Unlocking Strategic Value: The Significance of Effective Contract Management

First, the aviation sector grapples with rapidly changing conditions, notably seen in environmental protection laws which push aviation entities to meet a range of requirements and contract with a limited pool of suppliers pursuing emission-free goals.

But, among contemporary challenges are the aviation industry's susceptibility to geopolitical changes affecting service provider availability and the constant emergence of new threats to aviation cybersecurity. In addressing these issues, businesses turn to an essential tool—Contract Lifecycle Management (CLM)—to:

• enhance operational efficiency,
• ensure regulatory compliance,
• minimize risks, and
• foster better relationships with suppliers.

Five characteristics demonstrate how aviation entities -- such as Lufthansa, Aeroméxico, Royal Air Maroc, Brussels Airport, KLM Catering Services, Nav Canada, and Boeing -- derive benefits from CLM, a process that encompasses the entire spectrum of activities from:

• contract creation,
• negotiation,
• execution,
• to termination.

This approach makes it easier to effectively manage all CLM stages.

Versatility of legal expertise

Contracts in the aviation industry vary widely, from agreements between airlines and airports aimed at preventing operational delays to service contracts that involve specialized services like power line maintenance.

• CLM enables collaboration among interdisciplinary experts, facilitating ongoing monitoring of clause compliance with evolving aviation regulations.
• Additionally, the global nature of aviation engages parties from different locations, requiring legal experts to ensure consistency with local regulations—a challenge that CLM addresses by enabling the engagement of experts from various countries within a single institution.

When discussing contracts in the aviation industry, it is essential to emphasize the diverse nature of agreements made within aviation operations. Why? Contracts between airlines and airports, aimed at preventing operational delays, significantly differ from service contracts in aviation, which must account for the provision of specialized services such as power line maintenance. Providers of services related to runway maintenance, for instance, must meet entirely different requirements.

This diversity means that contracts need to incorporate varied contractual provisions, ranging from technical specifications and insurance requirements to issues related to environmental protection and cybersecurity. As a result, the involvement of legal experts from different specialized fields becomes crucial. Using the CLM approach makes it easier to collaborate with interdisciplinary experts to enable ongoing and accurate monitoring of clause compliance with evolving aviation regulations.

An inherent characteristic of aviation is its global nature, involving the engagement of contract parties from different locations. In such cases, legal professionals must ensure coherence with local regulations -- a challenge that CLM addresses by facilitating the engagement of experts from various countries within a single institution.

Technological advancements

Business contracts in the aviation industry cannot function without guarantees and safety certificates, the requirements of which are detailed across hundreds of attachment pages.

• Whether an airline is replacing seats in its Boeing 737-800 fleet, an airport is investing in scanners, or an entity is hiring a contractor to ensure cybersecurity for a remote air traffic control tower—these products and services must adhere to rigorous standards.
• Achieving this requires the commitment of a team that comprehends the intricacies and adjusts legal language to the specific business context of the involved entity.
• Moreover, Contract Lifecycle Management (CLM) systems enable the automatic generation of reports and analyses, facilitating the monitoring of key technical parameters of contracts and keeping abreast of changes in applicable law.

From a technological perspective, CLM processes streamline collaboration between different departments, allowing for faster information exchange and effective compliance verification through the integration of contract negotiation, execution, and assessment.

Time is money

Although the importance of speed in aviation may seem obvious, it extends beyond mere flight velocity. In the rapidly evolving aviation industry, we see an urgent need to introduce products to the market effectively without compromising safety.

Ensuring timely deliveries is equally crucial. We still remember disruptions in supply chains during the COVID-19 pandemic or disruptions due to the blockage of the Suez Canal. In such situuations, CLM systems make it easier to ensure contract compliance with industry regulations and standards, as well as secure the contract party in case fulfillment of obligations is delayed.

In some sectors, the automated onboarding of new suppliers proves invaluable -- significantly expediting and optimizing the selection of

contractors, thereby reducing the time required to establish key business relationships.

Repetition of Standard Clauses in the Aviation Industry

Furthermore, contracts in this industry are characterized by a high degree of repetition within each category, allowing contract templates or a clause library to be used. This makes it easier to automate contracts within CLM.

In aviation contracts, various clauses need to be regulated, including:

• Indemnification and Liability Clauses outlining the responsibilities and liabilities of each party in case of accidents, damages, or injuries. This helps establish clear guidelines for allocating financial responsibilities when unforeseen incidents occur.
• Force Majeure Clauses: Given the specificity of the aviation industry, susceptible to external factors such as natural disasters or geopolitical events, force majeure clauses help mitigate the risk of financial losses.
• Protection of Intellectual and Industrial Property: Advanced technology, innovations, and unique solutions require protection of copyright and industrial secrets.
• Confidentiality and Non-Disclosure Clauses safeguard sensitive information shared between parties during the contract's validity and even after its conclusion, ensuring the integrity of business operations in the aviation industry.
• Current Insurance Requirements: From civil liability to aircraft insurance -- and increasingly, insurance against cyberattacks and data breaches -- these clauses protect all parties involved.
• Compliance with Regulatory Standards: Given the highly regulated nature of the aviation industry, clauses ensuring compliance with international and national aviation regulations are of paramount importance.
• Termination Clauses: To specify the conditions under which the contract can be terminated by either party, including default scenarios, breaches of contract, or specific notice periods. Clear termination clauses help protect the interests of all parties involved and provide a structured process for ending the contractual relationship.
• Dispute Resolution Clauses determine whether disputes will be resolved through arbitration, mediation, or legal proceedings. They provide a structured approach to resolving potential conflicts and have gained particular significance since the Hague Arbitration Court for Aviation was established in July 2022.

Execution of Contracts

Typically, a lawyer's work concludes with preparing a contract text or obtaining signatures from the parties involved. However, with CLM contract management goes beyond these stages. In the aviation industry, improper management or unexpected disruptions in contract implementation can result in significant financial losses and even disrupt air traffic operations, as evidenced by the delays in the delivery of Boeing 737 MAX aircraft for Ryanair. Consequently, Ryanair is forced to revise its route network for the winter of 2023/2024. CLM provides insight into the real-time status of contracts, results, and key stages. By facilitating quick access to relevant contract information, aviation companies can make more informed decisions, optimize operational activities, and respond promptly to the lack of timely fulfillment of commitments.

ABOUT THE AUTHOR

Aleksandra Śliwoska is Nexdigm’s Senior Associate currently doing her PhD in aviation law. Mixing her contracting experience with throughout knowledge and experience in aviation industry makes her an insightful observer of CLM opportunities for this particular business sector.

ABOUT NEXDIGM

Nexdigm is an employee-owned, privately held, independent global organization that helps companies across geographies meet the needs of a dynamic business environment. Our focus on problem-solving, supported by our multifunctional expertise enables us to provide customized solutions for our clients. We provide integrated, digitally driven solutions encompassing Business and Professional Services that help companies navigate challenges across all stages of their life cycle. Through our direct operations in the USA, Poland, UAE, and India, we serve a diverse range of clients, spanning multinationals, listed companies, privately-owned companies, and family-owned businesses from over fifty countries. Our multidisciplinary teams serve a wide range of industries, with a specific focus on healthcare, food processing, and banking and financial services.