How airlines survived to fly another day

When Covid tightened its grip on the world between February and April 2020, the effect on the aviation industry was devastating. As borders closed, the skies went quiet and airlines searched for somewhere to park grounded aircraft. The industry had to press “pause” — but, in companies’ headquarters, activity reached fever pitch as they raised cash, sold assets and, in many cases, restructured their businesses. The aim was to survive the collapse in passenger numbers and avoid corporate failures — and lawyers were involved at every stage. Few airlines had time to spare. With high fixed costs, the industry burnt through about $150b in cash within months, says the IATA. Calls with lawyers had to be hastily arranged. “It was obviously a challenging time . . . even to this day, I have never met the clients despite having done this massive job with them,” says Craig Montgomery, a partner at Freshfields Bruckhaus Deringer in London. Freshfields helped state-owned Malaysia Airlines to reduce its obligations on leases for aircraft as part of its restructuring. Such leases are a primary focus of any reorganisation in the aviation sector as they account for a significant chunk of a company’s costs. Malaysia Airlines wanted to “get on with it”, Montgomery says. It was still paying its obligations in full and “needed to find a solution . . . as quickly as it could”. At the same time, the lessors did not want to see the sudden return of their assets, especially large airliners, as they faced logistical, storage and maintenance costs with no hope of any new leases for months. Freshfields turned to the English courts and a scheme of arrangement — a tool that is often used in financial restructuring but never before with aircraft leases. The leaseholders agreed to a class arrangement as a replacement for the previous ad hoc leases, which made the settlement for Malaysia Airlines more efficient. Story has more.<br/>