Structure and responsibilities
The legal department at China Eastern Airlines’ headquarters currently consists of 22 staff, and comprises four main practice groups – contract review and compliance, litigation and arbitration, general corporate and international affairs.
The head office legal team also oversees the major legal matters and coordinates in-house legal staff for its subsidiaries, including China Cargo Airlines and Shanghai Airlines. More than half of the total amount of legal work handled by the legal department of the headquarters is related to contract review and compliance, while litigation and arbitration work accounts for approximately 30% and the rest are for general corporate, IP and international affairs.
Given the carrier’s key developments that are taking place or are underway, corporate matters and international-related legal issues will become an even larger part of the legal department’s work in the years ahead. “As an international airline company that is actively expanding its presence globally and extending its services and routes to new overseas markets, having in-house lawyers who are capable of handling international affairs and cross-border matters is important to us,” says Guo. He received his Master of Law from Law School of University of Washington, and is heading the international affairs unit, in addition to his general manager responsibilities. Three other legal staff in the team also have international postgraduate credentials.
In April 2010, China Eastern Airlines announced its intention to join the SkyTeam Airline Alliance and signed a Memorandum of Understanding (MOU) with the alliance members, confirming its plan to join the Alliance by mid-2011. Guo now expects the legal team’s short-to medium-term focus to be on this issue. “We’ve already drafted and reviewed a significant volume of legal documentation concerning the company’s SkyTeam membership application and agreements,” he says. “Much more legal work will be generated upon the admission to the Alliance, in the process of modifying its operations for the membership agreements and obligations, as well as when complying with the alliance’s by-laws and rules.”
In addition to this workload, several newly added responsibilities such as overseeing aircraft finance and leasing, as well as assisting in fuel price risk management, have meant the department will need to develop new higher-level skills and expertise in relevant areas. Guo sees a steep learning curve ahead for his team.
“Prior to the establishment of the legal department, the company’s aircraft finance and transactional matters were managed by the finance and planning departments. Most legal work was done by external law firms,” says Guo. “From this year, the legal department has been designated to take a lead role in the legal aspects of the aircraft purchasing, financing and leasing transactions. We endeavour to acquire the necessary knowledge and techniques in the next 6-12 months, and will increasingly handle the legal work in-house,” he says.
Consequently, Baker & McKenzie, a long-term external advisor to China Eastern Airlines who advised on its IPOs in 1997, has been invited to provide training programs to the in-house team in this field. “However, we will still need certain specialist advice from external counsel, as this practice area by nature is cross-border or trans-national and the transaction structures and types used by foreign parties internationally face certain restrictions under existing domestic legal framework,” Guo adds.
Fuel price risk management, in particular fuel hedging, is critical for maintaining the carrier’s competitive position in the aviation industry. This adds a further layer of complexity to the in-house team’s work. In 2008, due to the steep drop in fuel prices, many carriers including China Eastern suffered significant losses on fuel hedging.
To gain the necessary knowledge and techniques in this niche and highly specialised area, the department once again looks outside for help. It has arranged a series of workshops on high-risk derivatives and risk management to be provided by Rajah & Tann’s Singapore and Shanghai offices. The firm will also conduct a due diligence and assessment exercise in its current derivatives trading positions and arrangements.
“Expanding the knowledge and expertise beyond the in-house team’ traditional scope of practice doesn’t mean we no longer need the services and advice of external counsels. Instead, it’s a necessary progress that will lead to improved and more efficient collaboration between in-house and external counsels. This development is in the client’s best interest,” says Guo.
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