July 18, 2018

Brexit: aviation industry still up in air

Tom van der Wijngaart considers the current status of Brexit negotiations and associated challenges for the aviation sector

It has been two years since the majority of the UK’s voting public elected to leave the European Union, with the Brexit date now looming on 30 March 2019. On 19 March 2018, the UK and the EU announced that an agreement had been reached in principle regarding a 21-month transition period which would extend Brexit until 31 December 2020, with the status quo to be largely maintained in the interim. As the colour-coded draft of the Withdrawal Agreement shows, the negotiators have yet to reach a landing on a number of important subjects, including the Irish border and police and judicial cooperation. If a final text of the Withdrawal Agreement is negotiated by October 2018, as appears to be the intention, that leaves only some six months to seek the requisite UK and EU Parliamentary approval. It remains to be seen whether that timeframe is realistic. Whilst progress in relation to the Withdrawal Agreement is of course welcome, it remains the case that there has been little (if any) clarity for the aviation industry and consumers alike as to the likely UK/EU aviation relationship post Brexit. 

Market access
Whatever some commentators may say about the merits of the EU project more generally, its single aviation market has undoubtedly been a resounding success, with significant improvements in the affordability and availability of air travel for everyday consumers. We now function in a market where EU-licenced carriers can fly without restriction within that single market, including the ability to operate cabotage and ‘7th freedom’ services that are often jealously guarded in the context of bilateral state-to-state agreements and ‘open skies’ arrangements. On 19 January 2018, the European Commission released a Notice to Stakeholders clarifying the legal repercussions of a ‘cliff edge’ scenario on market access; some would say unnecessarily given that the position is well appreciated by all those concerned. It is of course the case that in the absence of other arrangements, the UK’s participation in the single aviation market will end with Brexit, presenting a potential problem for UK and EU carriers alike. The UK will also cease to be a party to the third country aviation agreements concluded by the EU, most notably the EU–US Air Transport Agreement. As matters stand, the degree of continued market access from/to the UK remains shrouded in uncertainty given the EU’s firm position that trade negotiations can only commence once the terms of the UK’s withdrawal are agreed. 

The European Council’s negotiating guidelines of 23 March 2018 noted that for transport “…the aim should be to ensure continued connectivity between the UK and the EU after the UK withdrawal…”. Some might interpret the words “…connectivity between…” as a reference to point-to-point traffic (i.e. 3rd and 4th freedoms) rather than any higher traffic rights. The UK’s position appears more optimistic – perhaps unrealistically so – with the Government’s June 2018 Framework for the UK–EU Partnership (Transport) making it clear that the UK seeks a comprehensive agreement on transport that maintains full access to the single aviation market. As is clear from other third country aviation agreements concluded by the EU, the level of market access it is willing to grant is typically tied to factors including the degree of regulatory convergence, the role of the ECJ and whether free movement of persons is accepted (as it is under the Swiss and Norwegian/EEA models). No doubt much will therefore depend upon the UK’s approach to its various negotiating ‘red lines’, and the degree of flexibility the EU is willing to exercise in return. Given the ongoing political inertia, a number of carriers have necessarily been taking proactive steps to protect their position post Brexit. This has included the establishment of new operating licence holders (namely easyJet Europe and Wizz UK, with Ryanair reportedly following suit with Ryanair UK). Carriers are also in the process of carefully reviewing their existing ownership and control structures, with the possible forced divestiture of non-EU or non-UK shares (as the case may be) in line with relevant rights under airline constitutional documents. 

EASA membership
Aside from market access considerations, another key unknown remains the UK’s future role in EASA. In her 2 March 2018 ‘Mansion House’ speech, Prime Minister Theresa May noted that the UK “…will want to explore with the EU, the terms on which the UK could remain part of EU agencies such as those that are critical for … the aerospace industries”. EASA was specifically mentioned, alongside a concession that through participation in EU agencies the UK would “…have to respect the remit of the ECJ in that regard”. The Commission’s formal position to date has arguably been less constructive. Its Notice to Stakeholders of 13 April 2018 again outlined the legal repercussions of a ‘cliff edge’ Brexit, this time with respect to EU aviation safety rules, and its slides presented to the Article 50 Working Party on 16 January 2018 noted that “UK membership of EASA is not possible”. While it is correct that third countries cannot be full members of EASA, there is clear precedent for their participation in the Agency. Norway (as a member of the European Economic Area) is an associate member with full participation in the Management Board, albeit without voting rights. Various other third countries also participate through Working Arrangements and Technical Cooperation Projects. Given the significant contribution that the UK has made to EASA to date, both financially and in terms of rulemaking, it seems inconceivable that UK participation will simply cease. Such a result would clearly have repercussions for the cross-border aerospace industry, with Airbus’ UK and EU operations providing a prime example. On 7 June, GAMA and ADS (organisations representing respectively international and UK aerospace manufacturers) sent a letter to the EU’s chief negotiator, Michel Barnier, presenting a well-argued case for prompt and constructive action on the continued recognition of UK aerospace products and certification in the interests of the European aviation industry as a whole. The Commission’s response so far has reportedly been to forbid EASA from discussing a no-deal contingency plan with the UK CAA.

Comment
Notwithstanding numerous calls for certainty from all quarters of the industry, it remains unclear what the nature of the EU/UK aviation relationship will be post Brexit. Given the lack of a WTO fall-back position and the necessarily international nature of the business, the current position is clearly unsustainable. For the moment, the industry is left hoping that common sense will ultimately prevail over politics, failing which consumers and business, both in the EU and UK, stand to suffer. Perhaps one ray of hope is the aviation industry itself. As is well demonstrated by the development of airline alliances, joint ventures and innovative corporate structures in response to dated ownership and control rules, the industry has a proven track record of somehow dealing well with adversity. 

This article was first published on eraa.org.