AEROSPACE BULLETIN - Holman Fenwick Willan

Aerospace
December
2011
AEROSPACE
BULLETIN
I am delighted that BLG’s former aerospace team has completed its transition to HFW. Our entire
team of eight partners and 19 other lawyers is now located in HFW’s London, Singapore, Hong Kong,
São Paulo and Dubai offices. We will be announcing further additions to the global aerospace team in
the very near future and look forward to spreading our wings across HFW’s international network of
14 offices and 2 associate offices.
Combined with HFW’s existing capabilities, we now offer our clients expertise in aviation liability, and
space regulatory, competition, transactional and finance work. Our experience of contentious matters
spans commercial dispute resolution, mediation and international arbitration. We are completely
focussed on the sector and our aim is to provide to our clients, at the point of delivery, the resource of
a global team. To meet HFW’s full aviation and aerospace team, please see pages 6-8.
In this first HFW Aerospace Bulletin, we take a look at some recent developments relating to EC
Regulation 261/2004. This regulation is currently under review and likely to undergo further change.
We will keep you up-to-date as things progress. Emissions Trading is an emotive subject generally
and our second article discusses the October opinion of the ECJ’s Advocate General Kokott and its
implications for aviation. Our final article in this Bulletin analyses the EC’s new “Airports Package”
of legislation, which is designed to address capacity shortages at Europe’s airports, to improve the
quality of airport ground handling services and to improve the transparency of the decision making
process in setting noise emission regulations.
For further information about any of these articles, or aviation and aerospace issues in general, please
contact one of the team, or your usual contact at HFW.
Giles Kavanagh, Partner and Head of Aerospace.

EC Regulation 261/2004
update
If one measure of successful and
effective legislation is the ease with
which it is interpreted and applied,
one has to say that Regulation (EC)
No 261/2004 (Regulation 261) has
not been an unqualified triumph.
Barely a week goes by without a new
reference to the European Court of
Justice (ECJ), an Advocate General’s
opinion or an ECJ judgment, in each
case the consequence of uncertainty
as to the scope or construction of
the regulation. The regulation is
currently under review and is likely to
undergo some changes over the next
eighteen months or so; the industry
will need to keep a close eye on the
amendment process as it evolves.
However, in the meantime, there are
some key recent developments for
carriers to be aware of.
Challenges to Sturgeon and delay
compensation
No ECJ decision relating to air
passenger rights has come close
to matching the Sturgeon judgment
of November 2009 for controversy.
The UK judicial review brought by
TUI, easyJet and British Airways,
which seeks to challenge Sturgeon,
has been referred to the ECJ and
should be heard in the New Year,
although judgment is unlikely to be
handed down for some six months
following the hearing. In the UK,
passenger delay compensation cases
continue to be stayed by the courts
pending the ECJ’s decision, but
courts in other EU Member States
are less lenient and continue to
apply the compensation provisions
in Regulation 261 as if Sturgeon is
correct. Whilst airlines facing UK
claims therefore have some breathing
02 Aeropace Bulletin
space on delay claims, certainty is
needed. Whether it will be provided
by the ECJ remains to be seen; the
ECJ is in the awkward position of
either having to acknowledge and try
to correct the mistakes made by the
Fourth Chamber in Sturgeon, or to
uphold that Chamber’s extraordinary
judicial re-writing of Regulation
261. Ultimately, one suspects that
the revision process for Regulation
261 will tackle the issue of delay
compensation, whatever the outcome
of the current challenge, but a revised
regulation is probably eighteen
months to two years away so the
ECJ is likely to have to deal with the
problem one way or another.
Flight cancellation and
compensation: Rodriguez v Air
France, 13 October 2011, ECJ Third
Chamber
This judgment addresses two
discrete and important issues:
• The flight in question (from
Paris to Vigo, Spain) took off as
planned but the pilot decided
to return to Charles de Gaulle
airport because of a technical
failure. The claimants were rerouted
on alternative flights. For
the purpose of the cancellation
provisions of Regulation 261, the
ECJ held that a flight is regarded
as cancelled not only if it does
not take off at all but also if the
aircraft departs but, for whatever
reason, is subsequently forced to
return to the airport of departure
and is then cancelled and the
passengers transferred onto
alternative flights.
• In addition to Regulation 261
compensation of EUR 250 for
the cancellation, the claimants
sought recovery of various
additional costs (taxi fares, meals
at Charles de Gaulle, additional
dog boarding kennels charges)
as well as non-material damages.
The ECJ considered the effect of
Article 12 of the Regulation which
provides that the Regulation
applies “without prejudice to
a passenger’s rights to further
compensation” and held that
payment of Regulation 261
cancellation compensation does
not preclude passengers from
also claiming damages pursuant
to the Montreal Convention
1999 if that Convention would
provide a remedy in the particular
circumstances. Regulation 261
compensation and Montreal
Convention damages are
different and discrete remedies.
The ECJ also held that the
term “further compensation”
in Article 12 can also include
non-material damages. Finally,
the ECJ indicated that if a
carrier fails to provide care
and assistance pursuant to
Articles 8 and 9 of Regulation
261, the passenger has a
right to claim compensation
(effectively reimbursement of
accommodation and other
expenses) in respect of that
failure. Whilst not a detailed
decision on that final point, this
aspect of the judgment runs
counter to a handful of first
instance English court decisions
which have indicated that the
only remedy for failure to provide
passenger welfare is prosecution
by the Civil Aviation Authority as
the UK’s National Enforcement
Body for Regulation 261, and
that passengers cannot pursue
civil claims for damages. Carriers
therefore need to be mindful

of the ECJ’s not unexpected
approach to that question.
Extraordinary circumstances
under Regulation 261 and forward
planning: Eglitis/Ratnieks v Air
Baltic, 12 May 2011, ECJ Third
Chamber
This case arose in the context of the
closure of Swedish airspace in the
Malmo region for two hours due to a
power failure affecting radars and air
navigation systems. The Air Baltic
flight in question whose departure
was delayed due to the closure, was
ultimately cancelled because its
crew were out of hours by the time
the airspace reopened. There was
no dispute that the airspace closure
itself constituted “extraordinary
circumstances” but the case turned
on whether the airline had taken
all reasonable measures to avoid
those circumstances leading to
cancellation of the flight. The ECJ’s
conclusion was that a carrier, at the
stage of organising a flight, must
take into account the risk of delay
connected to a possible occurrence
of extraordinary circumstances and
must build in a “reserve time” which
will allow it to operate the flight in
its entirety once the extraordinary
circumstances have come to an
end.
The ECJ was not prepared to set
a minimum reserve time which has
to apply to every carrier and every
flight - that assessment can only be
on the facts of each case in terms of
determining what steps the carrier
could reasonably have taken. The
absence of a set rule applied as a
blunt instrument to all carriers and all
flights is good news in a way, but also
creates uncertainty for the future.
Whilst the judgment in context is not
unreasonable given that the airspace
closure was only for two hours and
the flight could have operated had it
not been for the expiry of crew hours,
the concern for carriers will be if this
case is used as a launching pad for
future cases to extend the principle
- now established - of a required
“reserve time”.
ECJ references: knock-on
disruption and time limits
There are numerous pending
preliminary references to the ECJ on
Regulation 261. The following could
- for better or worse - result in ECJ
rulings on two issues:
• Finnair Oyj v Timy Lassooy
(Case C-22/11): concerning the
applicability of the extraordinary
circumstances defence when
a carrier has sought to spread
the effects of the extraordinary
circumstances among a
wider class of passengers by
rescheduling its later flights so
that no passenger’s journey was
unreasonably delayed; so can
an airline rely on extraordinary
circumstances with respect to
a passenger on a later flight
whose journey was not directly
affected by the extraordinary
circumstances. This case raises
the issue of “knock-on effects”
which has always been an area
of uncertainty in Regulation 261,
i.e. for how long can a carrier rely
on extraordinary circumstances
which have a knock-on effect on
the rest of its schedules. Further
developments in this Reference
are awaited; the fear for carriers
being that, now that this question
has been asked, the ECJ may
give an unwelcome answer.
• More v KLM (Case C-139/11):
is the time limit for bringing
proceedings under Regulation
261 commensurate with that in
the Montreal Convention, i.e.
two years, or does some other
provision of EU or relevant
national law apply to determine
the limitation period? This is in
some ways a surprising reference
in that the ECJ has held - more
than once - that Regulation
261 provides a separate and
distinct cause of action from the
Montreal Convention; there are
no obvious legal grounds for
applying the Montreal time limit
to such claims and, amongst
most commentators, there is
general agreement that the
Regulation 261/2004 limitation
period is determined by the law
of the EU member state in which
the claim is brought; in the UK,
the time limit would be six years,
in Germany three years and so
on. However, the ECJ is now
asked to rule on the issue.
For more information, please contact
Sue Barham, Partner, on +44 (0)20
7264 8309 or sue.barham@hfw.com,
or your usual contact at HFW.
“There are
numerous pending
preliminary
references to the
ECJ on Regulation
261.”
Aeropace Bulletin 03

Pressure mounts on the EU
over its emissions trading
scheme
On 6 October 2011, Advocate
General Kokott of the European Court
of Justice (ECJ) delivered her highly
anticipated opinion on the legality
of the extension of the European
Union Emissions Trading Scheme
to aviation. The legal challenge
has been spear-headed by the Air
Transport Association of America
and two of its member airlines,
supported by interventions from IATA
and NACC. Disappointingly for the
airlines and industry associations
involved in the case, but perhaps
unsurprisingly, the Advocate General
concluded that the scheme as
applied to airlines is lawful. Although
the opinion is not binding on the
ECJ, it is followed in the majority of
cases. The judgment from the Grand
Chamber is to be published on 21
December and few observers are
predicting any significant departures
from the Advocate General’s view.
Meanwhile, the opinion has provoked
worldwide reaction from airlines,
industry bodies and governments,
increasing pressure on the EU to
amend its legislation or suspend the
commencement of the scheme in
order to avoid further legal challenges
and retaliation from affected parties.
The EU Emissions Trading Scheme
(EU ETS)
In 2008, the EU’s ETS legislation was
amended by Directive 2008/101 to
include aviation within the scheme of
greenhouse gas emissions allowance
trading. From 1 January 2012, all
civil aviation flights arriving into or
departing from European Community
airports will be included within the EU
ETS and airlines will have to acquire
04 Aeropace Bulletin
and surrender allowances for the
carbon emissions produced by these
flights. Controversially, the entire
flight is taken into account for these
purposes, not just that part taking
place within EU airspace. Failure
to surrender sufficient allowances
will result in potentially heavy
sanctions. Whilst assessments vary
considerably, the financial burden
associated with acquiring allowances
and complying with the scheme will
undoubtedly be substantial.
The legal challenge
In the case before the ECJ, the
claimants and supporting parties
argued that the extension of the EU
ETS to aviation is unlawful on the
basis that (i) by taking account of
carbon emissions outside the EU,
including those within other states’
airspace, it violates the fundamental
principle of international law, also
embodied in the Chicago Convention,
that each state has complete and
exclusive sovereignty over the
airspace above its territory, (ii) it
violates certain other provisions in the
Chicago Convention (notably those
that prohibit charges on airlines for
flying into the airports of signatory
countries and which prohibit duty
on fuel), (iii) it violates the terms of a
large number of bilateral air services
agreements, including the Open
Skies Agreement between the EU and
the US, and (iv) it violates the terms
of the Kyoto Protocol which require
the parties (including the EU) to
pursue the reduction of greenhouse
gas emissions from international
aviation through ICAO.
The Advocate General’s opinion
Fundamentally, the Advocate
General held that the claimants and
supporting parties cannot rely on
the international agreements and
customary international law invoked
because they relate principally to
legal relations between states rather
than individuals; so essentially a
finding that the individual carriers are
the wrong parties to bring the legal
case and that any challenge ought to
be brought instead by states. Despite
this, the Advocate General did go on
to address some of the substantive
questions raised.
The extra-territoriality and sovereignty
arguments were rejected on the
unconvincing basis that obligations
under EU ETS are triggered only in
relation to arrivals at and departures
from airports in the EU, and that
provides an adequate ‘territorial link’
for the whole flight to be included in
the scheme.
The EU ETS was found to be
fully consistent with the Chicago
Convention and Open Skies
Agreement. The Advocate General
concluded that, as the EU is not itself
a party to the Chicago Convention,
it is not appropriate to assess the
validity of EU legislation by reference
to provisions of that Convention
(despite it being acknowledged that
all individual EU Member States are
themselves signatories to Chicago).
The final argument in relation to the
“Further legal proceedings are being
considered, as is international dispute
resolution.”

Kyoto Protocol was rejected on the
basis that the Protocol does not
prevent the EU from pursuing the
limitation or reduction of greenhouse
gases from aviation outside the
framework of ICAO.
Further challenges
On 2 November 2011, the Council of
ICAO adopted a resolution supported
by 26 nations that declares the
inclusion of third country carriers
in the scheme “inconsistent with
applicable international law.” Although
non-binding, the resolution sends a
clear message to the EU and signifies
the strength of opposition at state
level.
If the judgment from the Grand
Chamber follows the Advocate
General’s opinion, opposition to
the scheme will only increase and
the focus will continue to shift to
alternative avenues of challenge.
Further legal proceedings are
being actively considered, as is
international dispute resolution. The
Chicago Convention provides that
if any “disagreement” between two
or more contracting states relating
tothe interpretation of the Convention
cannot be settled by negotiation, it
can be referred to the ICAO Council
for determination. An ICAO challenge
would enable the ongoing dispute to
be elevated to government level which
could cut through the technical legal
reasoning so far relied on in the ECJ to
prevent individual airlines from relying
on provisions of Chicago.
Elsewhere, political opposition to the
scheme is gathering pace, particularly
in the US, China and India. The
US House of Representatives has
approved a draft legislative Bill that
prohibits US carriers from complying
with the scheme. If adopted by
the Senate (which is unlikely) the
legislation would expose US carriers
to the ultimate sanction of a ban on
operating flights within the EU.
Emissions trading in the context of
aviation remains a highly controversial
issue and the Advocate General’s
opinion is undoubtedly a set-back for
airlines and affected third countries.
The strength of opposition to the
scheme and resultant pressure on the
EU will continue to mount until some
form of concession is made. Further
legal challenges are likely and an ICAO
challenge seems almost inevitable.
Whether these actions will resolve the
dispute is uncertain but what is certain
is that the commencement of ETS for
airlines will continue to be far from
trouble-free.
For more information, please contact
Sue Barham, Partner, on +44 (0)20
7264 8309 or sue.barham@hfw.com,
or Charles Cockrell, Associate, on
+971 4 423 0555 or
charles.cockrell@hfw.com, or your
usual contact at HFW.
Europe: proposals for Airports
Package of legislation
At the beginning of December 2011,
the European Commission published
a written communication on airport
policy in Europe, setting out the
challenges currently facing European
airports and the progress made
since 2007 in implementing EU-level
plans for airport capacity, efficiency
and safety. Acknowledging the
central importance of airports to the
functioning of the European aviation
market, the paper identifies two key
challenges now facing European
airports, lack of capacity and quality
of service, which are expected to
become of principal importance as the
global demand for aviation services
grows and the European market faces
increasing competition from other
international hubs such as China and
the Middle East.
In response to such challenges, the
Commission has adopted proposals
for a new “Airports Package” of
legislation designed to address
capacity shortages at Europe’s
airports, to improve the quality of
airport ground handling services, and
to improve the transparency of the
decision making process in setting
noise emission regulations. These
proposals aim, amongst other things,
to:
• Establish a secondary market
place for slot trading (which
currently is relatively restricted).
• Increase transparency in the slot
allocation process.
• Amend the “grandfather rights”
rules by increasing the slot
utilisation threshold required to
preserve such rights to 85% (from
its current level of 80%).
• Promote the use by airlines of
self-handling at airports.
• Harmonise the approval process
for ground handlers.
• Set minimum quality standards
for ground handlers and introduce
compulsory minimum staff
training.
• Give the Commission an
“oversight” role in relation to
decisions on noise emissions
taken by Member States.
Aeropace Bulletin 05

The legislative proposals must now
be discussed with and approved by
the European Parliament and Member
State Governments before they can
become law.
For more information, please contact
Mark Waters, Associate, on +44 (0)20
7264 8275 or mark.waters@hfw.com,
or your usual contact at HFW.
Conferences & Events
IATA Legal Symposium
Shanghai
(5 - 7 February 2012)
Nick Hughes, Richard Gimblett,
Sue Barham, Mert Hifzi and
Peter Coles
Indian Business Aviation Expo
Delhi, India
(22 - 23 February 2012)
Richard Gimblett
World Space Risk Forum 2012
Dubai
(28 February to 1 March 2012)
Nick Hughes
CHC Safety & Quality Summit 2012
Vancouver, Canada
(26 - 28 March 2012)
Nick Hughes
AviCon 2012 Aviation Disaster
Conference
New York, US
(25 April 2012)
Nick Hughes
06 Aeropace Bulletin

Meet the global Aerospace team
London
Giles Kavanagh, Partner,
Head of Aerospace
T: +44 (0)20 7264 8778
giles.kavanagh@hfw.com
Richard Gimblett, Partner
(London & Dubai)
T: +44 (0)20 7264 8016
richard.gimblett@hfw.com
Jeremy Shebson, Partner
(London & São Paulo)
T: +44 (0)20 7264 8779
jeremy.shebson@hfw.com
Anthea Agathou, Associate
T: +44 (0)20 7264 8224
anthea.agathou@hfw.com
Sue Barham, Partner
T: +44 (0)20 7264 8309
sue.barham@hfw.com
Nicholas Hughes, Partner
T: +44 (0)20 7264 8555
nick.hughes@hfw.com
Adam Shire, Partner
T: +44 (0)20 7264 8264
adam.shire@hfw.com
Daniella Cavendish, Associate
T: +44 (0)20 7264 8490
daniella.cavendish@hfw.com
Elinor Dautlich, Partner
T: +44 (0)20 7264 8493
elinor.dautlich@hfw.com
Eliza Petritsi, Partner
T: +44 (0)20 7264 8772
eliza.petritsi@hfw.com
Anthony Woolich, Partner
T: 44 (0)20 7264 8033
anthony.woolich@hfw.com
Jennie Chu, Associate
T: +44 (0)20 7264 8263
jennie.chu@hfw.com
Aeropace Bulletin 07

London
Maria Galan, Associate
T: +44 (0)20 7264 8290
maria.galan@hfw.com
Charlotte Marfleet, Associate
T: +44 (0)20 7264 8291
charlotte.marfleet@hfw.com
Lorraine Wilson, Associate
T: +44 (0)20 7264 8261
lorraine.wilson@hfw.com
Zohar Zik, Consultant
T: +44 (0)20 7264 8251
zohar.zik@hfw.com
08 Aeropace Bulletin
Mark Gammon,
Senior Legal Executive
T: +44 (0)20 7264 8548
mark.gammon@hfw.com
Edward Spencer, Associate
T: +44 (0)20 7264 8314
edward.spencer@hfw.com
David Greves, Consultant
T: +44 (0)20 7264 8312
david.greves@hfw.com
Gordon Gardiner, Associate
T: +44 (0)20 7264 8762
gordon.gardiner@hfw.com
Mark Waters, Associate
T: +44 (0)20 7264 8275
mark.waters@hfw.com
Dennis Wheatley, Consultant
T: +44 (0)20 7264 8000
dennis.wheatley@hfw.com

Paris
Janet Butterworth, Partner
T: +33 (0)1 44 94 40 50
janet.butterworth@hfw.com
Dubai
Richard Gimblett, Partner
(London & Dubai)
T: +971 4 423 0555
richard.gimblett@hfw.com
Singapore
Mert Hifzi, Partner
Head of Aerospace, Asia
T: +65 6305 9503
mert.hifzi@hfw.com
Jason Chu, Associate
T: +65 6305 9562
jason.chu@hfw.com
Timothy Clemens-Jones, Partner
T: +33 (0)1 44 94 40 50
timothy.clemens-jones@hfw.com
Charles Cockrell, Associate
T: +971 4 423 0555
charles.cockrell@hfw.com
Keith Richardson, Partner
T: +65 6305 9502
keith.richardson@hfw.com
Michelle Ho, Legal Assistant
T: +65 6305 9563
michelle.ho@hfw.com
Brussels
Konstantinos Adamantopoulos, Partner
T: +32 2 643 3401
konstantinos.adamantopoulos@hfw.com
Terry Chang, Associate
T: +65 6305 9561
terry.chang@hfw.com
Aeropace Bulletin 09

Hong Kong
Peter Coles, Partner
T: +852 3983 7711
peter.coles@hfw.com
Carrie Leung, Trainee
T: +852 3983 7714
carrie.leung@hfw.com
São Paulo
Jeremy Shebson, Partner
(London & São Paulo)
T: +55 (11) 3179 2900
jeremy.shebson@hfw.com
10 Aeropace Bulletin
Lee Tam, Associate
T: +852 3983 7712
lee.tam@hfw.com
Fernando Albino, Legal Director
T: +55 (11) 3179 2900
fernando.albino@hfw.com
Ashleigh Williamson, Associate
T: +852 3983 7713
ashleigh.williamson@hfw.com
Mariana Somensi, Legal Assistant
T: +55 (11) 3179 2900
mariana.somensi@hfw.com

Aeropace Bulletin 11

Lawyers for international commerce
HOLMAN FENWICK WILLAN LLP
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