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State measures, foreign investment, and the aircraft financing and leasing industry under Covid-19 times

Daniela Walteros Rivera*


The COVID-19 outbreak in the first quarter of 2020, triggered the adoption of strict State measures to respond to the pandemic. Among these measures, some drastically impacted the aircraft financing and leasing industry. Numerous investors of many different nationalities are involved in this industry and, therefore, affected by the COVID-19 crisis.

I. Understanding the aircraft financing and leasing industry

The robust demand for commercial aircraft and their high price made the perfect equation for the development of the aircraft financing and leasing industry.

The aircraft financing and leasing operations are quite complex and sophisticated. Numerous parties and funding sources are involved. Namely, airlines, aircraft lessors, banks, manufacturers, lenders, investors, export credit agencies, trusts, owner trustees, beneficial interests owners, guarantors, among others.[1]

Generally, airlines do not buy their aircraft but lease them from lessors, both financed by different funding sources. As a result of the multiplicity of actors, there are numerous methods for structuring aircraft financing. Some of the principal structures are secured loan structure, operating or true lease, finance lease, leveraged lease, Japanese operating lease with or without call option, export credit agency financing, and pre-delivery payment financing.[2]

These complex financing structures are developed in several different jurisdictions and involve numerous parties in different States. In brief, there are several types of actors of different nationalities investing their resources in the aircraft financing and leasing industry in foreign States.

II. States measures and their impact on the aviation industry

The COVID-19 outbreak in the first quarter of 2020 triggered the adoption of strict State measures to respond to the pandemic. For instance, States have closed their territorial, maritime, and aerial borders, imposed social distancing, ordered national lockdowns, and other restrictions on movement.

Since the beginning of March 2020, a vast number of States prohibited national and international air traffic. These measures have severely impacted the aviation industry. By April 16, 2020, more than 16,000 commercial aircraft were grounded. In other words, more than 62% of the global fleet is on the ground and unable to fly.[3] Furthermore, another 10,000 aircraft remain underutilized.[4]

As a result, share prices of some of the major international airlines have dropped by about 50%.[5] Analysts estimate that by the end of May 2020, the majority[6] or at least half of the world’s airlines, approximately 800 airlines, will be bankrupt.[7] In March 2020, United Kingdom´s airlines Flybe and Virgin Australia entered into reorganization proceedings.[8] Trans States Airlines and Compass Airlines are shutting down in April 2020.[9] Avianca, the second oldest airline in the world, sent more than 14.000 employees on voluntary unpaid leave[10] and declared itself in default with several creditors in March.[11] Delta Airlines asked its employees for cash-savings suggestions and to consider taking voluntary unpaid leaves.[12]

The unprecedented measures adopted by States to respond to the COVID-19 pandemic have impacted the aviation industry in a manner never seen before.

III. State responsibility under international investment law

The principal source of law and the one that must apply primarily in an investment dispute’s resolution are the substantial rules enshrined in the relevant treaty. The assessment of a breach of the treaty and the possible preclusion of its wrongfulness should be based upon the same rules established thereto. 

Notwithstanding, it is not common to find rules precluding the wrongfulness of State measures in investment treaties. Although, the new trend in investment treaty negotiations is to include exceptions to the violation of investors’ substantial protections. For example, the first bilateral investment treaty celebrated in 1959 by Germany and Pakistan did not include provisions that could be interpreted as exceptions. However, treaties negotiated during the last decade allow States to adopt measures related to health, national security, public order, labor rights, and environmental protection, among others[13]. These exceptions aim to give more deference to State measures adopted for purposes of public interest.  

These provisions enable States to adopt measures for the protection of public health, such us measures to respond to the COVID-19 pandemic, without the obligation to compensate investors that may be affected. However, for these measures not to be tantamount of a breach of an investment treaty, they must comply with certain requirements.

The tribunal in the Philip Morris v. Uruguay[14] case analyzed the measures adopted by Uruguay for the protection of public health. The tribunal concluded that Uruguay did not violate Philip Morris’ rights because Uruguay has the sovereign right to exercise its police powers to regulate public interest matters, and it should be granted deference to that exercise. In the tribunal’s opinion, public health is a matter of public interest, Uruguay was allowed by the treaty to protect public health, and the measures were proportionate, not discriminatory, and adopted in good faith.

Similarly, during the smallpox outbreak in Venezuela, the tribunal in the 1903 Bischoff case concluded that “[c]ertainly during an epidemic of an infectious disease there can be no liability for the reasonable exercise of police powers.”[15]

Accordingly, State measures adopted to respond to the COVID-19 pandemic may not imply the international State responsibility for the breach of investment treaties.

The national and international air traffic’s prohibition and the closure of State borders can be seen as expropriation or contrary to other standards of treatment. Nonetheless, these measures were adopted in the exercise of police powers to prevent the virus’ transmission and to protect public health. In other words, they were adopted in good faith and to regulate matters of public interest.

However, the proportionality of these two measures can be criticized. Some may consider that there are less restrictive measures for the achievement of  said objective, and that the impact on the aviation industry is excessive compared to their capacity to achieve the objective.

Discrimination in these measures can also be claimed. The closure of borders for some States and the prohibition of some flight routes could entail that airlines of certain nationalities could continue to operate, and airlines of other nationalities could not. Notwithstanding, a legitimate public policy reason might justify this distinction.[16]

Another factor that must be taken into account are the financial reliefs that States are giving or not to airlines and other aviation industry actors. These reliefs can show the State’s good faith and due diligence. Nevertheless, not all States have the same ability to support them financially. 

One thing is clear: the few efforts made by some States to support the aviation industry are not enough.[17]

IV. Lessons from the Argentinean crisis of 2001 and the global financial crisis of 2008

The State measures adopted to respond to the Argentinean financial crisis in the beginning of the century and the global financial crisis of 2008 resulted in numerous international disputes. The lessons left by these cases can help to understand when and how States can react to times of crisis.

In 2001, the Argentinean economy entered into an extreme recession due to the abolition of the parity between the American dollar and the Argentinean peso. As a result, in the Continental v. Argentina case, the tribunal held that its “objective assessment must contain a significant margin of appreciation for the State applying the particular measure: a time of grave crisis is not the time for nice judgments, particularly when examined by others with the disadvantage of hindsight.[18]

In contrast, in CMS v. Argentina,[19] the tribunal considered that Argentina contributed to its grave crisis. Thus, the tribunal concluded that its state of necessity did not preclude the wrongfulness of Argentina’s measures. Regarding the COVID-19 crisis, it could be claimed that States did not contribute to this situation.

In 2008, the depreciation in the subprime mortgage market in the United States resulted in an international banking crisis and the collapse of the most important investment banks. The case Marfin Inv. v. Cyprus[20] derived from measures adopted by Cyprus to respond to the crisis. The tribunal considered that during a crisis, States have the right to exercise their police powers to mitigate the situation and that they should not be internationally responsible if the measures are proportionate, adopted in good faith, and non-discriminatory.

However, in the Pezold v. Zimbabwe[21] case, the tribunal considered that deference should only be granted to State measures if the relevant investment treaty orders it.

These two crises are not analogous to the COVID-19 crisis. For instance, the Argentinean and the global crises were caused by the economic system, whereas the COVID-19 crisis had an external cause. Further, the financial crises did not affect all States, while the pandemic crisis affected mostly all States in the world. These two factors can influence future tribunals to be more deferential in studying the State measures adopted to respond to the pandemic.

V. Conclusion

The unprecedented crisis caused by the COVID-19 outbreak has severely impacted the world’s economy. One of the industries most affected by this crisis is the aviation industry. The restrictions of air traffic grounded the majority of the global fleet and prevented airlines from performing their economic activities.

Notwithstanding, airlines are one of the key actors in the aircraft financing and leasing industry. By preventing airlines from obtaining profits, these restrictions are also affecting all other investors in the industry.

Hence, foreign investors in the aircraft financing and leasing industry can claim the State measures adopted to respond to COVID-19 are violating their rights under international investment treaties. States can be responsible for the compensation of these violations if they do not act in good faith and with due diligence.

* Lawyer graduated from Universidad de los Andes and candidate for a Master in International Law from the same University. Associate of the area of financial and banking law of Parra Rodríguez Abogados. E-mail:

[1] Vitaly S. Guzhva, Sunder Raghavan, and Damon J. D’Agostino, Aircraft Leasing and Financing: Tools for Success in International Aircraft Acquisition and Management (Amsterdam: Elsevier, 2019), 6.
[3] Anurag Kotoky, David Stringer, and Ragini Saxena, “Here’s What You Do With Two-Thirds of the World’s Jets When They Can’t Fly”, Bloomberg, April 16, 2020,
[4] Andrew Doyle, “Tracking the in-storage fleet and utilization in a time of uncertainty”, Cirium, April 15, 2020,
[5] “COVID-19. By the end of May 2020, most world airlines will be bankruptcy”, Center for Aviation CAPA, Accessed April 27, 2020,
[6] Ibid.
[7] Dan Reed, “Could Coronavirus Really Wipe Out Half the World Airlines and Change Aviation Forever? One Keen Observer Thinks So”, Forbes, March 17, 2020,
[8] David Slotnick, “Many of the world’s airlines could be bankrupt by May because of COVID-19 crisis, according to an aviation consultancy. These airlines have already collapse because of the pandemic”, Business Insider, April 21, 2020,
[9] Ibid.
[10] El Tiempo, “En Avianca Holdings 14.000 empleados han aceptado licencia sin pago”, El Tiempo, March 30, 2020,
[11] United States Securities and Exchange Commission, Avianca Holdings S.A’s Form 6-K Report of Foreign Private Issuer, April 23, 2020,
[12] Rob Mark, “Airlines Wrestle With Fallout From COVID-19”, Flying, March 17, 2020,
[13] Comprehensive Economic and Trade Agreement of the European Union and Canada; Free Trade Agreement of Colombia and the United States; Free Trade Agreement of Colombia and Costa Rica; Free Trade Agreement of Colombia and Korea; Bilateral Investment Treaty of Colombia and France; among others.
[14] Philip Morris Brad Sàrl, Philip Morris Products S.A., and Abal Hermanos S.A. v. The Oriental Republic of Uruguay, Award, July 8, 2016, ICSID CIADI No. ARB/10/7.
[15] Bischoff Case, GermanVenezuelan Commission, Decision 1903, 10 U.N.R.I.A.A. 420, (RLA-138), p. 421.
[16] GAMI Investments Inc. v. Mexico, UNCITRAL Award, November 15, 2004; Parkerings-Compagniet SA v. Lithuania, Award, September 11, 2007, ICSID Case ARB/05/8.
[17] “COVID-19. By the end of May 2020, most world airlines will be bankruptcy”, Center for Aviation CAPA, Accessed April 27, 2020,
[18] Continental Casualty Company v. Argentina, Award, September 5, 2008, ICSID Case ARB/03/9, para.181.
[19] CMS Gas Transmission Company v. The Republic of Argentina, Award, May 12, 2005, ICSID Case No. ARB/01/8.
[20] Marfin Investment Group v. The Republic of Cyprus, Award, July 26, 2018, ICSID Case No. ARB/13/27.
[21] Bernhard von Pezold and Others v. Republic of Zimbabwe, Award, July 25, 2015, ICSID Case No. ARB/10/15.

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