As the UK nears the triggering of Article 50, beginning the two-year notice period for its exit from the European Union, a group of aviation legal professionals has outlined the potential negative consequences for airlines and the wider industry of the country leaving the European Common Aviation Area.
Speakers at the Royal Aeronautical Society's Brexit seminar on 26 January also warned that the UK was unlikely to secure a replacement aviation agreement within the two-year Article 50 timeframe because of the complexities involved, particularly as next steps for the industry had barely been discussed so far.
"There's been remarkably little discussion of aviation at a governmental and policy level," says John Balfour, a partner in the aviation group at Clyde & Co. "The concentration has been very much on the City and one or two other industries."
There are reasons to doubt the UK's continued membership of the ECAA, despite it not being contingent on the country's EU membership. The freedoms of ownership, access and movement enshrined in the EU's common aviation market could make it unpalatable to the UK, whose electorate is perceived to value restrictions on movement above all else. Weight is added to that view by UK prime minister Theresa May's recent speech putting the country on course for what political shorthand terms a "hard Brexit" – involving exit from the single market.
Also in question is whether the EU would allow the UK to retain membership of the ECAA. While non-EU countries are members – Norway and Iceland, for example – the ECAA countries may see a competitive advantage to excluding the UK from membership, the seminar heard, and may also view the UK's hard-Brexit approach as incompatible with continued involvement.
Falling out of the EU's common aviation market would potentially leave the UK relying on the European Council to extend the two-year Article 50 notice period to complete negotiations on a replacement deal.
Such an extension is achievable, argues Germany-based Peter Urwantschky, partner at Urwantschky Dangel Borst and a specialist in aviation law. However, he warns that views could shift.
"Should the EU have the impression that the UK intends to enter into competition with the EU by the way of tax dumping... or in an anti-EU alliance with Donald Trump, then the attitude could change," he says.
POTENTIAL SOLUTIONS
In some cases, the UK's potential ECAA-exit solutions look manageable within the two-year timeframe, despite the lack of discussion so far. There is precedent, for example, of non-EU countries such as Switzerland being members of the European Aviation Safety Agency (EASA). The seminar also heard that the UK is most likely to seek an ECAA-exit solution that replicates the current arrangements around access and ownership as far as possible, potentially making some areas relatively straightforward.
But in a scenario where no deal is reached and Brexit happens, the UK would need to fall back on its old Civil Aviation Authority safety framework, its bilateral air service agreements – which also feature a separate deal with the USA – and its previous rules on airline ownership.
The legal implications of such moves could bring negative consequences for several UK- and EU-based airlines and the wider aviation community, speakers at the seminar warned. At the very least, a wide range of special exceptions would be needed to allow European aviation to maintain anything like the status quo.
For starters, UK-based carriers owned by overseas companies would theoretically be in contravention of majority local ownership rules. Thomson Airways, which is owned by Germany-based TUI Group but based in the UK, was cited as an example.
Then there is the issue of how the UK's framework would deal with carriers such as KLM, Swiss and Brussels Airlines: airlines majority-owned by businesses outside of their home country. Again, in theory, their ownership model would go against the reintroduced UK ownership requirements, the seminar heard, theoretically impacting their ability to operate to and from the UK.
Dropping out of the ECAA framework could also have a big impact on carriers in Europe with significant traffic to and from the UK but not based in the country. The reliance on seventh freedoms to achieve that traffic is enshrined in EU law, but would not be guaranteed if the UK were to fall back on its historical framework.
"Carriers who do a lot of seventh freedoms... will no longer be permitted and there would have to be special permissions for them," Balfour says.
Ryanair, Norwegian and Wizz were cited as examples of carriers with a big reliance on routes between the UK and other EU countries outside their home countries. UK-based carriers – no longer "community carriers" in the ECAA – would also face the same problem with service between two EU countries.
DEAL NEEDED
While these outcomes were unlikely to be in the interests of the UK or the EU, and establishing special exceptions would become a priority, the potential for complications was enough for speakers at the seminar to stress the importance of achieving a comprehensive deal on aviation before the UK's EU membership comes to a hard stop.
This partly reflects the consensus at the seminar that the mutual benefits for the UK and the EU in maintaining their aviation relationship made alternative outcomes unattractive and ultimately unlikely.
One such alternative, recently suggested by May, is the UK becoming a Singapore-style low-tax economy. This raises the possibility of the country adopting a relaxed view on airline ownership compared with the EU, perhaps in an attempt to boost post-Brexit investment into the country.
However, in the view of Anna Anatolitou, an aviation specialist and partner at Ince & Co, talk of this tax haven-style approach and loosening airline ownership rules represents a negotiating tactic rather than a desired aim. "My understanding... is that it is [the UK's] intended leverage to try to maintain some kind of sensible ongoing relationship with the EU," she says.
Washington DC-based Gary Halbert, a partner and transportation specialist at Holland & Knight, added that the UK should be cautious about siding with the Trump administration at the expense of the EU in any aviation relationships. "I believe that investing too much hope in a personal relationship with president Trump carries its own risks," he says, citing the US president's fundamental unpredictability.
But even under a best-case scenario in which the UK experiences a smooth transition in its aviation framework and maintains a harmonious relationship with the EU, the general mood at the seminar suggested Brexit was likely to be a challenging step for the industry. "The UK has firmly pushed EU aviation policy in a liberal direction. This influence will be missed – probably with the consequence of a more restrictive and even protectionist aviation policy," Urwantschky says.
Source: Cirium Dashboard
