Airlines’ bankruptcies through Lithuanian history
2020 / 12 / 07


In 1996 the United Nations General Assembly proclaimed that 7 December was to be the International Civil Aviation Day. On this occasion, I took a minute to view the Lithuanian aviation history and in particular - the history of the Lithuanian airlines’ bankruptcies (no one said it would be easy).

The bankruptcies’ trace

As an aviation lawyer I have witnessed already five Lithuanian airlines’ bankruptcies:

✔  January 2009, FlyLAL-Lithuanian Airlines
✔  October 2010, Star 1 Airlines
✔  June 2013, Aurela
✔  May 2015, Air Lituanica
✔  November 2018, Small Planet Airlines

In each of the referenced cases, I had a role on behalf of the clients - from accompanying the pilots to repossess the aircraft to scrambling in the doorway after being refused to attend in the first creditors meeting. No worries, I still do have a good aircraft repossession karma.

Each airline bankruptcy history was unique in its way, however, the last one was much more civilised than the first one – if you look for a positive note. The first bankruptcies were very sudden, with passengers left abandoned at the airports getting the short notice of the airline suspending operations, creditors left with the empty pockets and inefficient long-lasting court procedures without any hope of recovering the debt.

The development during the last decade is notable – aviation authorities have improved the airline supervision and overall business culture has changed. The last bankruptcies were more predictable, less desperate and better managed.

In case of Small Planet Airlines bankruptcy, which is still pending – at least the employees were paid their salaries and have left the company with tears, it was indeed a piece of sad news to all aviation enthusiasts. The aircraft was ferried to the lessors' designated return locations as soon as the CAA has announced that the AOC shall be suspended.

Air Lituanica case was unique, as the airline was a municipality-owned flag carrier, though, it also had the “popular weak point” - it has never been profitable. Even in case, it would have survived the competition, there was a very big chance of European Commission investigation regarding the state aid measures. Shortly before Air Lituanica declaring the bankruptcy European Commission investigation into public support measures in favour of Estonian Air was already pending and has shortly resulted in mandatory order to the airline of refunding the EUR 85 M legal aid, which was a death sentence for the Estonian flag carrier.

As regards the liquidity of the insolvent airlines, there is no good news to the creditors – usually, airlines do not possess substantial tangible assets, respectively the outstanding debt recovery chances are very poor unless the claim is secured with a mortgage, shareholder or third-party guarantee or otherwise linked to a certain asset.

Aircraft repossession and deregistration from Lithuania

In terms of aircraft repossession, usually, there were no significant hurdles from the side of the airline, though, the aircraft owners and lessors should keep in mind that the aircraft may be grounded by the Transport Safety Administration (successor of the CAA) for the outstanding navigation and airport fees. The procedure is straight forward and does not require court involvement – the grounding notice is effective since execution. One of the worse positions to be – is repossessing the aircraft while in maintenance. As a rule, the maintenance providers do not hesitate to present the aircraft owner with a long list of the “airline’s sins” before releasing the aircraft to the owner.

It should be noted that Lithuania is not a party to the Cape Town Convention. Though, the aircraft shall be deregistered from the Lithuanian aircraft registry by submitting the deregistration request signed by the aircraft owner (not the airline).

Who’s next?

The Lithuanian charter airline Avion Express, which is part of the Avia Solutions Group, has recently announced they are going to restructure. The reasons for restructuring are evident – the coronavirus has paralysed the industry, so the airline will require the creditors' support.

Needless to say, but none of the airline restructuring attempts has been successful so far. However, Lithuania has recently adopted a new insolvency law to widen the opportunities for restructuring. Will it help? Only time will tell.





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