Post-pandemic tourism is clearly back, with the air transport industry returning to profitability in 2023. The International Air Transport Association (IATA) reported that the demand for passenger and cargo air transport is expected to double by 2040, growing at an annual average rate of 3.4%.
In a report on aviation industry tech trends in 2023, Deloitte identified the following:
The aviation industry has two distinctive characteristics—a heavy reliance on technology and a large geographic footprint—which make an organization’s cloud strategy key to achieving its business objectives.
With an end-to-end digital customer experience comes an increasing number of technology providers and their ecosystems, which are becoming increasingly complex. Cloud and infrastructure providers and security services are both essential, and each involves its own ecosystem of support. Security services, for example, may involve multiple third-party applications across areas such as vulnerability management and threat detection.
The aviation industry has a specific need for interoperability and alignment of solutions from the various technology providers. This arises from, among other drivers, the IATA’s New Distribution Capability (NDC) format and its ONE Order standard, which creates a single integrated customer record to streamline fulfillment, delivery, and accounting processes across the lifecycle of the order.
More generally, internationally recognized security standards and data privacy requirements also drive the need for common standards across solutions. The use of AI will drive this further as AI solutions become integrated across applications, for which standardization is key to scaling solutions that rely on receiving real-time data.
Allocating Liability
The standard liability provisions included in the majority of contracts may no longer be appropriate, especially in relation to contracts that include new technologies and contracts that form part of complex supply chains/ecosystems. Parties should tailor liability provisions to the subject matter of—and risks associated with—the contract.
There has been a recent shift in liability provisions in software service sales contracts. The rise of software-as-a-service “one to many” models has resulted in a shift in liability provisions, with such suppliers significantly reducing their exposure and ensuring that they have control around remedies, resulting in provisions such as standard warranty breach remedies.
More Considerations
Other trends in liability provisions include a move away from sole remedies, the rise of the super cap, and suppliers including certain unlimited liabilities as a starting position to mitigate negotiation time.
Insurance can be especially relevant to liabilities in the aviation industry, where suppliers want airlines to rely on their insurance in place of contractual risk allocation.
Compliance With Law
The global nature of the aviation industry makes compliance across multiple jurisdictions a complex topic. Parties to a contract may have to deal with the numerous laws of different jurisdictions as well as comply with specific aviation regulations from the European Aviation Safety Agency (EASA), the Federal Aviation Administration (FAA), and the General Civil Aviation Authority (GCAA), among others.
Multivendor Considerations
The modern generation of aviation technology contracts involves complex collaborations with multiple vendors that need to be contractualized. One approach involves compliance with principles, possibly at a framework level, including providing assistance and documentation, granting licenses and permissions, and developing interfaces for communication across platforms where applicable. Compliance with such principles may involve both obligations on providers and customer dependencies, depending on the solutions.
Cross-dependencies are important to track, as providers may provide technology or services across multiple workstreams and across vendors of a customer (e.g., a master systems integrator). A key challenge in negotiating technology contracts is timing. Within the ecosystem of technology applications and services, one contract could be signed before the dependent contract, so planning the procurement of solutions and the chronology of signing contracts is critical.
Use of AI
Using artificial intelligence (AI) as part of technology solutions raises many contractual considerations. As to liability allocation, the parties may consider whether to move to a more AI-specific approach of, for example, undertake root-cause analysis of losses in order to determine apportionment.
As to data, the parties must consider who is responsible for providing input data, algorithms, and/or training samples, which may be a third-party vendor of a customer (e.g., a maintenance, repair, and operations (MRO) provider) or a subcontractor of the technology provider. Off-the-shelf, hosted solutions will be treated differently from customized developments.
A customer’s contractual rights to transparency and audit of the AI solution, as well as their remedial rights of suspension and rectification if issues arise, will be key negotiation points.
New Platforms
Along with traditional business application platforms, there are a number of new, often industry-specific platforms being deployed in the aviation industry. Many of these new platforms are cloud based, rather than deployed on a customer’s own infrastructure. This requires an increased focus on cloud contracting terms and issues such as effective operational and financial remedies, effective exit arrangements, and data handling considerations.
Data Considerations
The market continues to experience an increase in regulation and customer expectation, especially around data privacy and cybersecurity. An important aspect in data security is how the industry’s various players contractually handle data requirements and allocate risks.