to all use of drones by the air travel. They argued that the objective standards. For more information on against a domestic carrier seeking to Covid-19 pandemic. These are the first and that it breached the GDPR. police, regardless of their purpose. The address the complaints of nearly 4,000 to be decided of a total of 16 challenges of general interest of compensating evolution of these cases has shone a ESG benchmarking, see our article consumers, claiming that the airline by Ryanair to various state aid schemes the airline sector for losses due to the The Administrative Court rejected the light on the social acceptability of drone “Green shoots?” on page 10. failed to effectively reimburse the price benefitting, amongst others, Finnair, Covid-19 pandemic in order to preserve suspension request, holding that the use and the likely future approach to use of drones was proportionate to the regulating them in France.

4 | HFW Aero | March 2021 HFW Aero | March 2021 | 5 Fractional ownership The guiding principle of UK ETS is the benchmark rate that underpins loans, UK’s obligation that post-Brexit carbon bonds and derivatives transactions and In conversation with... regulation in Brazil pricing should be at least as ambitious is the most common benchmark in The Brazilian Agency of Civil Aviation as the EU ETS. aircraft finance transactions. It is also regularly used as a benchmark rate in (ANAC) has, at long last, finalised a new A first statutory instrument (SI) contracts for calculating default interest regulatory framework for the shared will come into force by Spring 2021 for late payment. ownership of general aviation aircraft. covering the monitoring, reporting and Barbara The new scheme is expected to boost verification processes and requirements On 5 March the UK Financial Conduct the Brazilian general aviation market of CORSIA and the enforcement Authority (FCA) issued a definitive which already accounts for one of the action to which aircraft operators will statement confirming the date for the world’s largest fleets. be subject if they do not comply with cessation and loss of representativeness their obligations under the scheme. It of the LIBOR benchmark settings. All van Koppen Regulation RBAC 91 - Subpart ‘K’ has been amended to authorise the is proposed that failure to monitor or but two will permanently cease as from implementation of ‘Fractional Aircraft report emissions should carry a penalty 31 December 2021. The overnight and General Counsel, Ownership programs’, essentially of between £20,000 and £50,000. 12-month US Dollar settings will remain until June 2023. The Bank of England adapting for Brazil the system used The offsetting requirements under KLM Royal Dutch Airlines requires all new sterling lending to by the FAA in the United States. This CORSIA will be dealt with in a second SI cease referencing LIBOR by the end of move has been under discussion with which should come into force in Spring this month. Brazilian aeronautical community since 2022. The consultation outlined high- 2015. It will come into force in August level options for implementing CORSIA This announcement was expected and 2022, but it will be possible to apply to alongside a UK ETS and invited initial the date comes as no surprise, but is register sharing programs in advance of views, with a view to a further, more nonetheless an important step in the the “go live” date. detailed consultation early next year. transition away from LIBOR as it will engage certain contractual triggers Compliance with RBAC 91 - Subpart ‘K’ The government’s concern is that CO2 for post-LIBOR fallbacks which have will be mandatory when the ‘sharing emissions above the CORSIA baseline been increasingly incorporated into program’ comprises two or more from international flights departing contracts concluded since the initial aircraft. The maximum shares allowed from the UK to the European Economic announcement that LIBOR would are 16 per plane and 32 per helicopter. Area (EEA) would incur obligations from be phased out. These triggers largely You’ve just announced the first of 25 sustainable fuel. Our position is that This first flight powered by synthetic The Administrator of the program both the UK ETS and CORSIA, leading convert references to LIBOR into new Embraer 195-E2 aircraft for the the development of SAF should not kerosene is the next step forward. must be registered with the Brazilian to operators being charged twice for references to alternative “Risk Free Rates” KLM Cityhopper fleet. These emit 31% affect biodiversity, should not result It is important to join hands within Aeronautical Registry (RAB) and will be these emissions. The favoured approach (RFRs). However this is not a simple less C02 per passenger than their in deforestation and should not and beyond our own industry, in the responsible for complying with RBAC is a ‘supply-adjusted’ hybrid scheme “find and replace” exercise because predecessors. What other plans do hinder food production. In addition to Netherlands as well as Europe and the 91 as well as for the operational control in which aircraft operators would be of the differing mechanics of LIBOR you have to reduce the emissions of establishing sustainability criteria, we rest of the world, working towards an and safety of the aircraft. ANAC is still entitled to claim a reduction in their and RFRs. As lessors and financiers the KLM fleet? advocate affordable pricing of SAF in upscaling of production of SAF and a finalising the details and will continue UK ETS obligations equivalent to their seeking to amend LIBOR-based aircraft combination with requirements that reduction of carbon emissions. to issue supplementary regulations CORSIA CO2 offsetting obligations We considered the arrival of the finance documentation will know, the are equal for all parties. around documentation and inspections on flights from the UK to EEA States first Embraer 195-E2 as a source of development and implementation of up until August 2021. covered by the EU ETS. In this option, for inspiration. Covid-19 has hit the aviation You’ve been operating aircraft on RFRs has been, and continues to be, a every tonne of CO2 that is removed from sector hard and the crisis in our sector blended SAF for many years now complex task led by various Working UK prepares to the UK ETS obligations of an operator is unparalleled. Nevertheless, to be able and last month, in partnership with Profile Groups across all the global financial due to CORSIA, a tonne of CO2 in UK to continue to invest in sustainability Shell, you operated the first ever implement CORSIA markets. Activity is now stepping up Barbara van Koppen is the ETS allowances would also be retired by renewing our fleet gives us hope for commercial flight using synthetic The UK Government is preparing to support a smooth transition in the Senior Vice President, Corporate from the system. 5 alternative options the future. Now, more than ever, we are kerosene. You’re also collaborating legislation to implement CORSIA, the 9 months that remain. For further Centre, and General Counsel at were also presented. For further detail committed to make our operation and with the Port of Amsterdam, Schiphol Carbon Offsetting and Reduction information see our briefing,here . KLM Royal Dutch Airlines. The on UK ETS, see our recent briefing. sector more sustainable. and SkyNRG in the construction of Scheme for International Aviation world’s oldest airline, KLM is at a synthetic kerosene plant. Do you aimed at meeting ICAO’s medium- The consultation ended on 28 February Arbitrator impartiality Fleet renewal is an important part the forefront of sustainability see synthetic kerosene as more term climate change goal of Carbon but the results have not yet been of our sustainability strategy, but within the aviation industry. The UK Supreme Court has confirmed sustainable than other forms of SAF? Neutral Growth from 2020. A published. upscaling production and use of KLM is part of a consortium and clarified the obligation on What is your view on the introduction consultation document published in sustainable aviation fuel (SAF) is building the first European arbitrators to make disclosures in of Norway-style SAF blending January detailed the content of the End of LIBOR another cornerstone of our approach. sustainable biofuel plant, and overlapping multiple appointment mandates across the EU? There is a lot of discussion about is working closely with a Dutch legislation and invited comment on the moving closer situations to avoid doubts as to what can be qualified as sustainable. Regrettably, there is currently not university to develop a new kind proposed approach to the interaction their impartiality, while highlighting Financial markets have been preparing This is why we work together with, enough SAF available and we have of sustainable aircraft. between CORSIA and the new UK and distinguishing the unique since 2017 for the London Interbank for example, the World Economic to help the supply base to upscale https://Flyresponsibly.klm.com Emissions Trading Scheme (UK ETS) characteristics of sector focussed Offered Rate (LIBOR) to be phased out Forum and the World Wildlife production. We cannot do this alone. which covers flights within the UK, arbitration. For further details see our by the end of this year. LIBOR is the Fund to determine the criteria for and flights from the UK to the EEA. briefing on the case here.

6 | HFW Aero | March 2021 HFW Aero | March 2021 | 7 It is not a matter of choosing between Tell us more about the biofuels or synthetic fuels. No single Flying-V project. “It starts with the dialogue and feedstock or production pathway TU Delft and KLM announced the will be practical in every geography start of the design of the Flying-V – the recognition that D&I is crucial for a or yield enough SAF to meet all energy-efficient aircraft of the future – demand. Therefore, KLM is actively during IATA 2019. After extensive wind involved in researching different SAF company’s future – senior women tunnel tests and ground tests, the scale technologies, including synthetic fuel. model of the Flying V flew for the first This approach represents the next step can and must take a lead in that.” time in August 2020. and could present a structural solution to replacing fossil fuel. As such, it is an The Flying-V is a design for a very important pillar of KLM’s CO2 reduction energy efficient long-haul aircraft. strategy, providing our sustainability The design of the aircraft integrates requirements can be met. the passenger cabin, cargo hold and fuel tanks in the wings, creating Pressure from legislators is needed to a spectacular V-shape. Computer boost the production of SAF. I expect calculations have predicted that the a European blending obligation to improved aerodynamic shape and be announced in the near future – reduced weight of the aircraft will lower probably even this year. We are not fuel consumption by 20% compared to against this in itself, but there must also today’s most advanced aircraft. be incentives to increase production and to reduce the price gap with You’ve been with KLM almost 20 years traditional fuel. Aviation is a global and risen to a very senior position. business, so we have to approach KLM has pledged to increase female sustainability on a global level. That is representation at senior levels. why we are not a supporter of national How well is KLM doing and what Norway-style blending mandates. do you feel are the most important things that senior women can do to The KLM “Fly Responsibly” initiative, encourage and support their female introduced to coincide with your colleagues? 100th anniversary in 2019, was ground breaking and got the aviation At KLM, 28% of our managers and 18% of world talking. Two years on, with a our executives are female. The numbers pandemic thrown into the mix, has it are growing, but we are certainly not delivered as you hoped? there yet. Female representation is not just a number, but merely an important With Fly Responsibly, we first focus on indicator for the level of diversity and reducing the environmental impact of inclusion that we need to reach. Being our own operation. Where reduction is a big employer, this is of important no longer possible, we replace the fuel societal value and meaning. Next to with a more sustainable alternative, that, a more diverse workforce is also for example. If replacement is not a business case: multiple research sufficient, we compensate. For these demonstrated that companies with three steps, long-term investment diverse teams deliver better results. and innovation is essential and we I believe that senior women – and work and need to work with others to their male counterparts as well – transform the aviation industry. We should embrace the responsibility, believe that only by working together foster and promote to embed D&I we can achieve real change. And this as an integral part of the company’s is exactly what we are doing right now: strategy. It starts with the dialogue with clients, industry partners and and recognition that D&I is crucial for governments. Even in the current deep a company’s future – senior women industry crisis due to Covid-19, we will can and must take a lead in that. not lose sight of the challenge that climate change poses and we remain fully committed to our Fly Responsibly For more insight from leading initiative and sustainability ambitions. figures in the aviation sector, click here to read our interviews with easyJet and Rolls-Royce about the future of dispute resolution.

8 | HFW Aero | March 2021 HFW Aero | March 2021 | 9 The aviation industry has committed to carbon neutral growth from 2020.

Meanwhile, banks and other financial said “By replacing parts of our existing the basis of the target-setting should institutions are under increasing fleet of regional jets with ATR 72-600 be to “encourage ambitious, positive scrutiny and pressure to demonstrate aircraft we will emit 7,500 fewer tonnes change through incentives”. their environmental, social and of CO2 per aircraft, per year…. we look Airlines which have already governance (ESG) credentials by forward to showing our passengers committed to wholesale review of building sustainable finance portfolios. and the Swedish public at large that their sustainability objectives may be The aviation financing and leasing there is a sustainable way of flying.” tempted by the collateral benefit of community, as provider of the capital while the lender, Deutsche Bank said the availability of SLL financing, but for that will shore up the sector’s post- “We’re hopeful that this leads the way some the extra burden of additional pandemic recovery is in a strong for more sustainable financing activity reporting to lenders on ESG targets position to encourage practices in aviation, and increased adoption of may not be offset by the relatively and environmental regulation that lower carbon emission aircraft across modest financial gain. Aviation, as reduce climate impacts from aviation the industry, to help make flying more a much-maligned carbon-emitting and contribute to its sustainable eco-responsible.” industry is also more vulnerable than development – as lessor Avolon said Despite the fanfare, no similar Green many to allegations of “greenwashing” in its outlook paper for 2021 “lessors Loan deals have been reported in the and may have to be held to even higher accelerate technology adoption”. last twelve months. This is, however, standards than other industries in order With airlines accustomed to being more likely attributable to the to rebut them. held to account by passengers and economic impact of Covid-19 than a shareholders for their environmental loss of confidence in the Green Loan Measuring and goals and already legally obliged to concept. Indeed, one consequence of monitor, report and reduce emissions, benchmarking the pandemic is that it has brought they seem perfectly placed to access forward the retirement of older aircraft, ESG performance an ever-growing range of sustainable paving the way for the acquisition finance products. Is green finance a There are no fixed criteria for ESG of less-polluting replacements. That part of the future of aviation? performance but the standard said, the threshold for qualification procedure for borrowers looking to What is sustainable for a Green Loan is likely to be higher access the SLL market is to obtain a than simply the purchase of two or rating from an independent ESG rating finance? Green loans vs three slightly more fuel efficient new agency. Recent consolidation has Sustainability Linked Loans aircraft, and will no doubt pivot towards seen two main players emerge in this acquisition of electric and hydrogen- arena – Vigeo Eiris (majority-owned Sustainable finance falls into two powered aircraft in the longer term as by mainstream credit rating agency broad categories, with the Loan Market these technologies become available. Moody’s) and Sustainalytics, which Association (LMA) taking the lead in More likely candidates for Green Loan should go some way to fostering a seeking to create a set of global criteria. Sustainable projects in the aviation sphere are more uniform approach. Another key So-called “Green Loans”, as described investments in Sustainable Aviation development is the EU’s Taxonomy in the LMA’s Green Loan Principles Fuel production or electrification of Regulation (EUTR), which they describe document launched in 2018, are ground support vehicles. as “a tool to help investors, companies, made available for projects with clear, issuers and project promoters navigate measurable environmental benefits Unlike with Green Loans, there are no the transition to a low-carbon, resilient in key areas of environmental concern limitations on the use of the proceeds and resource-efficient economy” and is financing in such as climate change, natural of Sustainability Linked Loans (SLLs). heralded as part of a global movement resources depletion, loss of biodiversity, Rather, these link the margin and towards environmental performance and air, water and soil pollution. fees to the borrower’s overall ESG credentials, usually by reference to a set reporting standardisation. The EUTR The first Green Loan financing in the of performance targets which trigger doesn’t yet apply to the aviation sector aviation sector was just over a year ago, progressively more favourable terms if but it does set an indicative benchmark aviation when Singapore-based lessor Avation met. The LMA’s SLL Principles promote against which borrowers and lenders acquired three ATR 72-600 turboprop a structure which motivates borrowers can compare their green or sustainable aircraft to lease to Swedish airline to make continual improvements to loans. It is then up to borrower and Green shoots or just greenwash? Braathens. In its press release the airline their sustainability profiles, stating that lender to agree between them the

10 | HFW Aero | March 2021 HFW Aero | March 2021 | 11 specific conditions of the financing, guided by a growing body of industry Survey highlights illegal charter norms and precedents. CORSIA and the As to future express provision for Green Deal activity across Asia Pacific aviation in the EUTR, this has indeed ICAO’s Carbon Offsetting been recommended by the EU and Reduction Scheme for Our joint survey with the Asian Business Aviation Association (AsBAA) has found Technical Expert Group on sustainable International Aviation (CORSIA) that more than 70% of respondents have been negatively affected by illegal charter finance. In anticipation of this step, the is now in the initial monitoring Aviation Working Group – an industry stage and, as such, is the activity across the Asia-Pacific region, with most people expecting the situation to group formed by manufacturers, leasing primary framework within get worse due to Covid-19. companies and financial institutions which airlines audit and report with the aim of influencing law and their carbon emissions. However Anecdotally, illegal charter activity occurs policy relating to international aviation CORSIA ambition levels may fall in many Asia Pacific countries, although financing and leasing - has been short when viewed against the the full extent of the problem has been Within the Asia-Pacific region, what proportion developing a set of principles which they backdrop of the Green Deal and difficult to establish. This survey is of charter flights do you think are illegal? believe should be applied when setting its goal for Europe’s economy the first attempt to capture industry the aviation criteria to be applied. AWG and society to become climate- perception in the Asia-Pacific region. recently sent an open letter to the EU neutral by 2050. As part of this, When is a charter illegal? The detail Commission setting out those principles. the EU has set a 2030 target of the regulations is complicated In it they highlight that electric and 20-30% of reducing its GHG emissions and varies according to jurisdiction, hydrogen propelled aircraft are still a More than 30% by 40% - this target includes but in general terms the basic rule long way in the future and that the use the aviation sector where, is straightforward. If an aircraft is of SAF is subject to severe commercial across all EEA countries, about operated privately, it should not be constraints. They therefore encourage 151 Million Metric Tonnes (MT) used for commercial (public transport) recognition of efforts to reduce would be the indicative target. flights, unless an exemption applies. emissions from fossil fuels and advocate However, currently the aviation Accordingly, subject to any relevant measurement “in terms of feasible and sector is permitted, under the exemptions, if a passenger provides 10-20% meaningful improvement, rather than EU Emissions Trading Scheme valuable consideration (whether by Less than 10% the more rapid advances that might be (EUETS) to emit about 112.7 paying money or providing some technologically available and practical MT. Therefore, it is likely that other benefit) to fly on an aircraft, in other sectors.” . The other principles changes to the EUETS will be that constitutes public transport are outlined in this executive summary. required to address its 2030 and the operator needs an air What next? target but since EEA flights are operator’s certificate (AOC), or a Part also covered by CORISA, it’s not 135 certificate under the US Federal Major banks have made clear clear where the distribution Aviation Regulations. Failure to do so Did you report the illegal charter commitments to putting sustainability of the additional reduction results in an illegal charter, and may at the heart of their businesses, for requirements will fall. The EU either be deliberate or inadvertent. activity to the local regulator? example with Barclays pledging last is expected to consider the Comparison between Asia and US positions1 Telltale signs of illegal charter activity March to “align all of its financing relationship between the EUETS include flights being advertised at activities with the goals and timelines of and CORSIA in the context of its prices far below legitimate operations, the Paris Agreement”. The industry is at EU 2030 target during 2021. flights claiming to operate as “cost a crucial moment where its recovery and sharing”, and flights being sold as “sales the ability to regain public confidence demos” or “flight training”. depend as much on it delivering on its sustainability commitments as upon the The survey results clearly show that relaxation of pandemic-related travel illegal charter activity is a significant bans. This creates the ideal context problem in many countries in the for sustainable finance to become the region. China, Malaysia and Indonesia norm, driving the aviation industry along were flagged as countries of the path to decarbonisation. particular concern. Almost half of the respondents believed that nearly 1 in 3 charter flights across Asia-Pacific are illegal, with three quarters of respondents expecting illegal charter 1 NATA’s 2019 Illegal Charter Survey activity within the region to increase as a result of the global pandemic.

12 | HFW Aero | March 2021 HFW Aero | March 2021 | 13 Contact us

GILES KAVANAGH Partner, London T +44 (0)7775 566205 E [email protected]

PIERRE FRÜHLING Aircraft owners and operators impacted The clear losers are the legitimate Partner, Brussels/Paris by Covid-19 may be tempted to look for operators who have invested significant T +33 6 27 61 41 60 creative – and potentially illegal – ways time and resources in obtaining an AOC E [email protected] to generate revenue. New customers, or Part 135 certificate. Illegal charter attracted to business aviation by its distorts the market, as it evades the flexibility and as a way to mitigate high regulatory compliance costs of Covid-related health concerns, are legal air operations, including proper also vulnerable to being exploited by training and insurance. The position unscrupulous operators. of passengers, too, is compromised – illegal charter flights are unlikely to Over 90% of survey respondents felt RICHARD GIMBLETT provide the same level of operational that local aviation regulators were Partner, Dubai safety (such as more stringent pilot not doing enough to combat illegal T +971 50 451 3639 training and maintenance standards) charter operations and 74% felt that the E [email protected] offered by legitimate operators. punishments were ineffective and not severe enough to act as an effective The survey results emphasise that deterrent. However, 84% admitted that illegal charter is a significant issue they did not report suspected illegal across the Asia-Pacific region. Given charter activity to the local regulator, the substantial impact on legitimate citing as barriers the potential loss of operators, more should be done to MERT HIFZI customers and uncertainty over how tackle the problem. The welcome Partner, Singapore the authorities would respond. By launch of the Air Charter Safety T +65 8333 4101 contrast a similar survey in the United Alliance provides a powerful platform E [email protected] States revealed that more than half to do so. Clearly, one of the key factors would alert the authorities. which impedes the reporting of illegal charter activity is the lack of any formal A newly-formed coalition, the Air reporting mechanism. Until such a Charter Safety Alliance, aims to address mechanism is established by regulators the problems faced by the industry by in the Asia Pacific region, it is likely that raising awareness amongst customers, many illegal charter flights will continue JULIO COSTA operators and regulators of the to operate unchecked. Partner, CAL in cooperation dangers of illegal charter, promoting with HFW, Brazil the safety of legitimate operations, For more information, and the full T +55 (21) 97571 2658 and collaborating on best practice. results, click here. E [email protected] An important aspect of the coalition’s work will be to engage with aviation regulatory authorities

PETER ZAMAN Partner, Commodities, Singapore | | @ T +65 6411 5305 www.hfw.com hfw_law E [email protected]

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