Brussels has warned IAG that its favoured plans to continue flying freely in and around Europe in the event of a no-deal Brexit do not work, in a potentially serious setback for the owner of Aer Lingus, British Airways and Iberia.
Brexit poses a challenge for some European carriers, which will have to show they are more than 50 per cent EU-owned and controlled to retain their flying rights in the bloc. Certain companies – including IAG – have yet to ensure they will reach that threshold after Brexit, when UK nationals will no longer count towards the tally.
Part of IAG’s strategy to maintain both UK and EU operating rights is to stress that its most important individual airlines are domestically owned through a series of trusts and companies –rather than being judged as part of the bigger group, which has a high proportion of non-EU investors.
But a senior EU official said: “For IAG, I can’t see how it can be a solution.”
When IAG merged UK-based BA and Spain’s Iberia in 2011, it divorced the voting rights of the airlines’ shares from their financial rights, such as dividends. A majority of each airline’s voting rights is held within its home country in an attempt to preserve its nationality – and therefore its flying rights – while IAG holds most of the economic rights.
IAG hopes that the EU will take the view that if a local body owns the voting rights – even if the parent company reaps the economic benefits – it will fulfil the bloc’s “ownership and control” criteria.
If the EU does not accept this, the company will have to buy out many of its non-EU shareholders or face losing its airlines’ rights to fly out of and within the EU. A new US-UK open-skies deal means BA will be able to fly its profitable New York routes after Brexit.
The European Commission has a number of investigations into ownership and control under way and Violeta Bulc, the EU transport commissioner, has flagged issues to be resolved in bilateral meetings with transport ministers. Concerns have also been raised with IAG over its ownership structure after Brexit, according to a second Brussels official familiar with the conversations.
IAG, which is a Spanish company that has its headquarters in the UK, said: “We are confident that we will comply with the EU and the UK ownership and control rules post-Brexit.”
Willie Walsh, IAG chief executive, has previously rejected suggestions that the company might face ownership issues as a result of the UK leaving the EU. When asked how IAG was planning to persuade regulators it did not fall foul of the ownership rules, Mr Walsh said: "Magic."
The group’s chairman, Antonio Vázquez Romero, has said it had “contingency plans” but has not provided further details.
According to a 2010 corporate registration document, a British company called LDC (NCS) acts as a trustee holding 50.1 per cent of BA's voting rights and minimal economic rights, whereas IAG has 45 per cent of the voting rights and 90 per cent of the economic rights.
LDC, whose latest set of accounts said its business objective was “to enable British Airways to preserve its UK nationality for the purpose of certain international traffic rights”, had turnover of £125,000 in 2017. BA, by contrast, had revenue of £12 billion.
Iberia is held in a similar structure, with a Spanish company called Garanair owning 50.1 per cent of voting rights, while IAG has 86 per cent of the economic rights. Last week Spanish newspaper El País revealed that Garanair was now owned by department store El Corte Inglés.
Simon Phippard of law firm Bird & Bird said: "Without using dual nationals, it seems difficult for a single company to be majority owned and effectively controlled by both British and EU27 nationals."
He added that if BA were still to be considered British after Brexit, its ability to fly to non-EU countries would be subject “to the UK negotiating new bilaterals with those countries”.
– Copyright The Financial Times Limited 2019