I INTRODUCTION

In Russia, aviation is regulated by various federal bodies including the Ministry of Transport, the Federal Air Transport Agency, the Federal Service for Transport Supervision, the Ministry of Defence, the Federal Air Navigation Service and the Interstate Aviation Committee (IAC).

The Ministry of Defence regulates the use of airspace while the other bodies have executive powers in the aviation sector: the Ministry of Transport develops aviation state policies and legal regulations; the Federal Agency of Air Transport is responsible for the registration and certification of airports; and the Federal Service for Transport Supervision deals with aero-navigational services, registration of aircraft and other services.

Some of the functions of the IAC (which have recently been substantially reduced - see Section IV, infra) are monitoring flight safety, investigating accidents and issuing accident reports. Furthermore, the IAC compiles statistics on accidents and incidents involving passenger, military, transport and corporate aircraft.

Aviation law in Russia comprises the Air Code of the Russian Federation 1997 (the Air Code) as amended, the Civil Code of the Russian Federation 1994 (the Civil Code) and extensive subordinate legislation.

II LEGAL FRAMEWORK FOR LIABILITY

i International carriage

Under Russian law, international treaties to which Russia is a party are deemed to be an integral part of the Russian legal system. Russia is a party to the Warsaw Convention 1929 and the Hague Protocol 1955. On 3 April 2017, Russia has ratified the Montreal Convention 1999.

ii Internal and other non-convention carriage

Domestic contracts of carriage are governed by the Air Code and the Civil Code. From 1 January 2013 new legal instruments were enforced in Russia on the compensation of damages in death and personal injury cases (see Section VI.iv, infra).

iii General aviation regulation

See Section II.ii, supra. There are no separate provisions governing liability of operators of helicopters, light and ultralight aircraft. On 30 March 2016, the federal Law ‘On introducing amendments to the Air Code of the Russian Federation regarding the use of unmanned aerial vehicles' came into force. The Law regulates the use of drones and aims to increase the general level of aviation security.

iv Passenger rights

The General Rules of Air Carriage of Passengers, Baggage, Freight and Requirements to Servicing Passengers, Shippers, Consignees of 2007, last amended in 2016 (the Rules), are applicable both to domestic and international flights of Russian operators.

Under the Rules, in cases of delay or cancellation of flights in certain circumstances passengers are entitled to a range of services including accommodation, food, and transfers to and from the airport. The Rules also deal with carriage of minors and disabled passengers.

III LICENSING OF OPERATIONS

i Licensed activities

Under the Air Code commercial flights, development, manufacture, repair and testing of aviation equipment requires mandatory licensing. This includes drones weighing more than 30 kilograms.

The licensing requirements for the carriage of passengers, baggage and cargo are set out in the Air Code and numerous federal laws. The body responsible for the licensing of certified commercial operators is the Federal Air Transport Agency of Russia. The application for a licence should contain a prescribed list of documentation including confirmation of the identity of the applicant, a list of intended services, copies of operator's certificates and confirmation of the payment for the licence.

Two types of commercial operator licences have recently been introduced by the Federal Aviation Rules: licences for commercial air carriage of passengers and freight and licences for aviation works. As of June 2017, there are 157 registered commercial operators and 122 registered aviation works operators.

On 28 November 2015, the Russian government issued Decree No. 1283, relieving the IAC of its authority to carry out aircraft type certification.

Such authority will now be vested in the Federal Air Transportation Agency.

Further, the Russian government redistributed other powers including certification for aircraft design, engines, propellers and airfields to other federal executive authorities including the Ministry of Transport, Ministry of Industry and Trade, and the Federal Air Transport Agency, although the new scheme is not yet clear. The IAC has been certifying aircraft and aerodromes since 1994 and the change is seen as a positive move by the government. From 5 July, drones weighing from 0.25 kg to 30 kg have to be registered with Federal Air Transport Agency of Russia.

ii Ownership rules

Russian law imposes certain limitations on foreign participation in Russian companies operating in the aviation sector. According to the Air Code, aviation enterprise may be established only if the share of foreign capital does not exceed 49 per cent of its charter capital, its manager and executive officers are citizens of the Russian Federation, and the number of foreign citizens in the governing body of the operator does not exceed one-third of the composition of the governing body.

The participation share of foreign capital in an existing company established before 10 April 2012, engaged in maintenance and repair of aircraft or parts (other than line maintenance and similar maintenance services undertaken by the airlines, their agents or contractors), may not exceed 25 per cent. Prior approval of the Government Commission for Control over Foreign Investments in the Russian Federation is required in relation to establishment or acquisition of a participation share exceeding 25 per cent or more of the charter capital of a company engaged in development, production, testing and repair of aircraft and aircraft equipment or aircraft safety control; and post factum notice to the Government Commission is required in relation to establishment or acquisition of a participation share exceeding 5 per cent or more of the charter capital of a company engaged in development, production, testing and repair of the aircraft and aircraft equipment or aircraft safety control.

iii Foreign carriers

Flights of foreign aircraft to or from the Russian Federation are effected on the basis of international treaties between the Russian Federation and the respective states, or on the basis of permissions issued by the Federal Air Transport Agency.

The foreign carrier effecting such flights should, inter alia:

  • a comply with the relevant laws and rules of the Russian Federation, and conditions for effecting international carriages;
  • b not have any indebtedness for the aero-navigational services rendered in the Russian Federation;
  • c ensure availability of necessary documentation on board, as established for international flights, by complying with the aviation standards recognised by the Russian Federation; and
  • d obtain insurance of other security regarding liability for causing harm to third parties and aircraft.

To gain authorisation to operate flights to and from Russia, foreign-registered operators must obtain flight permits from the Federal Air Transport Agency.

On 8 July 2015, Resolution of the Government No. 138 introduced amendments to the Federal Rules on Using the Russian Airspace. One of the aims of the Resolution is to expand the opportunities for using Russian air space. From 14 February 2017, the Ministry of Transport will be responsible for regulating the airdromes of Russia.

IV SAFETY

Russia is a party to the Chicago Convention 1944 and therefore complies with the safety standards as set out in the Convention and its annexes. Safety requirements for operators in Russia are set out in the Air Code and in the extensive Federal Aviation Rules.

The Air Code provides that no aircraft shall be operated in Russia unless it has a valid certificate issued by the designated aviation authorities. The Federal Aviation Rules on certification of the commercial operators stipulate mandatory conditions with which the operator has to comply when applying for the certificate. These include the following:

  • a ensuring the continual airworthiness of the aircraft;
  • b collecting and analysing data related to safety of the equipment and the flights;
  • c ensuring personnel are qualified and certified to undertake particular duties as well as ensuring there is constant professional training of its employees, increasing their qualifications; and
  • d having sufficient financial and equipment resources to ensure safe operation and maintenance of the airworthiness of the aircraft.

Unfortunately flight safety in Russia does not appear to be improving. In 2017, the IAC documented 14 ‘aviation occurrences' in Russia, of which seven were fatal, with a total of 52 people killed.

Pilot training is under the control of the state and the federal transport programme for 2010 to 2015 includes substantial investment in pilot academies. In a major U-turn from previous policies, the state training academies recognised the need to train pilots for Western-built aircraft.

Given the serious shortage of qualified pilots, Russian aviation authorities have agreed to allow local carriers to employ foreign pilots. On 21 July 2014 the amendments to Article 56 of the Air Code of the Russian Federation pursuant to Federal Law No. 73-FZ of 20 April 2014 came into force. Under the new law the airlines can hire foreign pilots over the next five years. It is understood that no recruitment of new foreign aircrew will be permitted after 2019, but those already employed in Russia should be able to remain in employment. There is an initiative to repeal the amendments of 2014 that is not supported by Russian airlines.

New legal developments in 2015 include the new law regulating the use of drones, which aims to increase the general level of aviation security (see Section II. ii, supra)

The July 2015 Resolution of the Government No. 138 aims to increase flight safety and the bring the Federal Rules on the Use of the Air Space of the Russian Federation in conformity with the standards and recommended practices of the ICAO.

V INSURANCE

Following the passenger cruise accident in the Volga River in July 2011, when a tourist boat sank killing 128 people, the Russian legislature decided to review current legal provisions relating to an operator's liability. On 25 May 2012, the State Duma approved a law on obligatory liability insurance for carriers for life, health and property of passengers, which was enforced on 1 January 2013 and affects, among others, aviation operators.

The main mandatory types of liability insurance applicable to the aviation operators are third party, crew, passengers, consignees and cargo owners.

The obligatory requirements of cover in terms of the passenger liability are as follows:

  • a death: up to 2.025 million roubles per passenger;
  • b personal injury: up to 2 million roubles per passenger;
  • c baggage: up to 600 roubles per kilo; and
  • d personal belongings: up to 11,000 roubles per passenger.

On 23 May 2016, Article 132(2) of the Air Code has been amended. The amended provision increases the minimum insurance for each cabin crew to 1 million roubles.

Compliance with the above requirements is controlled by the Federal Service for Transport Supervision. The carrier is under obligation to provide full information as to its insurance for passengers including the contact details of its insurer together with the details of its insurance agreement. There are no exemptions from the obligatory insurance requirements.

VI COMPETITION

i Structure of Russian competition law

Competition law in Russia is established by the Constitution of the Russian Federation as amended in 2008, by primary legislation and by the Criminal and Administrative Codes.

The Constitution guarantees shared economic space, free transfer of goods and services, support of competition and freedom of economic activity, and prohibits economic activity aimed at monopolisation and unfair competition.

The legislation comprises:

  • a the Federal Law on Protection of Competition dated 26 July 2006, last amended in July 2016, FZ-264, which came into force on 4 July 2016;
  • b the Federal Law on Natural Monopolies dated 17 August 1995, FZ-147, last amended in October 2015, FZ-275, which came into force on 5 January 2016;
  • c the Federal Law on Foreign Investments in Companies having Strategic Importance dated 29 April 2008, as most recently amended in November 2014, FZ-343, which came into force on 6 December 2014;
  • d the Code on Administrative Offences of the Russian Federation, dated 30 December 2001, as most recently amended in April 2017, FZ-75 , which came into force on 18 May 2017; and
  • e the Criminal Code of the Russian Federation, dated 13 June 1996, as amended in April 2017, FZ-71, which came into force on 28 April 2017.

Russian competition law is enforced by the Federal Antimonopoly Service (FAS) and its local bodies. It applies to individuals, corporations (both public and private), federal, regional and local governmental authorities and the Central Bank of Russia.

Most of the competition rules applicable to aviation are not specific to aviation. However, the Law on Foreign Investments in Companies of Strategic Importance applies to some aviation enterprises including aviation organisations involved in the development, production, testing, operation and repair of aircraft and aircraft equipment, as well as aviation safety control.

ii Substantive competition rules

Competition law in Russia covers cartels, other anticompetitive agreements, the abuse of a dominant position, and merger control.

In 2015 a number of changes were made to the antimonopoly legislation in Russia, the most significant being the ‘Fourth Antimonopoly Package'. The Fourth Antimonopoly Package changed the rules about obtaining prior consent of the FAS to a number of transactions, abuse of dominance and entry into anticompetitive agreements as well as rules governing unfair competition.

iii Cartels

In January 2012, important amendments to Russian competition law (the Federal Law on Protection of Competition dated 26 July 2006, as most recently amended in July 2016, FZ-266) were enacted. These affect the laws prohibiting cartels. One of the significant changes was the introduction of the definition of a cartel being a horizontal agreement between competitors that leads or may lead to:

  • a fixing or maintaining of prices, discounts, bonus payments or surcharges;
  • b division of market by territory, volume of sales and purchases, assortment of goods and services, or range of sellers or purchasers;
  • c reduction or termination of production of goods;
  • d refusal to enter into a contract with a particular customer or seller; or
  • e increasing, reducing or maintaining prices on tenders.

The cartel prohibition has both an administrative and criminal nature. Under Article 178 of the Criminal Code there is a criminal liability for individuals that arises when a cartel causes a loss that either exceeds 10 million roubles or derives illegal income of over 50 million roubles.

On 25 May 2012, procedural rules for FAS inspections of compliance with competition law have been published (FAS Decree No. 340 dated 25 May 2012). Under these rules, in certain circumstances the FAS is permitted to conduct unannounced inspections where the FAS can be accompanied by prosecution agencies.

Before the adoption of the Fourth Antimonopoly Package, a prohibited cartel was a written or oral agreement between seller companies leading or capable of leading to the setting or maintaining of prices, division of the market or other negative consequences. The Fourth Antimonopoly Package expands the application of the cartel prohibition to agreements between purchasers as well.

On 20 March 2015, Federal Law No. 45-FZ dated 8 March 2015 made a number of amendments to Article 178 of the Criminal Code of the Russian Federation. Under the new Law, abuse of dominance has been decriminalised and there will only be criminal liability for competing business entities that use a cartel to restrict competition.

iv Abuse of a dominant position and monopolistic prices

Rules on ‘monopolistic prices' were introduced into the Law on Protection of Competition in 2009, with further amendments enacted in July 2012, FZ-132. Any price increase or decrease by a dominant company will now be subject to a set of restrictions and conditions. Even maintaining prices at the same level can be considered a violation if conditions exist for their reduction.

In 2012, five airlines were investigated by the FAS for abusing their dominant position and charging excessive prices on a particular route, and two were fined. One airport was fined for overcharging operators for fuel and abusing its dominant position. Another airport was investigated by the FAS for discrimination against non-Russian airlines, where it was charging them 45 per cent more for ground handling services; it was ordered to treat all operators equally.

Predatory pricing in Russia is defined for goods as a ‘monopolistically low commodity price' and for financial services as ‘unjustifiable low prices'. Article 7 of Law No. 135 on the Protection of Competition prohibits a dominant firm from setting a price that is lower than the sum of expenses necessary for production and sale of the commodity. There have so far been no reported cases of predatory pricing in the aviation sector.

v Merger control

Mergers and acquisitions are subject to the Russian merger control rules contained in the Russian Law on Protection of Competition dated October 2006, as amended. Merging parties subject to these rules are required to seek and obtain approval from the FAS.

Further to the introduction of the Fourth Antimonopoly Package, joint venture agreements will be subject to merger clearance by the FAS if the aggregate book value of assets of the parties entering into such agreements (or assets of their groups of persons) exceeds 7 billion roubles or the aggregate book value of their annual turnover exceeds 10 billion roubles.

vi Natural monopolies

The tariffs of natural monopolies (including the airports), are determined by the Federal Tariff Service, which maintains a registry of natural monopolies. Mergers between the natural monopolies are governed by Law 147-FZ of 17 August 1995 (amended in 2015).

The management board of Russia's Federal Antimonopoly Service has considered changes in the regulation of natural monopolies' activities at the airports of Moscow and Moscow region and made a decision to abandon the regulation of prices in the markets of airport services across the Moscow air hub.

vii Governmental initiatives

The Russian aviation sector is currently experiencing various problems. Twenty years ago the regional and local airports serviced 75 per cent of the passenger traffic in Russia and now the Moscow hub serves 80 per cent of all of the traffic, leaving just a 20 per cent share for the regional and local airports. The level of competition is high within the Moscow hub as there are five or more airlines operating on the same routes. However, on the regional and in particular local routes there will usually be only one or two carriers operating, which consequently results in a high cost of carriage.

In over 20 years, the number of airports in Russia has decreased by over 80 per cent (1,302 in 1992 compared with 228 in 2014) and this has had an impact on the number of regional and local carriers. By way of example, in 1992 there were 4,780 scheduled routes connecting 432 cities, but in 2011 there were just 834 routes connecting 202 cities. The airport infrastructure is in desperate need of modernisation. The Russian aviation authorities are trying to resolve this by inviting private investors to finance various projects aimed at developing the airports as well as various subsidies. Competition among the ground handling companies has not substantially increased, resulting in high costs of services. Slot allocation remains an issue where both airports and operators refuse to allow new carriers to share the slots. To resolve this problem and other issues and to ensure the development of service providers in the airports, the FAS has developed Rules 599 dated 22 July 2009 on providing access to services of the natural monopolies in the airports. Further amendments have been developed by the FAS to the Rules, which are currently being considered by the relevant authorities.

Furthermore, the Russian government developed a number of initiatives, and issued the following documents:

  • a a list of measures dealing with lowering the costs of domestic flights (No. 395p-P9 dated 31 January 2013);
  • b a list of measures on developing competition and optimising antimonopoly policy (No. 2579 dated 28 December 2012); and
  • c measures on developing regional flights (AD-P9-7212 dated 27 November 2012).

These documents are aimed at developing competition in the airports, encouraging the development and competition of regional aviation, creating conditions for the formation of low-cost carriers, and optimising the tariff system of airport service providers.

The government is trying to provide the necessary support to the aviation industry by way of various initiatives and subsidies. In 2012, a payment of 2 billion roubles was made by direct subsidies to partially reimburse the lease payments of the regional operators. State subsidies were paid to the state-owned airport companies in Siberia and the Far East. State-owned leasing companies are becoming more actively involved in the regional aviation sector. Customs duties were waived for passenger aircraft with up to 50 seats and a further waiver is expected for passenger aircraft with up to 75 seats. Regional airlines are planning to further expand their business with the help of state subsidies. The government assists Russian operators financially with leasing Russian-built aircraft.

A number of state-financed infrastructure projects have been undertaken in Russia in the last few years, including a new runway at Mineralnye Vody Airport, passenger terminals in the airports of Yakutsk, Vladivostok, Samara, Simferopol and ATC centres in Kaliningrad and Khabarovsk.

VII WRONGFUL DEATH

See Section VIII.iv, infra.

VIIi ESTABLISHING LIABILITY AND SETTLEMENT

i Procedure

Under the Aviation and Civil Codes a claim for compensatory damages can be brought against the operator and against the insurer of the operator. The limitation period for issuing proceedings against the insurer is three years. However, there is no time bar on bringing a claim against the operator.

Settlement agreements are unenforceable under Russian law and court approval of any settlement in a case involving death is recommended. Multiparty cases involving multiple defendants are allowed and encouraged under Russian procedural legislation. Proceedings can be brought against all of the above-mentioned parties; however, in practice and to date claims have only been brought against the operator and its insurer.

ii Carriers' liability towards passengers and third parties

Under the Air and Civil Codes, a carrier is automatically liable for damages arising from death or bodily injury occurring during the course of carriage by air. There is no limitation of liability, and damages are subject to proof of loss (death).

iii Product liability

The Law on Protection of the Rights of Consumers governs the liability of manufacturers in Russia. The major international carriers in Russia that transport the majority of passengers use predominantly Western-built aircraft. The Russian Soviet-era aircraft are mainly used by the smaller carriers. There were no known claims against manufacturers of Russian-built aircraft by the operators for a number of reasons. Until recently, product liability insurance simply did not exist, so there was not much point even considering a recourse to the manufacturers, who would not be financially viable in any event. Additionally, the recent tendency of the Russian authorities following a major loss has simply been to shut down the airline, which again keeps the manufacturers out of the courts.

iv Compensation

Assessment of damages in cases involving death is carried out in accordance with the Civil Code, which provides that the main categories of damages to be compensated are material (economic) damages, moral damages and funeral expenses.

In death cases material damages for loss of support in cases of dependency are calculated on the basis of the income of the deceased and the number of dependants. Moral damages compensate for pain and suffering of the claimant and are awarded at the discretion of the court. Courts making a decision in this regard would take into account any aggravating circumstances. As to funeral expenses, the maximum payment in this regard amounts to 25,000 roubles.

The amendments to the Air Code and Law FZ-67, which was enforced from 1 January 2013, provides that in death cases a carrier or its insurer shall pay within 30 days following receipt of all the prescribed documents the amount of 2.025 million roubles by way of compensation on account of damages due.

Furthermore, from 1 January 2013 the interim payments of 100,000 roubles became obligatory if requested and are to be paid by the operator or its insurer within three days of receipt of the application supported by the prescribed documentation.

The Air Code provides that if the damages, determined according to the Civil Code, are more than 2.025 million roubles, then payment of the sum of 2.025 million roubles does not release the carrier from the obligation to make additional payments until the claimants are fully compensated.

The average damages for death of a passenger in Russia are 10 million roubles.

All employed Russian citizens are subject to obligatory state social insurance. In the event of an insured accident taking place (e.g., temporary or permanent professional disability) the Social Insurance Fund is obliged to fix temporary disability pay, which is usually equal to 100 per cent of the victim's salary.

In cases where a deceased passenger was travelling on business, material damages will have to be paid by the Social Insurance Fund. Where a deceased passenger was an employee of the police, prosecutor's offices, military personnel or of the Federal Security Service of the Russian Federation, the compensation is to be paid by an insurance company in accordance with certain procedures established by the Federal Law ‘On Obligatory Life and Health Insurance of the Military Personnel Citizens Drafted to Periodical Military Training, the Rank and File and Officers of the Internal Affairs Bodies, State Fire Fighting Service, Drug Control Agency, Employees of Penal Institutions and Bodies and Employees of Federal Bodies of the Tax Police'. Damages awarded in respect of the above-mentioned categories of persons shall be paid within the deadline fixed by law, which is 30 days or 15 days depending on the applied statutory Acts, upon provision of the prescribed documentation. The above organisations are entitled to claim a refund of the paid amounts from the operator.

This is a grey area of law and in a number of aviation cases involving death double compensation is possible.

With regard to personal injury cases, from 1 January 2013 Resolution 1164 ‘On Affirming Rules on Calculation of Insurance Compensation in Personal Injury Cases' (the Compensation Rules) entered into force in Russia, introducing a new system of calculating damages. There are 70 main categories of injuries ranging from skull damage to food poisoning, and over 100 subcategories. Each and every type of injury is specifically allocated a percentage rate, which varies from 0.1 per cent for bruises up to 75 per cent for spinal cord injury.

In accordance with the Compensation Rules, the insurance compensation payable to injured passengers has to be calculated by multiplying the insurance sum that is specified per passenger in the agreement on the obligatory insurance (2 million roubles) by the percentage allocated for a particular injury.

By way of example and taking the above in consideration, injury to the spinal cord would attract compensation of 1.5 million roubles (75 per cent of 2 million roubles). Should the costs for the damage incurred by the injured passenger be higher than the obligatory compensation, then the full amount is to be compensated as damages.

IX VOLUNTARY REPORTING

To the best of our knowledge, there are no voluntary reporting initiatives in Russia.

x THE YEAR IN REVIEW

The US and EU sanctions introduced as a result of Crimea joining the Russian Federation continue to affect the Russian aviation industry.

A noticeable decrease in the number of Western-built aircraft continues. As a result of the sanctions, rouble devaluation and decline in the price of oil, Russian airlines can no longer afford new acquisitions. Many aircraft had to be returned to the leasing companies because the Russian airlines can no longer afford the lease payments.

Russian manufacturing projects are gaining more support from the government. Russia is looking to resurrect its production of civilian aircraft, from Sukhoi Superjet 100 to the Ilyushin IL - 114 and and Russian carriers are encouraged to support Russian manufacturers. In June 2016, Russia unveiled a medium-range passenger aircraft MC-21 that Russian state media hailed as superior in many ways to Western-built aircraft.

On 28 May 2017, the maiden flight of Irkut MC-21-300 airliner was successfully completed. The prototype took flight from Irkutsk Aviation Plant airfield in Siberia about 2,600 miles east of Moscow.

1 Alexandra Rodina is a partner at Kennedys Law LLP.