TC09595 - [2025] UKFTT 00894 (TC)

The Sponsored Training Programme (“STP”) was originally conceived by McAlpine Aviation Training Limited and CTC as an alternative to the traditional method of airlines, such as British Airways (“BA”), paying upfront for the training of their future pilots and deducting part of that cost from their salaries in the first five years of their employment.

Under the STP a Sponsor Airline would, instead of paying for the training of its cadets, would pay a placement fee (equal to the cost of training) plus VAT on employing a fully trained cadet whose training had been sponsored (ie paid for) by APL (or before APL’s incorporation a McAlpine Aviation or a CTC company). On paying the placement fee, the Sponsor Airline would receive the “security bond” (also equal to the cost of training) from APL that had been deposited with the APL by the cadet (pursuant to the sponsorship agreement between the cadet and APL).

This enabled the Sponsor Airlines to defer the (expensive) training costs of their pilots. Additionally, as Mr Glover-Faure explained, in the case of BA (which guaranteed loans taken out by cadets to pay the bond), it gave opportunities to those who would not have been able to obtain a loan to fund themselves or who, even if they could obtain funding, could not afford to take on the risk of not being employed at the end of their training. Something that, Mr Glover-Faure said, the British Airline Pilots Association (“BALPA”) agreed was a good means of facilitating the training of the next generation of airline pilots from more diverse backgrounds.

In summary, under the STP:

The three main Sponsor Airlines during the Relevant Period, were easyJet Airline Company Limited (“easyJet”) from 2003, BA from 2011 for its Future Pilot Programme and, from 2014, Virgin Atlantic Airways (“Virgin”). These would collaborate with L3 A&AT to market the STP to potential applicants with advertisements on the websites of the Sponsor Airline and L3 in addition to other relevant social media channels.

Two types of cadets were accepted onto the STP:

The Sponsor Airlines were involved in the recruitment process for the cadets as each airline had slightly different selection criteria. However, there was no selection criteria for the 10-15% of cadets who paid for their own training and were not required to deposit any bond with APL. The selection process involved a potential cadet making an application via a link on the L3 A&AT website (or via the website of the relevant Sponsor Airline, which would then redirect them to the relevant page of the L3 A&AT website).

The initial screening of the potential cadets would be undertaken by L3 A&AT to ensure that they met the minimum entry requirements. Those that passed the initial screening would be contacted by email and invited to a selection event. This initial screening would include vetting by and in accordance with the criteria set by the Sponsor Airline concerned, with the precise process varying from airline to airline. The final decision whether to offer a cadet a place was made by the Sponsor Airline.

The Whitetail cadets were selected through the L3 A&AT applicant system with their applications reviewed by L3 to ensure that they met the minimum entry requirements. Those that did would be invited to a Whitetails selection day.

Between 2013 and 2020, of the 200-300 cadets that were selected each year, 73% of those that completed their training were placed with a Sponsor Airline which paid a placement fee to APL. APL charged and accounted for VAT on the placement fees. Other than the VAT on the placement fee, the Sponsor Airline had no cash outlay as, on the placement of the cadet, it received payment by APL of the bond that had been deposited to it (APL) by the cadet, the amount of the bond being equal to the placement fee the Sponsor Airline paid to APL.

The salaries paid to cadets on their employment by a Sponsor Airline was, APL contends, a matter for that airline and was also subject to agreement by BALPA.

In the case of easyJet, the placement fee due to APL from 2016 was £69,000 (see paragraph 3 of the Appendix). A cadet having completed training was required, on commencing employment with the airline to make a loan to it of £69,000 which easyJet would repay at an annual rate of £11,223 over seven years (see clause 4 of the easyJet Loan Agreement at paragraph 49 of the Appendix). This had a bearing on the salary as is clear from the schedules below:

As Constable J observed at [54] of his judgment in the judicial review proceedings in R (on the application of Airline Placement Ltd) v HMRC [2023] STC 1113 (the “Judicial Review Judgment” – to which we refer in more detail below):

“Thus, it can be seen that the Basic Salary for someone starting employment with easyJet having been trained through APL and having ‘loaned’ the bond monies to [easyJet], is reduced by the value of the bond (as at 2015, amounting to £69,000) together with an amount for interest. The Basic Salary for a person employed in precisely the same position with equivalent level of training and experience but who had not trained through APL, earned £11,223 more a year. The difference in salary over 7 years was exactly commensurate with the value of the bond, plus interest.”

However, when it was put to him in cross-examination that the salary of a cadet was “cut by the same amount” as the cost of training, Mr Glover-Faure said:

“… the premise of your question is that the salary has been reduced, but the salary wasn’t being reduced. The salary was the salary that reflected the particular circumstances of these individuals. The route through which they came to the airline, the training, the investment that the airline had made, the security guarantee of the loan: these are all things that have cost British Airways and I suspect easyJet, although easyJet didn’t do the loan guarantees. And so we agree at a salary scale based on those criteria, and it’s a higher salary scale if somebody has got experience. 1,000 hours on an Airbus 320 – you have an Airbus 320 rating – we would recognise that that attracts a higher salary. So the salary is the salary determined through industrial negotiation between ourselves and the trade union based on those type of criteria.”

The same training was provided to both tagged and Whitetail cadets. If a Sponsor Airline subsequently found it was able to accept further cadets, it would approach APL with a view to “tagging” some of the Whitetail cadets. An advantage to the Sponsor Airlines was the flexibility of such an arrangement. Although they preferred to offer places on their programmes to cadets to whom they could offer employment when qualified it was not possible to predict the market within the airline industry (which can be particularly susceptible to major world events, eg, 9/11 and the covid-19 pandemic).

Cadets were trained for either the Airline Transport Pilot Licence (“APTL”) or the Multi-Crew Pilot Licence (“MPL”). The ATPL allows the pilot to fly a wider range of aircraft whereas the MPL (the course content for which is set by the airline and agreed with the Civil Aviation Authority) only permits the pilot to fly a specific aircraft for a specific airline. All Whitetails trained for the ATPL. Although most tagged cadets trained for the MPL (tailored to the requirements of their Sponsor Airline) some of the tagged cadets did train for the ATPL.

The Sponsor Airlines were involved in the creation of the cadets training syllabuses. These were subject to the approval of the UK Civil Aviation Authority (“UK CAA”). For example, schedule 1 to the Virgin Placement Contract (see paragraph 24 of the Appendix) required the:

“… course syllabus to be agreed between [APL] and Virgin and submitted to the UK Civil Aviation Authority for approval by EASA [the European Union Aviation Safety Agency].”

In the case of BA, Mr Glover-Faure, observed that the structure of the training would be set and agreed by BA and the training providers. He explained that the training was monitored and “heavily controlled” by BA as is clear from, eg clause 14.1 of the BA Placement Contract (see paragraph 11 of the Appendix) under which APL was required to supply cadets who had been qualified to a frozen APTL level and completed a fully BA standardised Jet Orientation Course of groundschool and simulator time to achieve and MCC certificate followed by a rating on an aircraft specified by BA.

Although they did not interfere with a cadet’s training (once the structure had been set and agreed) the Sponsor Airlines did receive regular reports to monitor the progress of their cadets and were also involved in their pastoral care.

Mr Barnett explained that that the Sponsor Airlines took their commitment to cadets with conditional offers of employment very seriously. They monitored the cadets’ training and put measures in place to protect the cadets’ welfare during their training programme. This included the appointment of liaison officers to provide mentorship and pastoral care.

Ms Lockett’s evidence was that the Sponsor Airlines would even occasionally send a first officer to New Zealand as a morale boost. She recalled that BA were particularly good at doing this. As Mr Glover-Faure explained, given the significant financial risk it took by guaranteeing the cadets’ loans to fund the bonds, BA took its cadets’ admission into its Future Pilots Programme (“FPP”) very seriously. It employed a manager to run the programme and current BA pilots would volunteer as cadet mentors to “enthuse the cadets and help keep them on track”. It also organised visits to BA and provided cadets with opportunities to travel on a BA service to gain experience of what their future job might entail.

The progress of the cadets on the STP was monitored by the ‘Training Review Board’ (“TRB”) a body within L3A&AT. This would meet monthly and make recommendations in relation to the cadets’ training. If cadets were not meeting the required standards, the chief training pilots would recommend whether additional training was needed or, if it had reached the stage where a cadet’s training should be terminated. The TRB would then make recommendations to APL in respect of the cadets on the STP. When the recommendation involved a cadet on an airline programme, the Sponsor Airline would be involved in the decision-making and their approval would be sought, but if the cadet was a Whitetail it was for APL to make that decision.

All cadets that had been selected for training under the STP were required to deposit a bond, referred to in the contractual documents as the “Security Bond”, with APL. This was payable in instalments as set out in the sponsorship agreements between the cadet and APL. In several of the documents, and contrary to APL’s case, it is referred to as being “in consideration” for the procurement or receipt of training (eg see clause 4.8.3 of the BA MPL Sponsorship Contract; clause 2.1 of the Virgin MPL; and clauses 1.1 and 1.9 of the Security Bond Addendum, at paragraphs 40, 45 and 48 respectively of the Appendix).

On the completion of their training and being placed with a Sponsor Airline the bond would, as noted above, on the cadet’s instruction or agreement pursuant to the Sponsorship Agreement between the cadet and APL, be transferred in whole to the Sponsor Airline (see eg clause 4.6 of the BA MPL Sponsorship Contract, clause 2.4 of the easyJet MPL Sponsorship Contract and clause 3.3 of the Virgin MPL Sponsorship Contract at paragraphs 40, 44 and 45 respectively of the Appendix).

The bond was subject to forfeiture if, for example, a cadet chose to be placed with a non-sponsored airline, placed with a Sponsor Airline overseas, was not selected from the FlexiCrew hold pool within a two year period (see below) or voluntarily withdrew from the STP in which case , as Mr Barnett accepted, the cadet would have paid for their training. The cadet would also forfeit the bond if they were removed for breach of contract (see eg, clauses 4.8.3 and 13.3 of the BA MPL Sponsorship Contract and clause 4.3 of the easyJet Sponsorship Contract at paragraphs 40 and 44 respectively of the Appendix). However, if a cadet was unable to complete their training due to a lack of proficiency their bond (and any fee paid, less a non-refundable deposit of £5,000) would be returned to them under the STP’s performance protection policy (“PPP”). Such repayments would be funded from APL’s margin on the placement fee.

The PPP (as of April 2018) relevantly provided:

“L3 CTS provides Performance Protection for cadet pilots who have qualified and enrolled on to [a] qualifying … Programme. Performance Protection provides cadet pilots with protection for their Security Bond in the event that they do not meet the required standard at any point throughout their training.

…

1.

Performance Protection applies to all training provided under the … programme and is secured by the payment of the fees described therein. …

2.

In the event that the Cadet fails to meet the required training standards, Performance Protection shall cover the cost of remedial training, including re-test fees, where applicable, for the part of the programme that the Cadet has not met the required standard. …

3.

In the event that the Cadet is removed from the … programme, Performance Protection shall return the fees paid by the Cadet, less the non-refundable deposit; …

…

5.

Performance Protection shall not apply, and will not result in a return of the fees paid [or the bond], where the Cadet through their action or inaction, breaches the terms of the Cadet Training Agreement & Cadet Sponsorship Agreement, voluntarily withdraws from the L3 CTS Programme, or the Cadet is removed from the L3 CTS Programme due to an incidence of misconduct …”

APL operated the PPP (with broadly similar terms) until about mid-2019.

Mr Barnett explained that although clause 1 of the PPP referred to “fees”, it should be read as having referred to fees and the deposit of any bond deposited by the cadet. This, he explained, “was a simple mistake, and it was certainly always the intention that we would refund the bond as well as the fees, and that was what we did in practice.” Also, despite clause 4.5 of the easyJet MPL contract stating that any repayment of the bond will be at the “discretion” of APL (see paragraph 44 of the Appendix), neither Mr. Barnett, Mr. Glover-Faure nor Ms. Buckingham knew of any circumstance where the bond was not repaid to a cadet who failed to achieve the requisite proficiency.

As Mr Barnett and Ms Buckingham explained, only a small number of cadets were refunded due to their lack of proficiency. Terminations recorded on an L3 A&AT master spreadsheet show that, between 1 January 2017 and 31 December 2020, 21 cadets received a refund under PPP and 25 cadets chose to continue training outside the STP.

By 2017, as the cost of training had increased, both easyJet and BA (but not Virgin) tagged cadets, as well as Whitetail cadets, were required, under a “Cadet Training Agreement” between the cadet and L3 A&AT, to pay an additional fee and VAT thereon for that part of the cost of training that exceeded the bond that the cadet had deposited with APL.

In 2019 APL integrated the sponsorship and training contracts into a single “Cadet Pilot Training Agreement”. This showed an amount broken down into “a training fee” and “security bond”. The terms of the “security bond” were then contained in an addendum (see paragraphs 47 – 48 of the Appendix). If the Cadet failed due to non-performance after Performance Protection was withdrawn, they would forfeit the “security bond”. The contracts from 2020 show that refund of any “security bond” was at APL’s discretion.

The majority of the STP cadets were placed with easyJet. Until 2018 this was generally through the “FlexiCrew” scheme. As Mr Barnett explained, this scheme related to the provision of newly qualified FlexiCrew pilots who were placed in a “hold pool” and supplied to easyJet by Airline Recruitment Limited on zero-hour contracts. These pilots would generally be employed by easyJet if it identified sufficient consumer demand to increase the number of pilots it employed on a full-time basis.

A newly qualified FlexiCrew pilot could remain in the hold pool for up to two years and could, in addition to being employed by easyJet, be selected for employment by another Sponsor Airline or another airline altogether. It was unusual for a cadet to be remain in the hold pool for two years but, if not employed at the end of the two year period, as we have noted at paragraph 35, above, a cadet’s bond would be forfeited.

The cadets’ UK training took place in Southampton, Bournemouth and Coventry. For MPL the training comprised ground school, basic, intermediate and advanced training. For ATPL cadets it comprised ground school (Phase 1), multi-engine instrument rating (Phase 5 flying), upset prevention and recovery training, airline qualification course type rating and base training.

Actual flight training in aircraft (known as ‘core training’ for MPL cadets and ‘Phases 2, 3 and 4 flying’ for ATPL cadets) which lasted from eight to 12 months, depending on the type of licence a cadet was working towards and to which Sponsor airline he of she was tagged, generally took place overseas. During the Relevant Period this was mainly in New Zealand where approximately 200 cadets were training at any given time. Around 30% of these cadets were self-funded cadets from New Zealand or aligned to an airline in the Aisia/Pacific region with direct contracts with L3 NZ. The remaining 70% were STP cadets.

The flight training programme was designed by, and the responsibility of, L3 CTS Airline Academy (NZ) Limited (“L3 NZ”) a New Zealand subsidiary of L3 A&AT. L3 NZ was responsible for ensuring the cadets had the necessary medical certificates. It also arranged accommodation and visa renewals for the cadets and provided pastoral care and ensured that they attended the training. The progress of every cadet would be discussed by its Training Review Board each month and L3 NZ would liaise with L3 A&AT and share updates as to the cadets’ progress as necessary. This included any recommendation as to whether a cadet’s training programme should be terminated.

However, notwithstanding the liaison with L3 A&AT, any training issues arising in New Zealand would be dealt with by L3 NZ internally. Its Training Review Board would meet monthly to discuss each individual cadet. Although no employee from L3 A&AT attended these meeting all of the information was saved and shared to a database that both L3 NZ and L3 A&AT could access. This enabled L3 A&AT to update the Sponsor Airlines if required.

L3 NZ trained both tagged and Whitetail cadets. Although the training itself would be similar for tagged and Whitetail cadets, the airline programmes did have some of what were described by Ms Lockett as “particularities”. Although she could not recall any “specifics”, she gave as a “random example”, that a particular airline might require their cadet to have to do four steep turns rather than three.

Although L3 NZ did have simulators and groundschool facilities in New Zealand, the cadets went to New Zealand mainly for flight training in planes. Very occasionally – perhaps once every two years – L3 NZ took a cohort of the cadets for groundschool training because the UK groundschool facilities were full. However, most of the time the cadets undertook their groundschool in the UK. This lasted for around six months.

The Head of Training at L3 NZ, Jon Stanwix, was responsible for all aspects of the training in New Zealand from the development of the course content to the organisation of the timetable and the actual provision of training. The flight training involved the cadets completing a series of lessons (referred to as “events”), each of which would involve different elements. The cadet was required to fly for a set number of hours with all of that flight training taking place in New Zealand airspace.

The L3 NZ planning team would coordinate with its UK equivalent to let them know how many candidates they should send to New Zealand for flight training and when to send them to ensure an even flow through the training. Although the overall training timetable was managed by the planning team, the daily flight schedules were organised by the scheduling team at L3 NZ. The scheduling team would organise the timetable around the availability of the cadets, flight instructors and aircraft, as well as taking account of the weather conditions. These variables meant that the schedule would need to be adapted daily – if not hourly – to make the timetable work. The scheduling team would also meet with the aircraft maintenance team every week to manage the training timetable around planned aircraft maintenance

The training provided by L3 NZ was regulated by the New Zealand Qualification Authority (“NZQA”) which has very stringent requirements for pastoral care (particularly in relation to students attending from overseas). Any education provider that wanted to enrol international students had to sign up to the Education (Pastoral Care of International Students) Code of Practice 2016 which was administered by the NZQA. In addition, to enable it to provide training, L3 NZ required approval from the UK CAA. Accordingly L3 NZ had its own UK CAA licence authorising it to train the cadets in New Zealand (in addition to its licence from the equivalent New Zealand aviation authority).

Following completion of the necessary events the cadets would return to the UK for their further training.

The last cadets under the Virgin programme commenced their training in 2018. Around the same time APL entered into a new contract with BA to place up to 100 cadets annually. In mid-2019 APL lost a bid to continue to provide candidates for easyJet although easyJet did continue to employ and pay placement fees for Whitetail cadets. Although it was hoped that new airlines could be attracted to the STP, this was scuppered by the start of the covid-19 pandemic in 2020 leading to APL withdrawing the STP in November 2021.

Tagged cadets who were still in training at the time had their conditional offers of employment withdrawn by easyJet and BA. Although it was understood that easyJet would accept the transfer of the bond and pay a placement fee if it subsequently offered a tagged cadet employment the position was less clear with BA. However, in the absence of any confirmation to the contrary it was assumed the position would remain as previously agreed.

In November 2021 easyJet determined that it would not participate in the STP and, in December 2020, APL wrote to all the cadets (except for those with conditional offers from BA) and advised them that the bonds would have to be forfeited. Ms Buckingham explained that APL had not included the BA cadets as it was understood that until the end of 2023, when it became clear that it was not the case, that BA would be paying a placement fee for any of the cadets with bonds to whom it had offered employment.