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Research Trends and Conclusions: Aviation 2012
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FEBRUARY 2012 AVIATION
With the benefit of over 14 years of research and tens of thousands of votes from clients and private practitioners, Who’s Who Legal takes a closer look at developing trends in the aviation legal marketplace worldwide.
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Community News Analysis Features F I R M S
This edition identifies the world’s leading lawyers in the representation of airlines and other major industry players. Clients’ needs can be diverse, ranging from regulatory advice to transactional work and representation in contentious matters. Each area requires a different set of skills from its practitioners, and each is shaped by different external factors. Our research identifies the outstanding experts in each field, reflects the environment in which they are currently practising, and explores the legal marketplace that serves this area and has seen much change in recent years.
P R A C T I C E
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FINANCE On the finance side, things were generally said to be quiet. “I’m seeing people at conferences I never thought I would see, simply because there isn’t the work to keep them in the office,” was how one nominee put it. There was widely agreed to be less financing work in this sector than in the past, and such that remains is viewed as “cookie-cutter – all you can change is the price. The banks place all the loan documents in front of you and if you want to borrow then sign here.” Furthermore, the number of banks offering this finance is dwindling rapidly. With aircraft valued in dollars, it has always been difficult to obtain financing in an alternative currency due to difficulties in calculating the exact amount to lend. Banks across the world are suffering from a widely documented liquidity problem, and finding dollar financing is becoming ever harder. European banks in particular, already struggling to meet the onerous new capital requirements of Basel III, are beginning to leave the sector. “The big news in the commercial banking finance arena is that we keep losing banks from this space,” said one expert. “Whereas we used to work for 15-20 banks, now it is only four or five.” To take one recent example, The Wall Street Journal reported Société Générale’s plans to halt its aircraft and ship financing activities in November 2011. The widely expressed hope is that banks from elsewhere in the world will step in to fill the void, with many pinning their hopes on financial institutions from China investing their dollars in nonChinese aircraft financing. (Its domestic aviation market in this sector was widely reported to be red hot, with reports of a need to train 2,000 pilots a year just to keep up with demand, and predictions that inter-Asia traffic will soon overtake that of the US.) Latin America is viewed as active for finance work, and India is also being watched with interest.
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R E P O R T S
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I T I S N O T P O S S I B L E E N T R Y I N T O A N Y W H O W H O L E G A L P U B L I C A
Nominees have been selected based upon comprehensive, independent survey work with both general counsel and private practice lawyers worldwide. Only specialists who have met independent international research criteria are listed.
Banking finance work is significantly down on previous levels, and there has been little success in securing funding from sources such as funds or the capital markets, but there remains one very active player: export credit agencies. Described as “by far the strongest and most buoyant sector of aviation finance, times are good if you work for ECAs.” The current elevated levels of ECA investment are forecast to continue, with interest reported from Russia, Brazil and Asia. Airline bankruptcies had previously been the source of large amounts of work for the sector’s leading lawyers, although one source pointed out that “United, Delta and Northwest all restructured at approximately the same time and hence there isn’t a huge amount left to do at the moment” – a comment made before American Airlines filed for bankruptcy in late November 2011. On the M&A front, reports were mixed. Many have seen consolidation in the market, and there are bargains to be had in the form of distressed assets for those with the means to acquire them. Lessor work was also held to be busy in many quarters. Similarly, the business and private jet sector is a mixed bag. Whereas the corporate jet market picked up post-9/11, the environment is more challenging for manufacturers and their counsel now as their use is coming under scrutiny by shareholders and tax authorities. Set against this, however, is another uptick in interest from Asia in general and China in particular. REGULATORY Compliance work has been busier this year. Clients are seeking advice in the face of greater enforcement activity from the authorities across a range of areas. There have been many issues arising from passenger charters, and experts predict further activity in relation to sectors such as e-commerce, with disputes between airlines and distribution systems. The FAA was described converted by Web2PDFConvert.com
as “very aggressive” in its focus on hazardous shipment by air as well as in other areas, and clients often cited strong relationships with the regulators among the qualities they looked for in their lawyers. As the international trend continues towards consolidation in the market, competition law matters are also moving up the agenda. In summary, “compliance has been very challenging for clients overall” in recent months. CONTENTIOUS Nominees reported a steady decline in aviation litigation. The trend was characterised as a “predictable consequence” of the Montreal Convention, which in practice has simplified the liability issues airlines face when claims are brought against them. With the popularity of US courts for aviation-related cases there has been an increase in disputes over jurisdictional issues, and disputes relating to passenger rights as well as cases arising from insolvencies and non-payments also reported to be on the up. LEGAL MARKETPLACE DEVELOPMENTS These tempestuous trading conditions have led to a correspondingly active legal market. Some firms are looking to augment their practices, others looking to pull back from the sector. London exemplifies many of these trends, and recent years have seen high levels of lateral movement. While one local lawyer characterised this as “just the normal churn for aviation, people have always moved,” others have noted there is “clearly a lot of movement going on.” The switch of the aviation team from Barlow Lyde & Gilbert to Holman Fenwick Willan, as well as BLG’s merger with Clyde & Co, has clearly had a seismic impact on the market, and Vedder Price opening in London has been noted with interest across the board. It was also highlighted to researchers that a significant number of the leading figures in the asset finance sector began their careers at Magic Circle firms before going on to lead the practices at more industry-focused rivals. Indeed, we received multiple reports of the major international firms scaling down their involvement in this sector, in line with major banking clients shifting their focus away from aviation finance. Clifford Chance and Allen & Overy both remain major players in this sector, but their Magic Circle colleagues – while still home to some of the world’s leading experts – have each seen a decline in the number of their partners selected for inclusion over the last four editions. Elsewhere the reported levels of movement were not as high, although lateral moves are still occurring and we received reports from the US of increased interest from UK firms looking to open local offices. The high number of law firm mergers that are continuing across the world is also impacting on this sector, exemplified by Norton Rose increasing its capacity in this area through its tie up with Deneys Reitz. As the aviation industry continues to consolidate, there are predictions of a similar increase in concentration in its attendant legal market as fewer clients require a wider range of services, and a higher level of specialisation from their counsel. Furthermore, many noted that “the aviation bar is ageing rapidly,” with some of its pioneers coming to the end of their careers and others moving up to take their place. KEEPING IT IN-HOUSE More and more private practice interviewees reported that their clients were looking to take legal work in house. Innovation is being sacrificed for cost consideration, and the simplified nature of disputes work under the Montreal Convention, as well as financing work seeing such matters being increasingly taken care of by in-house legal teams. Even transactional lawyers reported a greater in-house involvement, whereby a greater amount of the negotiation is handled by the client and the outside counsel playing more of an advisory role. Aviation is recognised as a mature industry, and the clients have a sophisticated understanding of the legal market. Many have long-standing relationships with their outside counsel, and all instruct specialists, often irrespective of the size of the firm and its name. It is not a sector that is easy for law firms to break into, and those that are already established face increased competition and an ever greater pressure on fees. However, as one in-house lawyer put it, “there will always be airlines” and many are drawing on the expertise of their law firms when drawing up their strategies for the future. In this most international and dynamic of industries, the input of expert outside counsel can prove invaluable in negotiating the current stormy weather. Back to top
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