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December 21, 2023

Effects of Financial Crisis Caused by Covid-19 Epidemic on Aviation Sector

Since the outbreak in Wuhan, China in December 2019, the CoVid-19 epidemic caused by the novel coronavirus which is spreading increasingly and became a huge crisis across the globe, deeply affects not only the public health but also the business world. There is no doubt that the civil aviation sector is the most affected sector by the epidemic and hundreds of airlines have to ground thousands of airplanes due to flight bans.

As a consequence of this crisis, that has not been faced before in the civil aviation history, losses that are hard to recover have arisen already. According to IATA’s data, loss of the sector was at the level of 111 billion $ in February[1]  but this loss reached up to 252 billion $ in March[2]. Considering the predictions that the effects of the epidemic will last months and perhaps years, the loss to be faced with will be much higher than this figure.

The civil aviation sector will have to cope with legal disputes on top of financial problems increase incrementally. Within this regard, although the governments subsidize their airline companies in order to support civil aviation, numerous problems especially the fate of the agreements signed between agents of the sector, status of the leased airplanes, are waited to be solved. These legal issues will constitute a problem for airlines and other sector agents apart from financial difficulties. It is possible to trichotomize the issues of the sector as issues with passengers, sector agents and employees.

The issue of cancellation and reimbursement of tickets of the passenger are the leading legal dispute to be faced with. Within this context, Regulation on the Rights of Passengers Traveling by Airway (SHY-Yolcu) published on Official Gazette numbered 28131 and dated December 3rd,2011, is in force in Turkey. According to the Regulation, cancellation of the ticket and reimbursement, changing the dates and re-issuance as an open ticket are offered to passengers by Turkish airline companies. However, passengers cannot claim a flight cancellation compensation as per article 6/4 of the Regulation due to the reason of cancellation is unexpected events. In addition to that, European Commission published a guide on March 18th, 2020 in order to inform and remind EU citizen passengers regarding their rights in the event of flight cancellation by referring the Commission’s Regulation (EC) NO 261/2004 numbered.

On the other hand, the Amendment on Regulation on the Rights of Passengers Traveling by Airway (SHY-Yolcu) was published on Official Gazette dated March 25th, 2020 and numbered 31079 and within the scope of the Amendment, national airline companies are held exempted from paying compensation liability in Article 8, reimbursement and rerouting liabilities in Article 9 and providing additional services in Article 10 in case of flight cancellation due to the Covid-19 epidemic from February 5th, 2020 until the two months after the cessation of the ban.

In accordance with the provisions of the same Regulation, passengers whose flight is cancelled are granted the right to change the ticket, rebook the ticket for another available date depends on the free seat status of airline companies or change it with an open-ticket. It is also stated that the passengers shall refund their open-ticket prices which are not used within 2 months after the cessation of the ban.

It is quite likely that airline companies may struggle against legal disputes regarding the performing of agreements that are signed between airline companies and sector agents. In this scenario, the most important agreements are aircraft leasing agreements and loan agreements. In the event that airline companies’ insurance agreements do not contain a force majeure close (covers the epidemic situation or governmental decisions) in order to compensate for the loss, lots of aircraft could not be operated and the airlines will not be succeeded to pay their contract prises or credit debts. In these circumstances, airlines may demand price cut, moratorium or termination of such contracts based on force majeure and hardship.

It is also important to mention problems related to human resource management for employers whose operations are reduced or suspended and for this reason came up against the incalculable loss. In this regard, employers tend to seek alternative solutions such as unpaid time off, holiday with pay, hold over a salary, working from home before the termination of their employment as the first choice. However, in the case that these alternative models cannot be applied or are not considered sustainable by the companies, termination of the employment contract comes to the agenda. We would like to emphasize that; Pursuant to the Labor Law No. 4857, in order for the employer to terminate the employment contract for justifiable reasons, compelling reasons which are required to suspend operations, such as quarantine must occur in the workplace for more than a week. For this reason, decreasing incomes and capacity alone will not constitute a justified reason to terminate the employment contract. Again, the Labor Law and Supreme Court made it possible to delay the wages due to force majeure, but refusing to work due to delayed wage (despite the presence of force majeure) by an employee was seen as an employee fault. This situation gives the employer the right to terminate the employment contract immediately in accordance with article 25/2 / h of the Labor Law. The issue of the employer’s decision to give unpaid time off is subjected to the explicit or implicit consent of the employee.

In addition, due to the Covid-19 epidemic, short-term working fund conditions were facilitated by adding a temporary article that is effective until June 30th, 2020 to the Unemployment Insurance Law No. 4447. According to this; the working duration under the condition of being insured for at least 600 days in the last three years, which is the application condition for short-term work, has been reduced to 450 days, and the 120 days term for being in a service contract before the start of the short-term work contract has been reduced to 60 days. In this case, airline companies may also benefit from this provision as an employer.

As a result, the epidemic will cause the financial crisis and undoubtedly a wide variety of legal disputes in our country and the international civil aviation sector. However, in these days when the effects of the epidemic are felt, the support of states and international organizations will help resolve many legal problems before they become conflicts.




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