A difficult 2009 has lead to insolvencies across the sector but some bright spots remain

The aviation sector has just closed one of the blackest decades in its history. The combined effects of the 11 September 2001 events in the US, the threat of bird flu and then swine flu, aviation fuel reaching $US147 (€107) a barrel, and near economic collapse after the bankruptcy ofLehman Brothers, has left the aviation world nursing estimated losses of $49bn(€34.8bn) – $5.6bn (€3.9bn) in 2009 alone.

Spain and Portugal have not been spared the agony. In the closing months of 2009 another operator, Air Comet, collapsed, leaving passengers stranded throughout Latin America. With debts of €100m, its owners, entrepreneurs Gonzalo Pascual and Gerardo Díaz Ferrán (also president of the Spanish Employers' Federation, the CEOE) had been negotiating its sale to Air Transport, owned by US-Dutch businessman Arnold Leonora.

However, German creditor HSH Nordbank, which was owed €17m, secured an embargo of Air Comet’s aircraft and operations ceased. The deal, with Madrid’s Dutilh conducting due diligence for the buyer, subsequently fell through.

Uría Menéndez is advising Air Comet on the way ahead, while its employees have engaged Garrigues to resolve their employment situation – many have not been paid for six months but cannot get unemployment pay until they are formally dismissed.

Air Comet has however been able to take advantage of the recent amendment to article 5.3 of the Spanish Insolvency Law (Ley Concursal), which offers three months’ breathing space to negotiate a viability and debt repayment plan. If agreement is not reached the company then has one month in which to file for insolvency. Pascual and Díaz Ferrán's major concern, say experts, is to avoid their market-leading travel company, Viajes Marsans, being drawn into the insolvency, as guarantor of Air Comet's loans. They have already beaten a claim in the High Court by nine consumers´ associations alleging racketeering, embezzlement and insolvency. However the public prosecutor is now following up allegations that the airline was still selling tickets while its aircraft were being impounded.

The shutdown of Air Comet mirrors the failure of Air Madrid three years ago, which also left thousands of travellers stranded over the Christmas period. Lovells was then engaged to manage the insolvency process.

In line with the sector as a whole, Pascual and Diaz Ferrán have clearly had a difficult twelve months. Last year the Argentinean Government moved to renationalise Aerolíneas Argentinas, 95% owned by Marsans, and for which Buenos Aires based Bruchou Fernández Madero & Lombardi is now trying to win compensation.

Marsans is also linked to Spanair, another Spanish airline that continues to face challenges. Established as a charter business by the duo in 1986, by the mid-90s it was Spain’s number two scheduled airline. SAS bought a 25% stake in 2001 and by 2003 it had increased this to 95%.

Its new owner has however struggled to make sufficient profit and last year, advised by Uría Menéndez, put the airline up for sale. Gonzalo Pascual, who owned the remaining 5%, sold his stake so that Marsans, counselled by Linklaters, could make a bid to repossess Spanair. The bid was rejected as too low, as were additional bids from Gadair (adviser Jausàs) and Iberia (Allen & Overy with Freshfields for competition matters).

SAS finally sold an 80% stake to a group of Catalan investors and local authorities for a nominal one euro. The majority stakeholders have now subscribed to a €100m capital increase and the airline is negotiating with the national credit fund, ICO, for a further €50m. It is also seeking a €60m credit line from the banks, advised by Clifford Chance, in order to operate its schedules beyond May 2010. Once the airline’s travails areresolved, it is believed that the new investors hope to exit the company through an IPO.

Roca Junyent is advising Spanair, Uría Menéndez SAS, and Clifford Chance the banks in the deal.

If such a plan fails to take off there are now howeverclearly enough Iberian lawyers with the right aviation experience to help avoidany potential further crash landings.