“It is perverse in some ways, that often the more difficulties an industry is facing, the more legal work it can generate,” says Clayton Utz partner Simon Brady. “The need to restructure and find new and better ways of carrying out business can often drive quite a bit of [legal activity].”

Mr Brady has significant corporate advisory experience within the aviation industry and his team has previously acted for Virgin, Singapore Airlines, Fiji Airways and Korean Airways.

“[We also act for the] major Australian airports and the larger regional airports. It’s quite a big industry when you aggregate all its parts.”

Clayton Utz has four partners who engage specifically in aviation law work, including advising on corporate, finance and regulatory matters. The firm’s competition law team has also acted for international airlines on cartel issues.

“No week or month [is] the same in the aviation world,” Mr Brady says. “There are always new issues and new challenges emerging.”

Climbing above the clouds

International air travel has continued to grow despite the two devastating Malaysia Airlines crashes last year and the deadly Ebola outbreak in Africa.

Air travellers were undoubtedly rattled when flight MH370 disappeared without a trace, presumably crashing into the Indian Ocean with 239 people on board. Confidence in Malaysia Airlines dropped to an all-time low when, only months later, flight MH17 was shot down over a war zone on Ukraine's disputed border, killing 298 people. 

And, with the dramatic crash of a TransAsia plane into a river in Taiwan and an AirAsia aircraft into the Java Sea earlier this year, it is no wonder air travellers are getting the jitters.

However, it’s as though nothing will satiate the world’s increasing appetite for international air travel. Global flight traffic grew 5.9 per cent in 2014 compared with the previous year, according to the International Air Transport Association (IATA).

What does all this mean for lawyers? Mr Brady says his Australian clients have hardly been affected – in business terms – by these tragic events and that therefore there has been no marked change in the amount or type of legal advice required.

“[These events] obviously impacted on Malaysia Airlines … but I don’t think it impacted the willingness of Australians or others to travel on Australian airlines. It didn’t impact on our work at all.”

Asian airlines soar to new heights

Most of the growth in passenger travel last year came from emerging markets, including the Asia Pacific and the Middle East, according to IATA.

The strong aviation market meant airlines accepted increasing numbers of aircraft deliveries last year, which kept Holman Fenwick Willan partner Leigh Borrello busy.

Mr Borrello is experienced in the financing and leasing of aircraft, particularly in the Asia-Pacific region. His clients include leasing companies, regional airlines and banks.

HFW has about half-a -dozen aviation specialists working across offices in Australia, Hong Kong and Singapore.

“[The Asian aviation industry] has been growing rapidly for many years now,” he says.

“China has been taking a huge number of aircraft deliveries … Indonesia alone has massive orders. [This] is going to continue to be so for a number of years to come.”

Aircraft manufacturers’ outputs are predicted to rise by a quarter in the next decade, according to Deloitte. However, competition from low-cost airlines is also on the rise.

Says Mr Borrello: “Even though there are a lot more people on the seats there’s also more competition, so it doesn’t necessarily translate into higher dollars.”

This mirrors changes in the legal industry, which is becoming increasingly competitive as barriers to entry become lower.

“Competition within the legal market is still quite steep, so getting the work in the door remains a challenge. But the market seems fairly decent at the moment, so hopefully we can continue to grow and make some money out of it all.”

Slaves to the oil price
While the long-term outlook for the aviation industry is promising, some airlines struggled financially last year with the climbing price of oil.

They have found themselves undergoing major business restructures to accommodate increasing costs and aviation lawyers are stepping in to advise on these developments.

“All airlines found it difficult economically last year,” Mr Brady says. “[Oil] is one of their primary costs. If that comes down it certainly helps. I think that’s the main reason that Qantas is suddenly making money. For the last couple of years it has been in the doldrums,” adds Mr Borrello.

One of Mr Brady’s clients, Fiji Airways, undertook a major restructuring of its operations, which culminated in a change of its name from Air Pacific last year. Qantas also restructured at the start of 2014, driving a significant amount of aviation law work.

Mr Brady says further upheavals can be expected this year as many airlines look at their balance sheets to determine whether or not they should dispose of non-core assets. He predicts this may create additional M&A activity in Australia's aviation sector.

Mr Borrello, meanwhile, says airline restructures have affected his work, but he feels some of the pressure to adapt may now be off given that the oil price has dropped.

As Lawyers Weekly went to press, the price of aviation jet fuel was down 38 per cent on last year’s price, sitting at $77.6 a barrel, according to Platts data.

“The drop in oil price has given airlines that might otherwise have found the market challenging a bit of breathing space, so that will keep the airlines happy for a while,” Mr Borrello says.

Business strategy

Like many other sectors, the aviation industry wants to trim back its external legal costs.

“Most major corporates have been building their legal teams. A lot of commercial work that had previously been outsourced is being undertaken in-house,” Mr Brady says. “Corporates are looking to firms such as Clayton Utz to undertake the high-end, high-value work, which is where we want to be.”

Mr Borrello says transactional work was less affected by this trend than insurance or regulatory work: “The demand for the work I do generally flows where the market is, so if … people are taking deliveries…, trading aircraft and financing them, then hopefully that translates into me being reasonably busy,” he says.

Mr Brady says his clients are constantly looking for cost savings and enhanced efficiencies from service providers and that his firm is very focused on delivering this.

Clayton Utz, he adds, tries to offer clients certainty of price and to operate on a “no surprises” basis.

“At the start of a matter, we will endeavour to fully understand the breadth and scope of work and … discuss a fee that [clients] can effectively bank on for the purposes of their forward planning,” he says.

Mr Brady’s team plans to focus on its existing clients during the coming year, which now includes the federal government.
“The aviation industry is a bit of a Coke/Pepsi situation – so if you act for Virgin you can’t act for Qantas. [Thus] our focus is on our current aviation base,” he explains.
Clayton Utz is not planning to hire more partners to work specifically on aviation matters and Mr Brady said he does not see any new business lines based on aviation work emerging this year.

Mr Borrello’s firm, on the other hand, is looking to expand its aviation practice.

“Our firm is looking to grow its presence throughout Asia and Australia. Our practice has been fairly buoyant.”

Domestic battles

The Australian Competition and Consumer Commission (ACCC) has come down hard on major airlines in the past year and will continue to probe for misleading or deceptive conduct in 2015.

The ACCC is particularly concerned with what it calls drip pricing, incremental fee increases achieved through an online purchase so the actual price far exceeds the advertised price.

“The ACCC is also looking at the fuel surcharges that particularly Qantas has been levying on its passengers. It’s a very fertile and active area for the ACCC in terms of their consumer protection mandate,” Mr Brady says .

In particular, the ACCC wants to ensure savings from lower oil prices are passed on to customers redeeming frequent flyer points. However, the most high-profile issue for airlines last year was the battle fought at the political level over the foreign ownership of Qantas.

Qantas’ ability to compete with Virgin is restricted by the Qantas Sale Act, which limits the extent to which it can draw on foreign investors.

“Virgin has introduced a model that allows its domestic business to be 100 per cent foreign-owned, whereas Qantas is still stuck with a 49 per cent foreign ownership cap so it is difficult to restructure in the way that Virgin has,” said Mr Brady.

“It’s a dynamic industry,” he concluded. “There is never a dull moment.”