In the recent case of R (Monarch Airlines Limited (in administration)) v Airport Coordination Limited [2017] EWCA Civ 1892, the Court of Appeal considered whether an airline that had fallen into administration could still be allocated valuable slots at airports.

Airport Coordination Limited (“ACL”) is the coordinator for, among others, Luton and Gatwick airports. It is responsible for allocating airport infrastructure for the purposes of take-off, landing and passenger/baggage embarkation and disembarkation (“Slots”). Council Regulation (EEC) No 95/93 of 18 January 1993 lays down common EU rules for the allocation of Slots at airports (“the Slots Regulation”). Slots are allocated to airlines twice a year, for the winter and summer seasons. If an applicant can demonstrate that it used at least 80% of its Slots in a particular season, it will typically be able to claim them again the following year.

Monarch Airlines (“Monarch”) applied for Slots in the summer 2018 season on 26 and 27 September 2017. Monarch had a strong case for allocation because it had held equivalent Slots in the summer 2017 season. However, Monarch went into administration at the beginning of October 2017, before ACL had allocated the summer 2018 Slots, and this put Monarch’s eligibility to claim Slots in doubt.

Once it was in administration, Monarch did not pretend that it would use the Slots itself, but instead wished to exchange the Slots with other airlines for their far less valuable Slots and receive payment reflecting the difference in worth, and doing so would achieve a better result for Monarch’s administrators who were keen to realise every asset. Slots cannot be sold outright but can be exchanged in this manner.

Instead of granting Monarch the Slots it had applied for, ACL decided to reserve the Slots pending the outcome of a Civil Aviation Authority (“CAA”) process that had been triggered by the administration. This process had the potential to lead to the revocation of Monarch’s operating licence, leaving it ineligible for Slots. Monarch issued a judicial review challenge to ACL’s decision. The Divisional Court sided with ACL but the Court of Appeal reversed this decision and sided with Monarch.

In considering Monarch’s challenge, the Courts accepted that if Monarch no longer met the definition of an “air carrier”, it would be ineligible for Slots. Under article 2(f)(i) of the Slots Regulation, “‘air carrier’ shall mean an air transport undertaking holding a valid operating licence or equivalent at the latest on 31 January for the following summer season”. The two key questions to be determined were, therefore, whether Monarch still held a valid operating licence and whether it was still an “air transport undertaking”.

Did Monarch have a valid operating licence?

Under article 9 of Regulation (EC) No 1008/2008 of the European Parliament and of the Council of 24 September 2008, a competent licensing authority, which in the UK is the CAA, may revoke or suspend a carriers operating licence in the event that it falls into sufficient financial difficulty.

On 2 October 2017, the CAA provisionally suspended Monarch’s operating licence and proposed to revoke or suspend it. Soon afterwards, it indicated that revocation was likely on the basis that Monarch no longer employed any active/serving pilots and the leases for all its aircraft had been terminated, apparently leaving Monarch unable to resume air transport services.

Under CAA procedures, revocation or suspension would not occur until after due consideration of the case and any representations by Monarch (as licence holder). The CAA would then have to notify Monarch of its intention, and the revocation or suspension would only take effect following the determination or abandonment of any appeal. This internal appeals process was the saving grace for Monarch, as at the time ACL was obliged to inform airlines of their Slot allocation, Monarch still held a valid operating licence. The Courts held that it had not, therefore, ceased to be an “air carrier” due to loss of its operating licence.

Meaning of “air transport undertaking”

Under article 2(f)(i) of the Slots Regulation, an “air carrier” must be an “air transport undertaking” - a term for which there is no definition in the Slots Regulation. The Divisional Court decided that “air transport undertaking” means an undertaking engaged in the provision of air transport. Since the possibility that Monarch would resume air transport was purely theoretical in its view, the Divisional Court decided that Monarch was no longer an “air carrier” and was therefore ineligible for Slots.

The Court of Appeal, however, interpreted the meaning of “air transport undertaking” differently, finding that: “It cannot be supposed that an undertaking inevitably ceases to be an “air carrier” for the purposes of the Slots Regulation whenever, and as soon as, it becomes unable to operate air transport services”. In the Court’s view, even a failed air transport undertaking with no prospect of resuming air transport services could still meet the definition.

The Court of Appeal reached this conclusion having considered the practical nature of ACL’s functions. It concluded there was a compelling case that matters relating to an understanding of an airline’s financial circumstances and ability to continue business were best left to, and were intended to be left to, the licensing process rather than the Slot allocation process. The Court was concerned that if it accepted the Divisional Court’s interpretation of “air transport undertaking”, ACL would be obliged to undertake a detailed and almost forensic analysis of whether an insolvent company (which could be based in, and governed by insolvency laws in any jurisdiction) would have a realistic prospect of recovery following administration. This was not an analysis ACL could reasonably be expected to undertake as part of the Slot allocation process, or one which the Slots Regulation or case law indicated it should undertake, especially given that the speed of Slot allocation/re-allocation is critical. The Court of Appeal emphasised that if the Slots Regulation was intended to confer such functions on coordinators such as ACL, it would have said so explicitly.

Conclusion

The Court of Appeal concluded that Monarch was still an “air carrier” at the time Slots were allocated and was therefore entitled to the 2018 summer season Slots it had claimed. This decision is important for the administration of Monarch, which may now potentially realise tens of millions more for the airline’s creditors. It is also a reminder that two experienced courts may differ on crucial questions of legislative interpretation according to the weight they each attribute to the purpose of particular legislative provisions and the practical consequences they see flowing from different readings of them.