From supporting the tourism and hospitality sector, to promoting global trade and international or diplomatic relations, the aviation sector contributes a heavy quota to the Nigerian economy. The COVID-19 pandemic has impacted every sector of human endeavor and has greatly affected the activities of the aviation sector. The effort by many countries of the world to curtail the importation and community spread of the virus led to closure of borders and introduction of social distancing guidelines respectively. The closure of borders and restriction of movements led to major disruptions in the aviation industry as majority of airlines were grounded. The crippling effect of the lockdown resulted in huge loss in revenue suffered by the airlines and effort to cut cost led to many downsizing efforts across board. This article seeks to analyze the effects of the pandemic on the industry and how it has impacted on the performance of contractual obligations in the aviation sector.
The Aviation Sector and the Effects of the Pandemic
Global trade is fostered through the aviation sector due to its swift delivery and large capacity as wide variety of cargo can be transported in one trip. However, closure of borders, lockdowns, movement restrictions and the travel bans placed by governments has crippled the operations of the aviation sector.1 With initial reports of the virus, The Virgin Australia Group grounded over 100 aircrafts, suspending international routes and domestic operations.2 In Nigeria, a cursory look at the impact of COVID-19 on the aviation sector reveals the disruption of operations and the cessation of revenue generation. The travel ban has translated into the shutdown of major airports in Nigeria such as the Murtala Muhammed International Airport (Lagos), the Nnamdi Azikiwe International Airport (Abuja), as well as the closure of Mallam Aminu Kano International Airport (Kano), AkanuIbiam International Airport (Enugu), and Port Harcourt International Airport, (Omagwa).3 Also, all local airports are closed with only essential flights allowed. The sector has completely grounded as no flight is operating, the major source of income has disappeared. Similarly, revenue from non-aeronautical activities has dwindled as they were hinged on patronage of air travel.4
On the global scale, the impact of the pandemic on the aviation sector cannot be over emphasized. International flights are majorly grounded while only humanitarian and essential flights are allowed. The prevalence of the pandemic has also impacted on the revenue of the sector and induced breach of contractual obligations amongst the key players in the sector. Considering the enormity of the impact of the pandemic on the aviation sector, government intervention seems inevitable to rescue the sector from going insolvent. According to Captain Nogie Megisson- Chairman of Airline Operators of Nigeria (AON), 5the pandemic has cost domestic carriers almost 400 billion naira resulting in over 250,000 staff being laid off.6 One of the major concerns regarding the grounding of over 120 aircrafts is the high cost of servicing for equipment and planes that have been abandoned for months. This means that upon reopening of the airports, money must be sourced to handle servicing of planes before flights can go on as scheduled. For this reason, the aviation sector is heavily dependent on a government bailout.
In the United States the aviation industry for instance received about 25 billion dollars funding from the government to ensure there was no service disruption through March 1st 2022.7 Similarly, the Brazilian Government announced its relief package for its aviation sector which includes the suspension of the payment of air navigation fees by airlines for a six month time frame. It also allows the deferment of airport concession fee payments by private airport operators till the 18th of December, 2020. The government declared their plan to prepare a special credit line to support the financial liquidity of airlines amidst the pandemic. The Brazilian Civil Authority also agreed to waive till the end of October 2020, the minimum 80% slot usage rule for airlines.8 The Australian government announced its step to refund and waive charges off airlines such as domestic airlines totaling $430 million and paying $93million in advance as relief package. Sweden and Denmark declared a $300 million as loan guarantee for its Scandinavian Airlines System (SAS).9
In Nigeria, there has not been any rescue intervention and injection of fund by the government into the aviation sector. Apart from the policy of the Central Bank of Nigeria (CBN) 10rolling out measure to mitigate the impact of Covid 19 pandemic on the economy, there is no specific policy of government aimed to specifically tackle the devastating impact of the pandemic on the aviation sector. Unless the existing credit facilities obtained by the airline operators and other stakeholders falls within the scope of CBN intervention facilities, they may not be entitled to take benefit of the CBN policy on the pandemic which provides for extension of moratorium and reduction in interest rate payable on CBN intervention facilities. Consequently, the repayment obligations of most of the airlines to their creditors depending on the terms of the contract between the parties may still subsist notwithstanding the outbreak of the pandemic.
FORCE MAJEURE AND FRUSTRATION OF EXISTING CONTRACTUAL OBLIGATIONS
The outbreak of the pandemic has induced widespread breach of contractual obligations in the aviation industry. A defaulting party can either plead force majeure or rely on the doctrine of frustration as a defence to either limit his liability or excuse himself of his contractual obligations which have clearly become impossible to perform in view of the prevailing circumstances. A force majeure clause is a term inputted into the contract by the parties which states in clear terms such events which if occurs will relieve a party of its obligation under the contract. Unlike the principle of force majeure which is founded in the contract between the parties wherein the specific events must have been clearly spelt out, the common law doctrine of frustration appears to be wider in scope as it encapsulates such events beyond the control of parties which have rendered the performance of contractual obligations impossible. This is commonly referred to as an act of god.
In the case of Â Revenue Mobilization, Allocation & Fiscal Commission Vs Units Environmental Sciences Ltd,11 it was held that a contract is not deemed frustrated merely because its execution becomes more difficult or more expensive than either party originally anticipated or that it has to be carried out in a manner not envisaged at the time of negotiation of the contract. Common examples of what might constitute force majeure include labor disputes, acts of God, casualty, war, riots, strikes, terrorism, natural disasters, delays in obtaining or an inability to obtain labor, utilities or materials, and essentially any event beyond the control of the relevant party.12 An illustration can be gleaned from the ratio in the case of Attorney General, Cross River State Vs Attorney General of the Federation,13 where the Respondent pleaded that it was unable to perform the contract due to intermittent strike actions embarked upon by its factory workers and on appeal, the court held that the strike action did not amount to frustration
Force majeure is a clause that must be included in a contract for it to take effect. In the absence of this clause in a charter,14 the common law principle of frustration entitles parties to suspend obligations or performance pending the resolution of the event hindering the acting of either party and be extension, to determine the contract at first instance. Assuming that the aircraft lease agreement contains a force majeure clause, whether or not such clause could be invoked as a result of the Covid-19 pandemic will depend on whether an "epidemic" is listed as the triggering event in the lease agreement. In the aviation sector, there is however a clause that may vitiate the concept of force majeure. It is known as the Hell or High Water clause which stipulates that regardless of any prevailing or eventual circumstances, the lessee's obligation to pay rent on an unconditional basis through out the lease subsists.15
A downside effect of the pandemic concerning the financial affairs of airlines is the failure of airlines to refund flight tickets to all passengers whose travelling has been cancelled. In place of refunding fully, flight tickets to passengers, airlines have issued vouchers that expires in a year or the chance to rebook.16 Some passengers have taken to legal actions to ensure their refunds are effected.17 The United States Congress introduced a new bill that requires airlines to provide a full refund of all flights that have been cancelled regardless of whether the passengers on the tickets before the general government order to do so. The Cash Refunds for Coronavirus Cancellations Act18 would let airlines pay for the refunds using the signed emergency money provided by the Congress, so as far the funds intended for employee benefits remains intact.
Interestingly, there are arguments in this line of action. The first being whether the clients who purchased non-refundable tickets are also entitled to refunds. Secondly, many airlines question if they should actually be mandated to refund tickets and wonder if they are not covered by force majeure as the cancellations are not occasioned by their negligence or through any fault of theirs. Customarily, in both aviation and maritime sectors, tickets purchased by passengers for travel are to be refunded in an instance that the flights are cancelled. However, to prevent insolvency and potential closure of some airlines, regulators may have to step in and stipulate a timeline or guideline for these refunds to be spanned out and eventually effected. Some European Union countries have altogether passed a law19 to suspend the refunds by these airlines for a couple of months. The Civil Aviation Authority in Nigeria should also come up with a guideline to deal with how issues relating to tickets refund would be addressed to preclude unnecessary litigation which will further stretch the already distressed sector. Generally, the COVID regulations issued by the Federal Government ought to have been more comprehensive, going beyond matters of health and safety and delving into the impact of the pandemic and necessary alteration or modified implication on contractual obligations.
As Nigeria has lifted the ban on interstate travel and operation of local commercial flight, there is need for government stimulus intervention in the aviation sector to save the industry from going bankrupt. Despite lack of incentives by the government to sustain this sector of the economy, the aviation industry has stood the test of time but is however gasping for breath and is unhealthy. While some contractual obligations have become impossible to perform as an airline would not be liable for inability to fly a customer who bought a ticket because of the lockdown, issues like right to refund tickets would be somewhat impossible to repudiate at the instance of the pandemic. Policies should be implemented and enforced to ensure companies in these sectors abide by global best practices and adopt necessary technology to protect the interest of all stakeholders in the sector.
1. Korean Air (South Korea), Alitalia (Italy) and Norwegian Air (Norway) have all signified that the coronavirus disease was taking a toll on their operations and foresee possible bankruptcy. Kenya Airways recently received a lifeline of $17m from its government to sustain its operations. Norwegian Air laid off 50 per cent of its workforce, cutting over 4000 flights in the process, translating to a 22 percent plunge of its stock value.
2. This particular airline has ceased operations for about four months, with plans to resume in mid June save for 'vital' domestic routes per the country's government directives.
3. Already, United Kingdom's airline Flybe has grounded its operations, while Emirates, Turkish, Qatar Airways, South African Airlines have either placed some of their staff on compulsory leave or lay off others in order to remain in the air.
4. Non- aeronautical activities including patronage of the duty-free shops, car parking and similar concessions.
5. S. Echenim, 'Covid-19: Nigerian airlines face existential crisis as light dims' https://www.businessamlive.com/covid-19-nigerian-airlines-face-existential-crisis-as-light-dims/ accessed 26th April, 2020.
6. S. Adekola, 'COVID-19 Future of Nigerian's Airlines, Aviation Sector Depends on the Federal Government', https://tribuneonlineng.com/covid-19-future-of-nigerias-airlines-aviation-sector-depends-on-fg/ accessed on 28th April, 2020.
7. The funding was to ensure the airlines are able to maintain payrolls and recipients of this grant cannot cut jobs remuneration or benefits until the 30th of September, 2020. Similarly, airports that receive the grant must maintain 90 percent of their staffing levels through December 21st 2020.
8. IATA, 'IATA Thanks Brazilian Government for Supporting Aviation Industry in Face of COVID-19', https://www.iata.org/en/pressroom/pr/2020-03-20-01/, accessed May 11th, 2020.
9. Reuters, 'Governments offer aid as airlines forced to deepen cuts to flights, staffing', https://www.google.com/amp/s/www.pri.org/stories/2020-03-18/governments-offer-aid-airlines-forced-deepen-cuts-flights-staffing%3famp, accessed May 11th, 2020.
10. Circular dated March 16 2020 with reference number FPR/DIR/GEN/CIR/07/049
11. (2010) LPELR-CA/A/213/09. See also Okereke Vs Aba North LGA supra.
12.Steven herman and manda reasoned, update thoughts on force majeure and impossibility of performance, https://www.natlawreview.com/article/covid-19-update-thoughts-force-majeure-and-impossibility-performance accessed on 16th May, 2020.
13. (2012) LPELR-SC.250/2009
14. Adetayo Adetuyi and Nnanke Williams, COVID-19: UNDERSTANDING CONTRACTUAL ISSUES IN AFRICA'S MARITIME INDUSTRY'' < https://iclg.com/briefing/11497-covid-19-understanding-contractural-issues-in-africa-s-maritime-industry > accessed on 22nd May 2020.
16. C. Elliot, Refund-related lawsuits against airlines are taking off, but will they succeed?'' https://amp.usatoday.com/amp/5185753002 accessed on 21st May, 2020
17.A passenger in Chicago sued United Airlines for refusing to issue refunds for a canceled flight despite being able legible for a total refund. Another passenger sued Delta Air Lines for behaving in an unfair manner but turning deaf ears to the outbreak of claims for refunds by passengers.
18.D. Jones, Congress introduced new bill requiring cash refunds from airlines- regardless of who cancels the trip.'' https://www.google.com/amp/s/www.washingtonpost.com/travel/2020/05/14/congress-introduces-new-bill-requiring-cash-refunds-airlines-regardless-who-cancels-trip/%3foutputType=amp accessed on 21st May, 2020
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