European Air Law Association 23rd Annual Conference Palazzo Spada Piazza Capo di Ferro 13,

“ bankruptcy, focus on passenger rights”

Laura Pierallini Studio Legale Pierallini e Associati, Rome LUISS University of Rome, Rome

Rome, 4th November 2011

and

for the European European the for passenger protection in the event of passenger protection in the event of there were 96 insolvencies of European by Steer Davies Gleave for passengers (Air , SkyEurope

Laura Pierallini

Airline bankruptcy, focus on passenger rights

Air transport and insolvencies of air carriers: an introduction According to a Study carried out in 2011 Sterling). Commission (entitled Impact Commission (entitled assessment of airline insolvency), between 2000 and 2010 operating scheduled services. Of these insolvencies, some were of small airlines, but some were of larger scheduled airlines and caused significant issues

lian market, where over the last eight years, ansport market has witnessed one insolvency market ansport

Laura Pierallini The Italian market

Airline bankruptcy, focus on passenger rights Volare Airlines Air Myair Livingston An overall, since 2003 the Italian air tr This trend has significantly affected the Ita ¾ ¾ ¾ ¾ ¾ ¾ ¾ ¾ a number of domestic air carrier s have experienced insolvencies: per year.

legal system does not exist in ,

Italian bankruptcy legal framework. pe have undertaken again their services, 1999, s.c. Prodi-bis, Law Decree No. ures (Amministrazione Straordinaria) have been admitted to the Amministrazione 004, s.c. Marzano Law, Law Decree No. 6/2008, s.c. Alitalia Decree).

Laura Pierallini

Airline bankruptcy, focus on passenger rights

The Italian Air Transport sector and the A remedy like Chapter 11 in force the US Some of the bankrupt airlines have Alitalia, VolareOnly Airlines and Air ¾ ¾ ¾ Straordinaria, namely Minerva Airlines, Alpi Eagles (Prodi-bis), , Volare Airlines, Alitalia, and Livingston (Marzano Law and Alitalia Decree). while the other air carriers listed above are out of market. where since 1979 special bankruptcy proced been introduced to face the insolvency of large enterprises (Law. No. 95/1979, s.c. Prodi270/ Legislative Decree No. Law, 39/2 347/2003 enacted into Law No. Law No. 16 134/2008 enacted into

tions before the booked flight, or after new one, while the other insolvencies interruption of its services during the hotel or car hire deposits). iation or for replacement travel);

Laura Pierallini

The impact of insolvencies on passengers rights

Airline bankruptcy, focus on passenger rights All these insolvencies impact on passengers, in terms of interruption of services, as well costs related to: In Italy, only Alitalia has experienced no transition from the old Company to impacted on passengers. have booked to travel with an airline ceases operations who passengers of Costs vary depending on whether it ceased opera an outbound flight but before the inbound is completed. Information (cost of phone calls to rebook flights); Care (including additional accommodation); Non-refundable components (such as Original flight(s) (reimbursement); Original flight(s) Replacement flight(s) (for repatr ¾ ¾ ¾ i. ii. iii. v. iv.

for alternative travel, . ht but before the completion of the of ht but before the completion have to find alternative travel in order have ing additional cost efundable components of the trip (such as efundable rticularly if booked at short notice), or

(segue) the cost of original air ticket.

Laura Pierallini .

Airline bankruptcy, focus on passenger rights Operations ceased before the outbound flight Operations ceased after an outbound flig which is likely to be more expensive, pa (ii) forgoing the trip (they forfeit any non-r accommodation or car hire), as well In this case, passengers are stranded and will and hence on average much notice return home, which will usually be at very short more expensive than the original ticket. Moreover, passengers may have to arrange additional accommodation and other costs. ¾ ¾ inbound flight The passengers must choose between: trip via other means (i) rearranging the (pay

lved in such an Agreement, this will ds up within the liabilities in airline’s not represent a solution, because in case not e booked tickets to passengers bears on ed as unsecured (“credito chirografario”).

(segue)

Laura Pierallini

Airline bankruptcy, focus on passenger rights The issue is that the reimbursement of th is issue The Interlining Agreements between airlines do insolvent airlines. The credit of passengers en balance sheet, and the credit will be consider of one the air carriers invo insolvency of interrupt itself. ¾ ¾

. This requires organisers/retailers to ited to consumers purchasing a package, ckage tours) provides protection for ckage tours) provides protection for ansport and at least one other significant selves against some of the costs resulting selves against cover repatriation of consumer in the event of repatriation cover

Laura Pierallini Existing Remedies purchases of air tickets alone;

Airline bankruptcy, focus on passenger rights In recent years, Scheduled Airline Failure Insurance (SAFI) has allowed passengers In The Package Travel Directive (Council Directive 90/314/EEC of 13 June 1990 on passengers purchasing package tours in the EU be able to refund money paid over and/or of insolvency. However, this protection is lim as a pre-arranged combination of tr defined tourist service. This excludes in some EU member States to insure them pa package travel, holidays and ¾ ¾ from the insolvency of an airline on which they are booked.

passed on to the airline should be able tickets with credit cards (and also some ssed on to the to airline,ssed on in settlements at ore, if the airline becomes insolvent, ents, the payments for them are held by a from the card-issuing bank in the event of from the card-issuing bank in event of

(segue)

Laura Pierallini s is subject to a minimum value;

Airline bankruptcy, focus on passenger rights In some Member States consumers purchase tickets are purchased via IATA travel ag If central payment mechanism before being pa regular intervals (usually monthly). Theref passengers whose payments have not yet been to recover what they paid. ¾ ¾ debit cards) are allowed to claim a refund debit insolvency of the airline. However, reimbursement is limited to the cost of the original tickets and in some case

blished and recently (2010) extended to e in some Member States, namely:

(segue)

Laura Pierallini

Airline bankruptcy, focus on passenger rights . According to a decree entered into force in 2007, airlines registered in Flanders are required to hold an insurance guarantee against insolvency. Other forms of protection are availabl Denmark. A fund (the Rejsegarantifonden ), which provides protection under the Denmark. A Travel Directive, has been esta Package offer passengers the option of this protection on all flights from Denmark on option passengersthe offer carriers established in Denmark. 2. ¾ 1.

Code); and Decree No. Decree 111 of

2, Consumer Code, the Fund is iation of the consumer in case a trip up for failures related to package tours for up e economic availability in case of forced e 100, § cy or bankruptcy of the organizer any in Article 99 of the same

(segue) e Consumer Code (Article 100). Laura Pierallini

1, Consumer Code).

Airline bankruptcy, focus on passenger rights it is insufficient (according to Articl it only allows, in case of insolven (i) (ii) In Italy, a Guarantee Fund has been set including transport. The Fund was first envisaged in Legislative 1995, and today is set forth in th fuelled with an annual quota equal to 2 % of the amount premium policies, set down mandatory insurance service provider (like the airlines), repatr well as it provides an immediat abroad, as return of tourists from extra-Community Countries when an emergence occurs (see Article 100, § The Fund is proved not to be efficient, as: 3.

at international level being established; rable, implies a significant interaction eration among States at global level.

Laura Pierallini

Possible actions to be taken

Airline bankruptcy, focus on passenger rights standardization procedures and criterion An international Guarantee Fund would be subject to: A solution which has been envisaged consists of setting up International Guarantee Funds. Such an option in principle desi ¾ (i) internationally, that is, a strong coop

judgments means that the effects attributed to the ong States all over the world will be in ong down in direct connection with such for of recognition immediate ure of insolvency proceedings which come e EU Member States, where the Regulation ich the proceedings were opened extend to ich

(segue)

Laura Pierallini

Airline bankruptcy, focus on passenger rights how to obtain the benefits (i.e., inter alia, the reimbursements of ticket prices) of the who manages the Fund; who fuels it; and Fund. • • concerning the opening, conduct and clos its scope and of judgments handed within insolvency proceedings. Automatic recognition proceedings by the law of State in wh all other Member States; (iii) individuation of: • (ii) recognition of bankruptcy procedures (ii) recognition am force. A similar procedure exists within th No. 1346 of 2000 sets down provides