COVID-19 Newsroom

The pandemic and its effects on business in Finland.

Impact of Covid-19 on Finnish air travel

On 16 March 2020 the government declared a state of emergency and announced that schools and
public spaces will be shut down until 13 April 2020.(1) The government also published a 19-point list
of emergency legislation that came into effect on 18 March 2020 after being approved by
Parliament, including measures to close the country’s borders and suspend passenger traffic to
Finland. Preparations for such measures have already taken place. Parliament’s constitutional
committee is currently discussing the approval of emergency legislation. On 23 March 2020 the
government announced that they are preparing to implement further movement restrictions to slow
the spread of the novel coronavirus, such as ordering bars and restaurants to close and limiting
movement in general.

Impact on Finnair

The main Finnish airline company Finnair has already announced various restructuring measures in
recent weeks (eg, staff layoffs and other cost-cutting measures) due to the COVID-19 outbreak
affecting Finnair’s Asian connections. On 16 March 2020 Finnair announced that they are cutting
90% of its normal flight capacity and consequently, cancelling the majority of its flights temporarily
as of 1 April 2020 until the situation regarding the coronavirus pandemic improves.(2) The
cancellation will affect between 1,500 and 2,000 flights from 16 March 2010 until 31 March 2020,
with only critical air connections for Finland maintained.(3)

Although the coronavirus situation and its impact on the demand for air travel is currently
precarious, Finnair has announced that it will continue to monitor the situation and that it is ready
to ramp up operations should the situation improve.

On 17 March 2020 Finnair also announced that it has postponed its annual general meeting 2020
until further notice, following the example of many other listed companies.

Finnair has also taken steps in order to secure the company’s financial position in the prolonged
coronavirus situation. Such steps have included, among others, raising a revolving credit facility
totalling to €175 million, contemplated reborrowing of statutory pension premium loan in the
amount of €600 million and sale and leaseback of unencumbered aircraft. More importantly, the
state, which is a majority shareholder of Finnair, has proposed to guarantee the reborrowing of the
pension premium loan. The guarantee arrangement is still pending the approval of Parliament.(4)

Legal and contractual issues

The following occurrences and indications of the following issues have been encountered, but
further issues may arise as matters develop:

  • Deal flow: the reduced air traffic situation will affect aircraft lease and purchase transactions
    and aircraft finance. A number of pending Finnish aircraft deals have been postponed until
    further notice.
  • Impact on existing agreements: disputes will likely arise in connection with contract defaults and enforcement situations and the interpretation of force majeure clauses. Notwithstanding that governing law in transaction documents is frequently English law, lessees and obligors may seek to invoke mandatory Finnish law principles to adjust agreements to make them equitable and defend against enforcement.
  • Financial restructuring: although majority state ownership will help preserve the funding of
    the major Nordic airlines, smaller airlines may struggle and may apply for insolvency (ie, bankruptcy or restructuring) proceedings, which typically means significant haircuts on
    debts, moratoria on enforcement and aircraft repossession and disputes regarding the
    ownership of engines and spare parts.
  • Consumer claims: the handling of customer claims during and after the crisis may lead to legal
    implications. Finnish law has a class action mechanism for certain consumer disputes. If any
    breaches of consumer protection legislation occur, airlines could face a class action suit.
  • State aid: questions of unlawful state aid under EU law may arise in connection with any
    bailout or restructuring packages for airlines.
  • Employment issues: significant layoffs are already underway. Finnish law requires a
    mandatory consultation process for layoffs on economic grounds. The length of the
    consultation process has already proven problematic and prevented companies from reacting
    quickly enough to the rapidly changing situation, resulting in further financial problems.
  • Capital market challenges: listed airline companies are struggling with maintaining their
    corporate governance and disclosure obligations. Extraordinary general meetings have been
    postponed and special arrangements have been implemented for remote participation. New
    COVID-19 risk factors have appeared in disclosure documents. The overall financial market
    situation has led to a turbulence in share prices.
  • Emergency preparedness legislation: the pending approval of Finnish emergency legislation is
    unprecedented in the country’s history and poses difficult constitutional challenges. The
    emergency legislation will grant the government greater powers to shut down borders and
    traffic and impose other restrictions on meetings and mobility. Finnish emergency legislation
    also grants powers for the government and military to requisition assets such as aircraft, but it
    is not currently envisaged that such requisitioning measures would be needed.

 

For further information please contact the authors:

Maria Lehtimäki
Specialist Partner

 

Endnotes
(1) For further details please see here.
(2) For further details please see
here.
(3) For further details please see
here.
(4) For further details please see
here.

The article was originally published by International Law Office at https://www.internationallawoffice.com/Newsletters/Aviation/Finland/Waselius-Wist/Impact-of-COVID-19-on-Finnish-air-travel

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