EU gives airlines deadline for no-deal Brexit

IAG warned its plan will not meet requirements that come into force seven months after Brexit

Brussels is to give airline groups such as Ryanair and IAG, owner of British Airways and Iberia, a seven-month deadline to overhaul their shareholder make-up in order to retain full flying rights within the EU if Britain crashes out of the bloc without a deal next month.

The tight adjustment period for airlines, which must show they are majority owned and controlled by EU nationals in order to have full rights to fly through the continent, is outlined in revisions to a draft law seen by the Financial Times.

EU member states are broadly supporting the approach ahead of Britain's scheduled departure on March 29th, although the European Commission noted this week that Ireland, with Spain, France, Cyprus and Hungary, continues to express concerns about ownership rules.

Aviation is a closely-regulated sector that faces a double blow from Brexit, since an abrupt UK departure from the EU would disrupt not only flying schedules but the licences that carriers currently use to operate, which are administered based on the nationality of shareholders.

Grace period

Senior EU officials say the proposed seven-month grace period is coupled with exacting requirements and deadlines, which would force carriers such as IAG and Ryanair, which also has a large number of UK shareholders, to potentially trigger forced-sales of shares by non-EU investors.

Plans by airline groups to maintain existing licences must be presented to regulators within two weeks of the draft law being adopted, which could come later this month.

“That plan shall set out, in a complete and precise manner, the measures intended to achieve full compliance with the [EU] ownership and control requirements as from October 27th, 2019 at the latest,” the draft legislation states. “Where the air carrier has not presented a plan within the [two-week] time limit, the competent licensing authority shall revoke the operating licence.”

While Ryanair and Luton-based easyJet say they have contingency plans in place to ensure 50 per cent of their shareholders are EU nationals, potentially by using forced sales of shares, IAG has been reticent in explaining its proposals to cope with a no-deal Brexit.

Independent estimates suggest IAG faces the biggest challenge of all, with some analysts putting its current EU ownership as low as 25 per cent.

Brussels has warned IAG its favoured plan to continue flying freely around Europe would not comply with EU laws, according to senior officials.

At a press conference on Friday, IAG chairman Willie Walsh declined to comment on the work IAG was doing with its Spanish airlines to make them ready for Brexit. He added that he expected the UK and EU to reach "a comprehensive agreement" on Brexit.

An IAG spokesperson said the group was “confident” they would comply with EU ownership rules post-Brexit.

José Luis Ábalos, Spain’s minister of public works, told parliament this week that Iberia and other airlines were “working intensively” to adjust their ownership and control structure to be ready for Brexit.

Ownership rules

The enforcement arrangements for the EU’s airline ownership rules are part of a package of emergency laws that aim to keep basic transport services running if Britain leaves without a deal next month.

Spain, France, Finland and Poland led calls to offer far more generous arrangements for hauliers and airline groups, so that levels of disruption were reduced in the aftermath of a no-deal Brexit. Spain particularly called for a more relaxed approach to enforcing airline ownership rules.

By contrast, the commission has pursued a less forgiving approach, arguing future negotiations with Britain would be undermined by offering single market benefits to UK transport groups in a no-deal scenario, even for a temporary period.

The compromise discussed by ambassadors from the other 27 member states extends more operating freedoms to cargo carriers, with a cap on flight numbers. Passenger flights are limited to point-to-point journeys, potentially causing considerable disruption for non-EU airlines operating from the UK.

French calls for hauliers to enjoy full single market rights for a limited period after Brexit was rejected by other member states.

Germany and the Netherlands were among countries calling for a more disciplined approach to contingency measures for a no-deal Brexit, according to a diplomatic note of the meeting.

In its original proposal, the commission avoided giving airlines a period to adjust. At this week’s meeting it noted “the concerns” of several member states over airlines’ ownership and control, including Spain, France, Cyprus, Hungary and Ireland. But EU officials noted “we should not give an uncompetitive advantage to those which did not plan in advance”.

The seven-month deadline was described by officials as a way to “to bring [airlines] in line with the ownership regulations” in a fair way, since the carriers would need to submit their restructuring plans before Brexit occurs.

– Copyright The Financial Times Limited 2019