Jet Airways Insolvency Grounded By Landing Slots
Can an airline's landing slots be reclaimed years after it shut operations? What if they've been allotted to other carriers? Are landing slots an airline asset? The NCLT is set to answer these questions in the Jet Airways insolvency case.
A landing slot is a permission given by an airport operator to use runway and airport infrastructure such as terminal capacity, parking stand capacity etc.
A resolution plan for Jet Airways was approved on the condition that Jet's erstwhile landing slots will be available to the successful resolution applicant, a person close to development told BloombergQuint on condition of anonymity.
But the government of India has taken a stance that the issue of landing slots would be looked into afresh, in line with extant guidelines, once the new owner approaches the authority.
Jet Airways cannot claim any historical right over the landing slots which were allotted to it before the carrier shuttered operations, the Ministry of Civil Aviation told the National Company Law Tribunal in an affidavit last week.
The government cited the 2013 guidelines on slot allocation to refute any historical right on the landing slots by Jet. The guidelines give primacy to historic use while distributing them but on meeting certain conditions.
Citing the 'use it or lose it' principle, the ministry said, historic precedence can be claimed by an airline only when the airline can demonstrate that the slot was operated at least 80% of the time during the period allocated in the previous equivalent season. Jet failed to do that for the winter of 2019 and summer of 2020, the affidavit said.
Landing slots are not assets or rights of an airline but mere permissions that are subject to fulfillment of certain conditions and compliance.
Slots are assets of the airport operators and bilateral traffic rights are national assets and since both are perishable commodities in nature, neither they can be reserved for any airline, nor they can be withheld for some entity, rather they are to be optimally utilised in public interest, at all timesMinistry of Civil Aviation Affidavit
Besides, Jet Airways lost the slots when it suspended operations much before the insolvency moratorium came into effect, said the government.
World over, the position on landing slots usually is that if you don't utilise them, they revert to the empowered authority, said Nitin Sarin, managing partner at law firm Sarin & Co., told BloombergQuint.
The landing slots are basically a right to use. For instance in the U.K., if you lose your license to operate or shut down operations then that slot immediately reverts back to the issuing authority. The resolution plan ideally cannot be made conditional on landing slots which is a prerogative of the issuing authority. It needs to be seen whether the ministry’s earlier assurance binds them or not.Nitin Sarin, Managing Partner at Sarin&Co
It will be very difficult for any resolution applicant to make a claim on the landing slots as it will be difficult to sustain in law that these are assets of the company, said Ruby Singh Ahuja, senior partner at Karanjawala & Co.
The government had to take the decision of allotting the slots to the other companies since Jet Airways was non-functional, she said.
The government cited this while justifying its argument.
When Jet Airways shut its operations, the total inventory of passenger aircrafts being operated in India fell by around 100, which could have had an adverse impact on Indian civil aviation, it said.
In this situation, it intervened to encourage other airlines to increase their capacity and the landing slots were offered to them as an incentive, it said.
These airlines, subsequently, invested huge amount of money and procured number of aircraft and now they cannot be deprived of the slots without any valid reasons, the ministry said in its affidavit.
The NCLT will now have to decided on what happens to landing slots in the resolution plan. An earlier judgment of the National Company Law Appellate Tribunal on the position of spectrum in insolvency proceedings for telecom operators may feature while the NCLT decides this issue.
Then the NCLAT had ruled that spectrum is not an asset but the right to use can be transferred only if certain conditions are fulfilled.
The insolvency code cannot try and sort out issues which are subject to grant by an authority and the tribunal cannot usurp that authority, said Ajay Shaw, partner at DSK Legal. Shaw compared landing slots to spectrum to point out that renewal of such a right will be subject to fulfillment of conditions laid down by the government.
These rights are granted by the government for a specific purpose. Even in spectrum case, the right to use spectrum was conditional on certain criteria being fulfilled. This is the position of law as per the recent NCLAT verdict in the spectrum case and in this case too the NCLT will examine whether the conditions to claim historic rights have been fulfilled.Ajay Shaw, Partner at DSK Legal
"Even if the tribunal rules that there is a historical right on the slots it can at best grant them for one season," said Sarin. "Landing rights are not granted in perpetuity and once the season expires then the company will have to once again apply for landing slots. Also we must bear in mind that Jet is left with hardly any aircraft in its fleet, would it be justified to give slots utilizable by over 100 aircraft, to an entity with less than 10 aircraft? "
In deciding the issue of landing rights the NCLT will also determine what's next for the resolution process of the airline which has not been operational for more than two years.
Jet Airways was once India’s largest national carrier by market value. A consortium of 26 lenders led by State Bank of India initiated insolvency proceedings against the airline after it defaulted on loan obligations. The plea was admitted by the NCLT in June 2019 and Ashish Chawchharia was appointed as its resolution professional. A resolution plan submitted by the Jalan-Kalrock consortium was approved in October last year.
But now if the plan is conditional on landing slots then the NCLT cannot exercise any power to grant any relief to pertaining to this issue, said Ahuja.
The new owners, Ahuja said, will probably have to make a fresh application for slots once the resolution plan is approved.