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The future holds… more wet-leasing

Wet-leasing is the practice of airlines hiring aircraft with crew, maintenance and insurance (ACMI) to either cover an unforeseen short-term need or when business needs a longer-term (seasonal) capacity increase without necessarily buying and manning new aircraft. Wet-leasing is growing rapidly and experts predict such leasing agreements to become both longer in time and more frequent in nature in 2019. Wet-lease operators seem to agree with this outlook and have started preparations by consolidating, growing their fleet and increasing wet-lease offerings. What lies behind this sudden success and the growing need for more “seasonal capacity” and short-term fixes? [It certainly isn’t the longer summers /winters in Europe.]

In reality, a large share of wet-leasing in Europe – and this is the share that is booming ­– has little to do with sudden growth or unforeseen short-term needs. It is a business strategy to replace airlines’ own operations at a lower cost. Wet-lease providers like CityJet, Go2Sky, Adria Airways, Danish Air Transport & Air Atlanta promise airlines flexibility, a better commercial risk management and lower operating costs for both equipment and aircrew. This “bonus-effect” of wet-lease is boosting its popularity, making it a desirable feature for many European airlines.

Wet-leasing is growing rapidly and experts predict such leasing agreements to become both longer in time and more frequent in nature in 2019. 

It is well known that crew hired by most wet-lease operators enjoy less favorable terms and conditions than those employed by traditional airlines. Some use crew via temporary work agencies or ask their pilots to become self-employed, or a combination of both. Rarely pilots at wet-lease operators would be unionized. Pilot associations have resorted to negotiating ‘scope clauses’ in their Collective Labour Agreements (CLAs) in an effort to prevent such practices considered by many as social dumping. Some of the scope clauses include an obligation for the employer airline to inform the union about any contract with wet-leasing provider, incl. mutual agreement on the alleged growth. The bottom-line is that wet-leasing translates into lower terms and conditions for aircrew across the industry and gives a boost to atypical employment schemes. 

Wet-leasing translates into lower terms and conditions for aircrew across the industry and gives a boost to atypical employment schemes.

This development has – naturally – caught legislators off guard. EU Regulation 1008/2008 Article 13 prescribes that intra-EU wet-leases can be used without a limit in time as long as they are deemed safe. But there are neither necessary related social protections for employees, nor further considerations of the potential safety aspects of such semi-permanent use of wet-lease. 

While indeed both the lessor (i.e. operator providing aircraft & crew) and the lessee (i.e. operator receiving aircraft & crew) are subject to EU/EASA rules, in practice, implementation, interpretation and enforcement vary from one EU Member State to another. The ability to oversee and scrutinise such complex operations also differs significantly from country to country, not least due to an increasing lack of resources in certain national aviation authorities, as EASA itself recently acknowledged. Particularly worrying is the ability of smaller authorities to oversee complex operations with long and unclear subcontracting chains (including big ACMI operators subcontracting operations themselves to smaller ones).

In a Guide on safety risks related to new business models by EASA, the Agency acknowledges the potential safety hazards of wet-leasing. The Agency therefore recommends operators to consider a range of safety probes and assessments with regards to longer-term wet-lease agreements. For example, EASA operators are expected to assess the reporting culture of the lessor and consider evaluation of data: e.g. average number of reports by crew, ground handling agents, refuelling companies, etc. In addition, EASA recommends regular exchange of information between safety managers of the lessor and the lessee and an analysis of hazard identification logs and internal audits into the service provider’s evaluation. Not a simple task, but a fundamental one.

EASA Practical guide

From an industrial perspective, an obvious loophole is allowing airlines to break their employees’ strikes using short term wet-leasing – the latest example being Finnair wet-leasing from Danish Air Transport. Aside from that long-term wet-leasing also poses challenges. For example, when Slovenian pilots flying for Adria Airways perform work outside of their Home Base in Slovenia on a permanent basis – which is the case for long-term wet-leasing contracts – these pilots should be regarded as posted workers. This means they should be subject to the labour law of the countries to which they are transferred under the wet-lease agreement. Also, they should be holding a special social security certificate (A1) for social contributions. But in practice, A1 certificates for crew are rarely issued. Only 700 A1 certificates on posting of pilots and cabin crew were issued in a population of over 250.000 individuals over the course of 2 years (Source: Posting of workers Report on A1 Portable Documents issued 2015 & 2016). Wet-leasing may be booming, but the application of EU rules is still desperately lagging behind

CJEU Press Release

There is a ray of light. The Court of Justice of the European Union (CJEU) recently ruled (Case C-532/17) that an air carrier (lessor) that operated a delayed flight under a wet-lease agreement but did not bear the operational responsibility for the flight, is not liable to the passengers for the delay. Instead the carrier hiring an aircraft and flight crew (lessee) bears the ultimate responsibility for its operation and must therefore pay compensation to passengers under EU Reg. 261/2004. The Court concluded that the responsibility lays with the lessee when it comes to commercial matters. Court cases like this one show that legislators and authorities face the challenge of finding the right balance of shared responsibility and accountability of both lessor and lessee when it comes to safety, operations and oversight. 

Until this balance is found, wet-lease operators will continue to pitch their ‘smart business low-cost solution’ to other airlines. It is unclear if and when legislation will catch up. However what is clear, is that as long as legislation and oversight are not applied properly, ‘irresponsible’ wet-lease can continue to blossom and will be do so in a way that risks being neither sustainable, nor socially responsible – and perhaps even unsafe.