Is aviation law ready for a blockchain revolution?

Back to Aviation Law Committee publications

Jan Kaczmarczyk
Kaczmarczyk Orzechowski Legal Services (KOLS), Warsaw
jan.kaczmarczyk@kols.pl

Michal Lutek
Kaczmarczyk Orzechowski SpK, Warsaw
michal.lutek@kols.pl

Every century boasts an invention that totally changed the course of history. In the 21st century, few technologies have revolutionised business like blockchain has. Although the term ‘blockchain’ has itself been widely discussed in the past few years, defining what blockchain really is remains troublesome for many. The term is correctly associated with bitcoin and other cryptocurrencies as fundamental to their functioning. If we wanted to define blockchain in just one sentence, we could say it is a distributed, decentralised public ledger. Put simply, blockchain is a chain of blocks, where one ‘block’ is a block of digital information and the ‘chain’ is a public database where the blocks are stored. In other words, blockchain is a list of data records linked to each other. This is considered to be a milestone in the area of innovative technologies, mostly thanks to its numerous advantages like greater transparency and higher security standards. Blockchain also allows us to increase the efficiency and speed of transactions, while reducing their costs.

The potential of blockchain-related industry might also be reflected by its estimated market value. In 2017, venture capital funding for blockchain start-ups hovered around the level of $1bn. Under the World Economic Forum in Davos survey, approximately ten per cent of global Gross Domestic Product is forecast to be stored on blockchain, within seven years. Bearing in mind these vivid examples of the blockchain revolution, we might observe that it has affected numerous industries, including aviation.

As for blockchain’s possible applications in this industry, its range is very wide, from frequent flyer points and the management of cargo and spare parts to smart contracts. In only 20 years there will be 8 billion airline passengers globally, which means that statistically every person on earth will travel by plane at least once a year. This significant increase in air travel may also increase the number of dangerous airborne situations. Aviation safety should therefore be considered on several levels. One of the aspects to consider is the coordination of aircraft assembly and the register of parts used to build aircraft. Airliners are highly complex machines whose component parts are manufactured by suppliers specialised in narrow fields, like lighting or glass. Blockchain could possibly be used to facilitate the application of automated certification control; airworthiness; supply chain; and maintenance processes used in the course of assembling an aeroplane. The blocks could contain the serial codes of plane components, the date and place of manufacturing or the personal data of the mechanics installing such parts. Generally, this matter is regulated by Part-145 in the European Union and, in order to implement blockchain technology, certain provisions will have to be amended and added.

Speaking about security and safety in aviation, one should not forget about the protection of personal data gathered in relation to air travel, especially Passenger Name Record (PNR). PNR data which is processed by competent local authorities could be stored in blockchain, which would guarantee its security. In the current legal environment, such data is sent in by the air carrier. If it were rooted in a block on a private blockchain, with access limited only to government and airlines, this would enhance data integrity and protection.

Blockchain technology also makes it possible to introduce a concept of smart contracts on a wide scale. A smart contract is an agreement between two (or more) parties in a digital form (ie, run on blockchain). Smart contracts are negotiated and performed by a computer protocol and are stored on a public database which cannot be changed, making them trackable and irreversible and thus secure. This is why smart contracts are also already being tested in the aviation industry. An innovative approach was recently introduced in Russia, where smart contracts have been used for aircraft fuelling. A company based in Malta also recently launched one of the first blockchain-based platforms for private air travel. This utilises smart contracts to manage bookings, itineraries and payment details on the blockchain, for arrangements for private air charter flights including for passengers, brokers and aircraft operators.

One final aspect that should be mentioned is aircraft financing and leasing. One of the main international legal acts that establishes a legal regime for aircraft financing is the Cape Town Convention of 2001. Through this convention, the International Registry of Mobile Assets for registering international interests in aircraft was brought to life. The registry makes it possible for financial institutions to register the interest in aircraft created in compliance with the convention, thus establishing their priority of interest in such holdings. As of the date of this paper, no plans have been announced for moving this register to a blockchain-powered platform. However, if this is to occur in the future, purchasers, lessors and financiers who are currently able to quickly assess the provenance of the planes they are acquiring and track security over such aircraft should be additionally protected by the fact that any inconsistency of data in such blockchain-powered register will be automatically spotted and eliminated. This is especially important when aircraft are being leased under multi-jurisdictional schemes.

It is often the case that the legislation does not keep up with extremely advanced and fast-developing technology. For this reason, certain analogies to currently applicable statutory law are necessary. In terms of blockchain, legislators from certain jurisdictions have recently adopted laws governing the registration of innovative technology arrangements and innovative technology services, but their scope of application mostly refers to cryptocurrencies being the most popular product of the ‘blockchain revolution’. Therefore, it would seem a natural and expected next step to adopt a regulation, preferably at the international level, allowing for the digitalisation of legal transactions based on blockchain. As for applicability in the aviation industry, common rules for smart contracts should be created, preferably under the auspices of either the International Civil Aviation Organization (ICAO) or International Air Transport Association (IATA). The latter has already expressed interest in this technology by publishing the Blockchain in Aviation white paper, which addresses a number of issues related to possible application scenarios of blockchain to aviation. This therefore seems to be the right time for lawmakers to put this into practice.

Back to Aviation Law Committee publications