Aviation sector will be at sharp end of Brexit battle

Caveat: Debate hinges on which airlines will be able to fly to and from which airports

Michael O’Leary: Warned that aircraft might not fly between the EU and UK for a time after spring 2019 exit. Photograph: Stefan Rousseau/PA

Michael O’Leary: Warned that aircraft might not fly between the EU and UK for a time after spring 2019 exit. Photograph: Stefan Rousseau/PA

 

When Michael O’Leary warned recently that planes might not fly between the European Union and the UK for a period after Britain leaves the EU in spring 2019, many will have dismissed it as just another publicity stunt.

O’Leary, after all, rarely misses a chance to squeeze his airline into the headlines and, true to form, once the official letter was sent to Brussels last week, Ryanair was out offering “Article 50” special reductions on flights to the UK.

But the signs are that O’Leary may be right – or at least there is a significant risk of disruption. While grounding flights would be the worst possible outcome, all the signs are that the aviation sector will be the sharp end of the Brexit battle.

The reason is simple. Big European manufacturers will push for a deal which keeps tariffs low on products such as German cars, or French food and wine.

But in the aviation sector, the likes of Lufthansa and Air France may see an opportunity to damage the low-cost carriers which have invaded their markets.

There is another reason why aviation may be a major focus for Brussels as the talks get underway.

People’s eyes glaze over, understandably, about much of the complexity the Brexit talks will bring. In the jargon-filled world of financial services, in particular, huge issues are at play, but they are dominated by concepts such as equivalence and passporting rights.

The aviation debate is much simpler. It is about which airlines will be able to fly to and from which airports. It is about the threat of disruption to travel and the price of a holiday. If Brussels wants to drive home to the people of Britain the real consequences of what they have done, it is not a bad place to start.

Easy target

The unique way the airline sector is regulated – and the spread of players around Europe in recent years – also makes aviation an easy target.

European airlines currently operate in a single aviation maket, which has gradually liberalised travel since the 1980s.. It led to the move away from the old world of state-owned airlines and airports, restricted flights and high fares.

But, in a microcosm of the Brexit debate, within Europe, British airlines operate under an estimated 35 shared pieces of legislation and regulation which has built up over many years. Unpicking this and creating a replacement will be far from easy. And, ironically, as with Brexit itself, the status of Gibraltar is right slap bang in the middle of the mix.

There are a few crunch potential problems. The first is the right of British airlines like Easyjet to fly routes within continental EU. At the moment its status as an EU airline allows it to do this. But unless Britain stays in the single aviation market, Easyjet and other British carriers will not automatically be able to fly such routes in future.

Easyjet has said it will establish a base in the EU – which it believes will allow it to continue flying point to point routes within the EU. It remains to be seen what level of operation the EU will insist on to qualify for an EU operating licence.

On the flip side of that equation, Ryanair has signalled it may have to reconsider the future of internal UK flights after Brexit. The alternative – were the UK to restrict EU airlines – would be for it to set up a UK base and apply for an operating certificate there.

And the problems get knottier.

Currently the UK is subject to the EU safety regulator. After Brexit it will either have to remain subject to this – and accept the rules – or set up its own regulator. This could all take time to agree with other countries, not only within the EU but elsewhere, as flights from the UK to other main markets also operate under an EU agreement.

In the meantime, on what basis will EU to UK flights proceed?

Overall mood

There are also ownership rules in Europe,obliging airlines to have majority EU ownership to fly within the EU market. Will the UK shareholders of the likes of Ryanair – which of course is Irish registered – be able to transfer their shareholdings to EU-based ownership structures so that the airlines can meet these rules? Or will the EU make things more difficult?

And what about the issue of Gibraltar, where Spain will insist that the airport is not subject to any deal, while Britain will fight for the opposite?

There is even a Spanish argument that the isthmus on which the airport is located is not part of British territory. It all goes back to the Treaty of Utrecht of 1713 apparently.

Much will depend, you would think, on the overall mood of the talks. If it is all going swimmingly, then a deal on aviation will probably be done, even if the big European players ensure that UK airlines pay a price, and their own market position is improved. After all huge tourist interests are also at play.

But if the overall talks hit problems, then O’Leary’s prediction could come true, or at the very least airline operators will have huge problems finalising their 2019 schedules, a task usually completed a year in advance.

A straightforward deal will also be needed to allow planes to fly from the UK to the EU and vice versa – similar to what exists between the EU and United States at the moment.

But little will be straightforward in the Brexit talks, one suspects.

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