With Brexit D-Day fast approaching on 29 March 2019 (the withdrawal date) and no clear agreement in sight, we explore the current EU framework for UK airlines and what the immediate impact could be for the aviation sector in a "no deal" scenario.
As part of the EU, UK airlines operate within the European Common Aviation Area (ECAA) which establishes nine "freedoms of the air". Two of the key freedoms are the rights for any EU airline (being an airline at least 50.1% EU-owned) to:
- fly from one foreign country to another, without stopping in its home country; and
- fly internally within a foreign country.
The ECAA also has horizontal agreements with a further 17 "third countries", including the US (the EU-US Open Skies Agreement), which permit access for EU airlines to the aviation sectors in a further 44 countries.
As members of the ECAA, UK airlines are subject to EU aviation rules and the jurisdiction of the Court of Justice of the European Union (CJEU).
Impact of "no deal"
If the UK government cannot reach a compromise prior to the withdrawal date, upon the UK exiting the EU:
- certain UK airlines will no longer qualify as "EU airlines" as their UK shareholders will not count towards the required 50.1% EU citizenship threshold;
- the UK will fall out of the ECAA and the European Aviation Safety Agency (EASA);
- the UK will lose its rights under the horizontal agreements negotiated by the ECAA; and
- EU and UK airlines would lose their rights to fly to the UK and the EU respectively.
What will happen in practice?
The European Commission advised in December 2018 that, in the event of a "no deal", it was proposing a regulation to temporarily allow "certain air services" between the UK and the EU for a period of 12 months and to temporarily ensure that "certain aviation safety licences" remained valid for 9 months.1 It remains to be seen what the scope of "certain air services" will be, but the European Commission has said "these measures will only ensure basic connectivity and in no means replicate the significant advantages of membership of the Single European Sky". This regulation would also be subject to the UK offering reciprocal regulations.
In addition to this statement, the European Commission in its memorandum issued on 19 December 20182 has stated that it is considering "point-to-point" flights between airports in the UK and airports in the EU on a temporary basis (again subject to UK reciprocity). Whilst this would be a positive development, UK airlines, which no longer qualify as EU airlines, would still be negatively impacted as they would lose, amongst other things, the right to fly intra-EU.
In an attempt to mitigate the impact of a "no deal", major UK and EU airlines have begun looking at restructuring their ownership and/or setting up UK or EU subsidiaries, respectively. This is being done on an airline-by-airline basis, depending on their corporate structure, and so it remains to be seen which airlines manage to achieve the best outcome. It has been reported that the EU would not immediately ground intra-EU flights after the withdrawal date and that it could set a revised timeframe for affected airlines to meet the EU airline criteria, but there has been no official communication from the European Commission to this effect at the time of writing.
In November 2018, the UK government announced that it had agreed a new bilateral UK-US Open Skies Agreement which, importantly, will apply to any airlines owned and controlled by either UK nationals or EU/EAA nationals, hence avoiding a potential restructuring to access US skies. This will avoid the Brexit side effect of the UK and US not having access to each other's skies through the current EU-US Open Skies Agreement. It has since been announced that the UK has agreed a UK-Canada Open Skies Agreement, as well as a number of other bilateral agreements with countries including Iceland, Israel, Morocco and Switzerland.
Next steps in the event of a "no deal"
To gain full access to EU skies after exiting the ECAA, the UK would either need to rejoin the ECAA as a "third country", which may be politically difficult given the CJEU's role, or negotiate access to the ECAA as a "third country" via a horizontal agreement. Either option will take time and negatively affect both passengers and businesses in the interim. The second scenario brings the added risk that the UK may not get full access to the "nine freedoms of the air", with those mentioned above most at risk.
In addition, the UK would also have to conclude separate agreements with all other countries with which the ECAA currently has horizontal agreements (to the extent that they cannot conclude these before the withdrawal date).
Will the UK remain airborne?
If a "no deal" Brexit does occur, whilst it would appear UK airlines will not be grounded, their ability to function as they currently do will, without a restructuring of their current ownership and/or business structure, be severely impacted. We await further developments over the coming weeks.
Dentons is the world's first polycentric global law firm. A top 20 firm on the Acritas 2015 Global Elite Brand Index, the Firm is committed to challenging the status quo in delivering consistent and uncompromising quality and value in new and inventive ways. Driven to provide clients a competitive edge, and connected to the communities where its clients want to do business, Dentons knows that understanding local cultures is crucial to successfully completing a deal, resolving a dispute or solving a business challenge. Now the world's largest law firm, Dentons' global team builds agile, tailored solutions to meet the local, national and global needs of private and public clients of any size in more than 125 locations serving 50-plus countries. www.dentons.com.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.