UK airlines told to move to Europe after Brexit

Ryanair ‘will adapt’ after EU warning, but UK response could also put routes in jeopardy

Michael O’Leary: has warned of the dangers for airlines of a “cliff-edge” Brexit. Photograph: Stephanie Lecocq/EPA

Michael O’Leary: has warned of the dangers for airlines of a “cliff-edge” Brexit. Photograph: Stephanie Lecocq/EPA

 

EU chiefs have warned airlines including EasyJet and British Airways that they will need to relocate their headquarters and sell shares to European nationals if they want to continue flying routes within continental Europe after Brexit.

Executives at major carriers have been reminded during recent private meetings with officials that to continue to operate on routes across the continent – for example, from Milan to Paris – they must have a significant base on EU territory and that a majority of their capital shares must be owned by EU investors.

Ryanair is headquartered in the Republic, and will not have to relocate, but it has been reported that 60 per cent of the Dublin-registered airline’s capital shares are owned by EU nationals.

This development, just days before the triggering of article 50, potentially makes it more likely that the carriers will now act to restructure, with economic consequences for the UK, including a loss of jobs.

The tough line from the EU may encourage the UK to reciprocate with its own nationality rules, which would leave EU-owned airlines with equally difficult choices about the future, potentially dampening their investment in the UK in the short term, although some may seek in time to establish their own British subsidiaries.

The UK could react to the imposition of EU ownership rules on airlines by developing ownership rules of its own, which could prevent carriers such as the Ireland-based Ryanair from flying UK domestic routes, as it does today.

This will be reduced to 40 per cent once UK shareholders are excluded, making it vital to increase its EU ownership to comply with regulations.

A spokesman for the airline said the company would “adapt”. However the airline’s chief executive officer, Michael O’Leary, has already warned of the huge dangers to the industry of a “cliff-edge” Brexit, and attacked the “mildly lunatic optimism” of the British government.

A Ryanair spokesman said: “While it appears that we are heading for a hard Brexit, there is still significant uncertainty in relation to what exactly this will entail. This uncertainty will continue to represent a challenge for our business for the remainder of financial year ’17 and financial year ’18.”

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Business models

The ability of companies such as EasyJet to operate on routes across the EU has been a major part of their business models, and there may be a renewed willingness among some to invest outside the UK to maintain market share.

Some airlines have already started to seek alternative headquarters and to examine how they might ensure that their shareholding is majority EU-owned, possibly through the forced disinvesting of British shareholders. But others have appeared, until now, to hold out hope that the European Commission would be flexible on the rules in the current aviation agreement.

EU officials at the meetings were clear, however, about the rigidity of the rules, amid concerns at a senior EU level that too many in the aviation industry are in denial about the consequences of the UK’s decision to leave the union.

Representatives from EasyJet, along with the British Airways owner IAG, Ryanair and the Tui Group, whose portfolio of airlines includes Thomson, met the EU’s Brexit taskforce last week. That followed a meeting the previous week between the taskforce and executives from Air France-KLM, Finnair, Lufthansa and SAS, as part of the EU’s efforts to engage with stakeholders.

Thomas van der Wijngaart, an aviation expert at the legal firm Clyde & Co, told the Guardian that there could be significant economic consequences for the UK, with airlines changing their financial and operating structures, and building a stronger presence on the continent.

“It might be that carriers choose to have domestic flights [on the continent] operated by their new European operating licence, which would probably mean a reduction in staff in the UK,” he warned.

Aviation agreement

Britain is currently a member of an aviation agreement based on 35 shared pieces of EU legislation, with a common regulator in the European Aviation Safety Agency and a common referee on the shared rules in the European Court of Justice (ECJ).

However, asked during a select committee hearing last week whether the UK would continue to be part of the “open-skies” agreement after Brexit, the secretary of state for exiting the EU, David Davis, said: “Not that agreement . . . One would presume that would not apply to us . . . Doesn’t say anything about whether there would be a successor.”

The industry holds out hope that the UK and the EU will be able to seal an early deal during article 50 negotiations that ensures any damage to the industry is limited.

However, a hurdle to progress on a new agreement is Theresa May’s intention to remove the UK from the jurisdiction of the ECJ, which currently has the key role in adjudicating over conflicts between parties to the agreement.

A number of member states may also have interests in standing in the way of Britain’s attempts to strike a new deal. Spanish diplomats, for example, say they will not sign any international aviation agreement that recognises the airport on Gibraltar.

EasyJet is currently establishing an EU operating company – on which an announcement is expected within weeks – so that it can attain an EU air operating certificate. The company insists, however, that it will continue to be headquartered in the UK.

It is currently 84 per cent owned by EU nationals, but this will drop to 49 per cent after Brexit, provided that the shares of its founder Stelios Haji-Ioannou – who has dual UK and Cypriot nationality – are classed as EU-owned.

The Financial Times has reported that Haji-Ioannou’s shares are now classed as UK-owned to meet the airline’s own restrictions on ownership.

An EasyJet spokesman said: “Like other European airlines, EasyJet regularly engages with the UK and the EU on a wide range of issues which include the impact of Brexit on aviation. As this was a private meeting, we wouldn’t comment further on what was discussed.”

– Guardian service

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