A Legal Battle in the Sky: THY and Pratt & Whitney Arbitration Case - An In-Depth Review

The aviation industry is known for its complexity, international dimension and high-value transactions. In this complex ecosystem, disputes can often arise between airlines, aircraft manufacturers, engine suppliers and other stakeholders. Resolving these disputes fairly, quickly andefficiently is vital to the sustainability and growth of the industry. This is where arbitration comes into play.

Arbitration is an alternative dispute resolution method that allows disputes between parties to be resolved by an independent arbitrator or arbitral tribunal instead of a court.[1] Preferred for its advantages such as speed, confidentiality, flexibility and expertise, arbitration is frequently used in international trade and especially in the aviation industry.[2]

In this article, we will examine the role and importance of arbitration in the aviation sector by analyzing in depth the arbitration case between Turkish Airlines (THY) and the American engine manufacturer Pratt & Whitney.

Case Study: THY and Pratt & Whitney Arbitration Case

Background to the Dispute:

In the mid-2010s, Turkish Airlines decided to invest in new generation aircraft as part of its strategy to expand and modernize its fleet. Airbus A320neo aircraft, which stand out with their fuel-saving and environmentally friendly features, were an important part of this strategy.[3] To meet the engine needs of the aircraft, THY signed an agreement with Pratt & Whitney, one of the world's leading engine manufacturers.

Signed in 2016 and worth more than USD 1 billion, the agreement stipulated that Pratt & Whitney would supply the PW1100G-JM model engines for THY's new A320neo aircraft.[4] These engines offer reduced fuel consumption and low emission values with "Geared Turbofan" technology. The agreement was seen as an important step towards THY's growth targets and environmental sustainability policy.

Technical Problems and the Genesis of the Dispute:

However, starting from 2018, the PW1100G-JM engines started to experience some technical problems.[5] In particular, longer than expected engine cool-down times caused flight delays and operational disruptions. This had a negative impact on THY's flight planning and efficiency. In addition, some parts of the engines were wearing out prematurely and required frequent maintenance, which caused additional costs for THY. 

THY started negotiations with Pratt & Whitney to solve the problems. However, the negotiations lasted for months without any results. Pratt & Whitney argued that the problems were temporary and could be resolved with software updates, while THY claimed that the engines did not meet the performance criteria specified in the contract and that this situation caused serious financial damages.

Choosing Arbitration:

After the negotiations between the parties failed, THY decided to take legal action. The contract between THY and Pratt & Whitney stipulated that any disputes would be resolved before the International Chamber of Commerce (ICC) Court of Arbitration in accordance with Swiss law.[6] Therefore, THY applied to the ICC in 2019 and filed an arbitration case against Pratt & Whitney.

The Arbitration Process and the Parties' Arguments:

Composition of the Arbitral Tribunal: In accordance with ICC rules, each party selected one arbitrator.THY appointed a Turkish lawyer experienced in international arbitration and Pratt & Whitney appointed an American lawyer. These two arbitrators appointed the third arbitrator, the chief arbitrator, thus forming a three-person arbitral tribunal. The chief arbitrator was a Swiss law professor.

THY's Allegations:

Turkish Airlines alleged that Pratt & Whitney breached its contractual obligations and that technical problems with the engines caused it significant material damages.

These damages included the following items:

Flight Delays and Cancellations: The long cooling time of the engines caused flight delays and in some cases even canceled flights.

Spare Parts and Maintenance Costs: Premature wear of some parts in the engines required frequent maintenance and replacement of spare parts. This brought additional costs to THY.

Reputation Loss: Technical problems and flight delays damaged THY's brand image.

Pratt & Whitney's Defense:

Pratt & Whitney argued that the engine problems were caused by unexpected and unforeseen technical difficulties. It also claimed that Turkish Airlines did not follow the procedures outlined in the manual for the engines, which exacerbated the problems. The company denied responsibility, stating that it had provided software updates and technical support to resolve the problems.

Detailed Arbitration Process:

Hearings The arbitration hearings took place in Paris at the ICC's arbitration center. The hearings took place over several months and both sides presented extensive evidence in support of their claims.

Presentation of Evidence:

The parties submitted numerous documents, technical reports, expert opinions and witness statements. The documents included the contract, technical specifications of the engines, maintenance records, flight records and financial reports. The technical reports were prepared by independent experts and contained detailed information on the causes and effects of the problems with the engines. The expert opinions were presented by aeronautical engineers, financial experts and lawyers who supported each side's case. Witness testimony was taken from THY pilots, maintenance personnel and managers, and Pratt & Whitney engineers and managers.

Legal Arguments:

During the hearings, lawyers for both sides presented complex legal arguments. THY lawyers argued that Pratt & Whitney had breached the express and implied warranties in the contract, had acted negligently and was therefore liable to pay damages. Pratt & Whitney's lawyers, on the other hand, argued that the company had exercised due diligence, that the problems were caused by force majeure and that they were therefore not liable.

Decision and its consequences:

At the end of 2022, the arbitral tribunal announced its decision. According to the decision, Pratt & Whitney was found to have failed to exercise due diligence to remedy technical problems with the engines and therefore breached its contractual obligations. The arbitral tribunal ruled that Pratt & Whitney's software updates were not sufficient and that it should have developed a more comprehensive solution to address the problems. The arbitral tribunal also ruled that THY's claim that the engines did not comply with the procedures set out in the manual was not valid. Pratt & Whitney has been ordered to pay compensation to Turkish Airlines for damages suffered Although the amount of compensation has not been made public, it is estimated to be in the hundreds of millions of dollars. This compensation is thought to include flight delays, canceled flights,spare parts and maintenance costs, and loss of reputation.

Impact of the Case on the Industry:

The arbitration case between Turkish Airlines and Pratt & Whitney has reverberated throughout the aviation industry and has had a significant impact on the following points:

Importance and Elaboration of Contracts: The case once again demonstrated the importance of contracts in complex and high-value deals in the aviation industry. It was emphasized that contracts should be drafted in a detailed and clear manner to avoid potential disputes. In particular, it was understood that issues such as technical specifications, performance guarantees, limitations of liability and dispute resolution procedures should be clearly stated.

The Role of Technical Expertise: The case demonstrated the importance of technical expertise in aviation disputes. In such cases involving complex technical issues, the presence of experts such as aeronautical engineers, pilots or lawyers with industry experience in the arbitral tribunal is critical for a fair and accurate decision.

Adoption of Arbitration: The arbitration of the case between THY and Pratt & Whitney once again demonstrated the effectiveness and advantages of arbitration in the aviation industry. Offering a fast, confidential and flexible process, arbitration is increasingly being adopted as a dispute resolution method that meets the needs of the industry. [7]

Conclusion:

The arbitration case between THY and Pratt & Whitney is a striking example of the role and importance of arbitration in aviation disputes. This case has provided important lessons to the industry on the importance of contracts, the necessity of technical expertise and the advantages of arbitration. For the aviation industry to continue to grow and develop, it is crucial that disputes are resolved fairly, quickly and efficiently. In this context, arbitration stands out as a reliable and effective dispute resolution method that meets the needs of the sector.

Additional Notes:

- This case study is based on publicly available information. Due to the confidentiality of the arbitration process, some details of the case remain unknown.

- Arbitral awards are binding and must be implemented by the parties.

- Arbitration is a frequently used dispute resolution method in many sectors such as construction, energy, maritime, finance as well as the aviation industry.

References

[1] International Chamber of Commerce (ICC) Court of Arbitration: https://iccwbo.org/dispute-resolution-services/arbitration/

[2] United Nations Commission on International Trade Law (UNCITRAL) Model Arbitration Law: https://uncitral.un.org/en/texts/arbitration/modellaw/commercial_arbitration

[3] Airbus A320neo: https://www.airbus.com/aircraft/passenger-aircraft/a320-family/a320neo.html

[4] Pratt & Whitney PW1100G-JM Engine: https://www.pw.utc.com/products-and-services/commercial-engines/geared-turbofan-engines/pw1100g-jm

[5] PW1100G Engine Problems: https://www.flightglobal.com/engines/pw1100g-engine-problems-continue-to-plague-airbus-a320neo-family/131809.article

[6] ICC Arbitration Rules: https://iccwbo.org/dispute-resolution-services/arbitration/rules-of-arbitration/

[7] Advantages of Arbitration: https://www.adr.org/advantagesofarbitration