Lexology Aviation Navigator: Philippines
Published: February, 2018
Submission: February, 2018
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Are there any notable recent developments or trends in the aviation sector in your jurisdiction?
Air passenger traffic in the Philippines increased by approximately 10% during 2016. This passenger growth was caused mainly by the expansion of low-cost carriers and flights offered at minimal or affordable prices. However, growth could have been faster had it not been for infrastructure constraints at the country’s main airport, Ninoy Aquino International Airport, in Metro Manila. To address capacity and congestion issues, the government has moved to upgrade the four terminals at Ninoy Aquino International Airport. There are also efforts being made to encourage the use of alternative airports, particularly Clark International Airport immediately outside Metro Manila.
Another notable development is the shift towards online, real-time and paperless transactions. Previously, all check-ins, boarding pass issuances and payments of incidental fees and taxes were completed manually on the day of the flight. Passengers can now check in and pay the relevant fees online, which expedites the whole boarding process.
What is the primary domestic legislation governing the aviation industry in your jurisdiction?
The principal domestic legislation applicable to aviation finance and leasing includes:
What international aviation agreements has your jurisdiction concluded?
The Philippines is a party to the following conventions:
Which government bodies regulate the aviation industry and what is the extent of their powers?
The Civil Aviation Authority of the Philippines regulates the technical, operational, safety and security aspects of aviation and maintains the sole registry for aircraft and liens, other interests in aircraft or aircraft engines. The Civil Aeronautics Board regulates the economic aspects of air transportation.
Air carrier operations
What procedural and documentary requirements must air carriers meet in order to operate in your jurisdiction?
A domestic air carrier must have:
A foreign air carrier must have:
Ownership and control
Do any nationality or other requirements or restrictions apply to ownership or control of air carriers operating in your jurisdiction?
A domestic air carrier is a public utility, subject to the nationality requirement that at least 60% of its equity (including at least 60% of its voting equity) should be owned by Philippine nationals. A foreign air carrier is not subject to this requirement and is allowed to engage only in foreign air transportation (ie, air transportation between the Philippines and any place outside it or wholly outside the Philippines).
What financial thresholds must air carriers meet to obtain operating authorisation?
The Civil Aeronautics Board requires domestic air carriers to have a minimum paid-up capital ranging from Ps10 million (for carriers with domestic non-scheduled flights) to Ps50 million (for carriers with domestic and international scheduled flights). Foreign air carriers must have paid-in equity capital of at least the equivalent of $200,000.
What is the required level of insurance coverage for air carrier operations?
Aircraft used in air carrier operations must have a valid insurance policy covering:
In the absence of these requirements, the aircraft cannot be operated.
What safety requirements apply to air carrier operations, including with regard to professional and technical certifications?
The director general of the Philippines Civil Aviation Authority prescribes rules, regulations or minimum standards governing practices, methods and procedures that are necessary to provide adequately safe civil aviation. The director general has the power to issue:
What environmental obligations apply to air carrier operations?
Air carriers must comply with the obligations imposed by Philippine environmental laws and regulations, including:
Air traffic control
How are air traffic control services regulated in your jurisdiction?
The Air Traffic Service of the Philippines Civil Aviation Authority provides air traffic control services implementing international standards.
Do any licensing requirements apply to specific routes?
A person or entity wishing to engage in air transport in the Philippines (including on specific routes) must submit an application to the Civil Aeronautics Board, together with the required documentation.
Are any public service obligations in place with respect to remote destinations?
There are no specific public service obligations on air carriers.
Do any special provisions apply to charter services?
Yes. Economic Regulation 2, which was issued by the Civil Aeronautics Board, specifically regulates both domestic and international charter services. It provides rules and regulations regarding authorisation for:
What taxes apply to the provision of air carrier services?
Income taxThe income of a domestic carrier is subject to the regular corporate income tax for domestic corporations at the rate of 30% on all income received within or outside the Philippines, or a minimum corporate income tax of 2% on their gross income, whichever is higher or as otherwise provided in the legislative franchise granted to them.
The income of an international carrier doing business in the Philippines is generally subject to a 2.5% tax on its gross revenue derived from carriage of persons, excess baggage, cargo and mail originating from the Philippines on a continuous and uninterrupted flight, irrespective of the place of sale or issue and place of payment of the ticket or passage document. Lower rates may be applicable under tax treaties.
Value added tax and common carrier’s taxThe transport of passengers and cargo by a domestic air carrier is subject to 12% value added tax on its gross sales. However, this excludes the transport of passengers and cargo by a domestic air carrier from the Philippines to a foreign country, which is subject to a 0% rate.
International air carriers doing business in the Philippines are subject to a 3% tax on their gross receipts derived from the transport of cargo from the Philippines to another country.
The taxes mentioned above are based on the National Internal Revenue Code, as recently amended. The amendments are expected to take effect on January 1 2018.
Consumer protection and liability
Are airfares regulated in your jurisdiction?
Yes. The Civil Aeronautics Board has the power to fix and determine reasonable individual, joint or special rates, charges or fares which an air carrier may demand, collect or receive for any service in connection with air commerce.
What rules and liabilities are air carriers subject to in respect of:
(a) Flight delays and cancellations?
Economic Regulation 7, issued by the Civil Aeronautics Board, provides for passenger rights in cases of delay and cancellation, as well as for the filing of relevant incident reports by the carrier.
In case of flights delayed for more than two hours, the air carrier must provide the passengers with free meals, communication and first-aid medicines, if necessary. If the flight is deferred until the next day, the air carrier must provide the passengers with free meals, hotel accommodation and communication. If a passenger opts not to fly the remaining sector of the flight (ie, a portion of an itinerary or journey), the value of any fare (including surcharges) of the remaining un-flown sector must be reimbursed to the passenger.
In case of flight cancellations attributable to the air carrier, the air carrier must provide passengers with free meals, hotel accommodation, transportation from the airport to the hotel, free communication and first-aid medicines, if necessary. If a passenger opts not to fly on the ticket, the value of any fare, (including taxes and surcharges) of the cancelled flight sector must be reimbursed to the passenger. If all sections of the itinerary are cancelled, the carrier must reimburse the total value of the fare, taxes and surcharges.
(b) Oversold flights?
Economic Regulation 9, issued by the Civil Aeronautics Board, on the bill of rights for air passengers and carrier obligations provides for passenger rights to compensation and amenities in case of overbooked flights.
While it is accepted practice for an air carrier to overbook flights, any expense, consequence or inconvenience caused to affected passengers must be borne by the air carrier. Among other things, the air carrier must provide the interested passengers or volunteers who are willing to give up their seats a list of amenities and offers from which they can choose. Such a list should always include the option to be given priority booking on the next flight with available space or to be endorsed to another carrier on payment of any fare difference (provided that space and other circumstances permit such accommodation) at the passenger’s discretion, as well as a cash incentive. In case the number of volunteers is too few to resolve the overbooking, the air carrier should increase the compensation package by degrees or by adding more amenities and services until the required number of volunteers is met.
(c) Denied boarding?
Economic Regulation 7, issued by the Civil Aeronautics Board, provides for:
In general, air carriers must pay compensation at specified rates to passengers which:
If accepted by the passenger, such compensation should constitute liquidated damages for all damages incurred by the passenger as a result of the carrier’s failure to provide the confirmed space. The passenger must, in addition to the damages, have priority booking for the next available flight using the same ticket for which he or she was denied boarding.
(d) Access for disabled passengers?
Economic Regulation 9, issued by the Civil Aeronautics Board, mandates air carriers to designate at least one check-in counter that will prioritise persons with disabilities, senior citizens and persons requiring special assistance or handling. If this is not practicable, the air carrier must instead provide for priority handling and processing of such passengers. The air carrier must likewise coordinate with the appropriate authorities for the use of proper airport equipment, entryways and aerobridges to facilitate transactions, movement, boarding and disembarkation of persons with disabilities, senior citizens and persons requiring special equipment at the airport.
(e) Lost, damaged or destroyed luggage?
Economic Regulation 9 issued by the Civil Aeronautics Board on the bill of rights for air passengers and carrier obligations provides the right of passengers to compensation for delayed, lost and damaged baggage.
For international flights, the relevant convention will apply. For domestic flights, the passenger (on presentation of proof) will be compensated up to the equivalent of 50% of the amount stated in the relevant convention (for international flights) in its peso equivalent. For compensation purposes, a passenger’s baggage is presumed to have been permanently and totally lost if within seven days from the date on which the passenger or consignee should have received the baggage, it is not delivered to said passenger or consignee.
(f) Retention and protection of passenger data?
Passenger data is covered by the Republic Act 10173 (the Data Privacy Act) which seeks to protect the confidentiality of personal information.
‘Personal information’ is defined under the Data Privacy Act as any information, whether recorded in material form or not, from which the identity of an individual is apparent or can be reasonably and directly ascertained by the entity holding the information, or when put together with other information would directly and certainly identify an individual.
The act imposes certain obligations on personal information controllers and those that process personal information. Personal information controllers are persons that control the collection, holding, processing or use of personal information, while processors are those to whom processing has been outsourced. Under the law, collection and processing must be conducted in accordance with general guidelines based on the principles of transparency, legitimate purpose and proportionality. Processing is permitted only if one of a number of certain specific conditions is present, which includes:
The law also provides for penal and monetary penalties for violations therein. The act has extraterritorial application and applies even to acts or practices executed by a non-resident outside the Philippines, provided that:
What rules and liabilities apply to the air carriage of cargo?
Common carriers, including air carriers, are bound to observe extraordinary diligence in the vigilance over goods and for the safety of the passengers transported by them, according to all of the circumstances of each case.
Common carriers are responsible for the loss, destruction or deterioration of goods, unless they can prove that the loss, destruction or deterioration was brought about by:
In all other cases, common carriers are presumed to have been at fault or to have acted negligently, unless they can prove that they observed extraordinary diligence.
Economic Regulation 9, issued by the Civil Aeronautics Board, provides for the bill of rights for air passengers and carrier obligations. It provides for the right of passengers to compensation for delayed, lost and damaged baggage.
Marketing and advertising
Do any special rules apply to the marketing and advertising of aviation services?
Economic Regulation 9 on the bill of rights for air passengers and carrier obligations provides for:
Accordingly, all sales promotion campaigns and air carrier activities must be carried out with honesty, transparency and fairness, and in accordance with the requirements of the Republic Act 7394, as amended (the Consumer Act of the Philippines).
Do any special rules apply to consumer complaints handling in the aviation industry?
Economic Regulation 9 on the bill of rights for air passengers and carrier obligations provides that air carriers must provide customer service representatives who can address common problems on the spot. It also plans complaints and assistance desks in all airports to be established by the board. These desks are to be manned by the board or deputised personnel, who will assist passengers whose rights to the service have not been fully satisfied by the air carrier. The personnel will also assist in the filing and prosecution of the complaints of passengers whose rights have been violated and who wish to pursue the concerned air carrier.
What are the requirements for entry in the domestic aircraft register?
For registration of an aircraft with the Civil Aviation Authority of the Philippines, a deregistration fax and email must be issued by the former registry, if any.
The application for issuance of the certificate of registration must be made in writing, and signed and sworn to by the owner or lessee of the aircraft. The applicant must be a Philippine national (ie, a citizen of the Philippines or a corporation or association organised under the laws of the Philippines, at least 60% of whose capital is owned by Filipino citizens). The supporting documents that must be attached to the certificate of registration application form are as follows:
For aircraft for hire to the general public, the following additional documents must also be submitted:
The Philippines Civil Aviation Authority may require the submission of additional supporting documents. If when considering the application for registration the authority’s director general finds that the aircraft is eligible for registration, such aircraft will be registered and a certificate of registration will be issued.
Mortgages and encumbrances
Is there a domestic register for aircraft mortgages, encumbrances and other interests? If so, what are the requirements and legal effects of registration?
Yes. The Philippines Civil Aviation Authority maintains the sole aircraft registry in which conveyances affecting title to or interest (including mortgage, encumbrances and other interests) over Philippine-registered aircraft may also be recorded.
Any conveyance affecting title to or interest in any Philippine-registered aircraft (including a mortgage) or any portion thereof must be recorded with the authority in order to be valid and effective against third parties, otherwise it will bind only the parties and their successors-in-interest and any person who has actual notice of such conveyance. Although no period for the recordation of the security document is specified in the Republic Act 9497 (the Civil Aviation Authority Act), it is recommended that the instrument be recorded promptly after execution.
To register a security interest over the aircraft with the authority, the security document must be filed and recorded in the authority registry and annotated on the rear portion of the certificate of registration.
The security documents must be originals, notarised and, if executed abroad, consularised by the Philippine consulate where the document is signed.
In addition, the authority requires the presentation of proof of authority of the signatories to the security documents (eg, board resolutions), which must also be notarised and, if executed abroad, consularised by the Philippine consulate where the document is signed.
What rules and procedures govern the detention of aircraft?
The Civil Code recognises possessory liens in respect of claims for the unpaid price of movables sold and in respect of credits for the making, repair, safekeeping or preservation of personal property. These liens apply to an aircraft.
Philippine tax authorities may also distrain or sell an aircraft for failure to pay Philippine taxes.
Philippine customs authorities may likewise sell an aircraft for failure to pay customs duties, fees, charges or fines, or for carriage of smuggled or contraband goods, unless such aircraft is used as a duly authorised common carrier.
Under Executive Order 903, the Manila International Airport Authority (MIAA) (which is empowered to levy and collect dues, charges and fees or concessions), or any service provided by the MIAA, may also on its own authority detain any aircraft, equipment or furniture belonging to the owner or agent of said aircraft, until such amounts have been paid.
Safety and maintenance
What rules and procedures govern aircraft safety and maintenance?
Part 5 of the Philippine Civil Aviation Regulations (Airworthiness) provides the regulatory requirements for the airworthiness of aircraft expected to operate in the Philippines using the standards and recommended practices of the International Civil Aviation Organisation.
Part 8 of the Philippine Civil Aviation Regulations (Operations) requires continuous airworthiness maintenance inspection and provides for other aircraft safety and maintenance requirements.
A person may operate a civil aircraft only if it is airworthy. Each pilot-in-command must determine whether an aircraft is in a safe condition for flight.
Air carriers must use continuous airworthiness maintenance inspection programmes for the inspection of the aircraft.
What is the state of regulation on unmanned aerial vehicles (drones) in your jurisdiction?
The Philippines Civil Aviation Authority:
How are air accidents investigated in your jurisdiction?
The investigation into accidents commences on the appointment of investigators and advisers by the chair of the Aircraft Accident Investigation and Inquiry Board under the Office of the Director General of the Civil Aviation Authority of the Philippines. Where the chair of the Aircraft Accident Investigation and Inquiry Board is of the opinion that it would be desirable for public notice to be given that an investigation is taking place, he or she may do so in a manner that he or she thinks fit.
Aircraft accident investigations are private. The extent of investigations and the procedure to be followed is determined by the chair, taking into account the purpose of the investigation, the principles and objectives of International Civil Aviation Organisation (ICAO) and the lessons that the chair expects to draw from the accident or incident for the improvement of safety. If in the course of an investigation it becomes known or is suspected that an act of unlawful interference was involved in the accident or incident, the investigator-in-charge will, after consultation with the chair and the Philippines Civil Aviation Authority:
What liability regime governs death, injury and loss arising from air accidents?
Common carriers, including air carriers, are bound to observe extraordinary diligence in the vigilance over goods and for the safety of the passengers transported by them.
A common carrier is bound to carry passengers safely as far as human care and foresight can provide, using the utmost diligence of cautious persons, with a due regard for all circumstances.
In case of death or injury to passengers, common carriers are presumed to have been at fault or to have acted negligently, unless they can prove that they observed extraordinary diligence.
What are the reporting requirements for air accidents?
The operator of any Philippine-registered civil aircraft, any state aircraft not operated by the military or any foreign aircraft must immediately and by the most expeditious means available notify the chairman of the Aircraft Accident Investigation and Inquiry Board under the Office of the Director General of the Philippines Civil Aviation Authority when an aircraft accident or incident listed in Implementing Standards (IS) 13.030, IS 13.175-1 to IS 13.175-3 occurs. This initial notification requirement also applies when an aircraft is overdue and is believed to have been involved in an accident.
What rules govern the ownership of airports (both public and private)?
An airport intended for public use is a property of public dominion under the Civil Code and thus belongs to the state.
An owner of an airport used for private operations must be a Filipino citizen or a corporation or association organised under Filipino law, at least 60% of whose capital is owned by Filipino citizens.
What is the authorisation procedure for the operation of airports?
Aerodrome certificateAn aerodrome or airport (ie, a defined area of land (including any buildings, installations and equipment) intended to be used either wholly or in part for the arrival, departure and surface movement of aircraft) may be operated only by a person that holds a valid certificate issued by Philippines Civil Aviation Authority for that aerodrome if it is used for:
A person may apply to the authority for an aerodrome certificate in order to operate an aerodrome at the place specified in the application. The authority may grant either:
Permit to operateOperators of airstrips or heliports conducting air transport operations or private operations using aircraft with fewer than 10 passenger seats must secure a permit to operate.
What ongoing operating requirements apply (including obligations relating to safety, security and facilities maintenance)?
The Civil Aviation Regulations Governing Aerodromes require aerodrome operators to comply with standards and procedures for aerodromes used in air transport operations set out in the Manual of Standards for Aerodromes.
Operating procedures are minimum arrangements required of the aerodrome operator to ensure the safe operation of the aerodrome, including:
What airport charges apply and how are they regulated?
The Philippines Civil Aviation Authority imposes and fixes reasonable charges and fees for the use of government aerodromes or air navigation facilities, and fixes the reasonable charges to be imposed in the use of privately owned air navigation facilities and aerodromes. Airport charges may include airport terminal fees and travel taxes.
What regulations govern access to airports?
No known laws restrict or qualify access to airports. Airport security regulations and procedures, which may restrict or qualify access to airports to a certain extent, are determined and implemented by each airport authority.
In addition, the Philippines Civil Aviation Authority, in coordination with the appropriate government agency tasked to provide airport security, is empowered to prescribe reasonable regulations, methods and procedures to ensure the safety of passengers and property.
What regime governs the allocation of airport slots (including slot transfer, revocation and disputes)?
Slots are allocated at airports using the Communication Navigation Surveillance System and the Air Traffic Management System.
The systems are communication, navigation and surveillance systems employing digital technologies, including satellite systems, together with various levels of automation, applied in support of a seamless global air-traffic management system.
How are ground handling services regulated?
Ground handling services are also subject to regulation by the Philippines Civil Aviation Authority. Ground handling personnel must obtain licences from the authority’s licensing division by undergoing knowledge and skills examinations.
Do any sector-specific competition regulatory/legal provisions apply to the aviation industry in your jurisdiction?
The Constitution prohibits and protects Filipino enterprises against unfair competition. However, there are no sector-specific competition rules that apply to aviation.
That said, general penal provisions in the Revised Penal Code punish any act that restrains free competition in the market. Further, the Republic Act 10667 (the Competition Act) prohibits anti-competitive agreements and the abuse of entities of their dominant position by engaging in conduct that would substantially prevent, restrict or lessen competition.
Code sharing and joint ventures
What (if any) competition concerns arise in relation to code sharing and air carrier joint ventures?
Under the Competition Act, each party to a joint venture agreement must notify the Competition Commission before signing the definitive agreement if:
In determining the assets of the joint venture, the following should be included:
The Competition Act is fairly new, and while no specific concerns have been raised with respect to code sharing, the act prohibits anti-competitive agreements and the abuse of dominant position by engaging in conduct that would substantially prevent, restrict or lessen competition.
What rules govern state aid in the aviation industry? Do any exemptions apply?
No sector-specific rules regulate direct or indirect financial support to companies in the aviation sector.
However, tax benefits may be granted to airlines operating under congressional franchise. These include tax benefits relating to the importation of aircraft, equipment and machinery, spare-part commissary and catering supplies, aviation fuel and oil and such other articles imported by and for the use of airlines operating under a congressional franchise. Moreover, all rentals, interest, fees and other charges paid by the franchisee to foreign or domestic lessors for the lease of aircraft, engines, spare parts, other flight or ground equipment and other personal property may be exempt from all taxes, provided that the liability for the payment of said taxes is assumed by the franchisee.
Have there been any notable recent cases or rulings involving competition in the aviation industry?
No recent cases or rulings involve competition in the aviation industry.
What aviation-related disputes typically arise in your jurisdiction and how are they usually resolved?
Typical aviation-related disputes in the Philippines involve consumer protection and liability. Most cases are related to cancelled or delayed flights, lost or damaged cargo and aircraft accidents. The majority of these cases are settled with the complainant, while a few are resolved by the courts.
Under the Warsaw Convention for the Unification of Certain Rules Relating to International Carriage by Air (which the Philippines has ratified), an action for damages must be brought, at the plaintiff’s discretion, in the territory of one of the contracting parties to such convention, either:
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