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As of mid-October, Brexit talks are at a standstill. Henrik Hololei, Director General of DG MOVE, recently indicated that there is no clarity on where the aviation industry will be post-Brexit. All the while UK Prime Minister Theresa May is being told to prepare for a no deal scenario by ideologues with their own agenda.
With things looking grim for the prospect of a soft Brexit, Chancellor Hammond’s blithe dismissal of the ‘no flights at all’ scenario deserves closer scrutiny. He claims that it will not happen because the EU also has a strong interest in making sure a deal is pushed through. That is true, but do not assume there is agreement on how to achieve that. The notion of the EU27 as a block of uniform interests is absurd. Ryanair has warned of lobbying efforts by legacy European airlines to strictly restrict flights between the UK and EU27 states. That will not necessarily be to Ryanair’s advantage. We covered this in the Aviation Intelligence Reporter in September.
Most industry stakeholders fearing a hard Brexit are quickly refreshing their understanding of the WTO rules, but the aviation industry has different headaches. Aviation is largely not covered by the WTO arrangements. The only exceptions are CRS, aircraft maintenance and ground handling.
But, Hammond may be right for all the wrong reasons. The bilateral air service agreements (ASA) that existed between the UK and EU27 states before the creation of the single European aviation market did not disappear with the common aviation market. They were merely superseded. This means that at Brexit, they are still there, like buried archaeological artefacts or long-lost car keys behind the sofa. Airlines will be able to rely upon those agreements. Surprise!
In other words, UK and EU27 carriers will be able to access some third and fourth freedom rights but only between their own country and the UK, and only to the extent they existed before being superseded. There might even be some fifth freedom rights tucked away. It depends on what was in the agreements. EU27 carriers will lose cabotage in the UK and unlimited access to the UK market. UK carriers will lose cabotage in all EU27 States and unlimited access to the European common aviation market. From this perspective, a hard Brexit favours EU27 carriers.
However, ASAs before the Open Skies era are, to be polite, old school. For the purists, they are Bermuda II-esque. In some cases they specified by name which airline could operate on which routes and with what frequency. Furthermore, they had strict ownership and control rules. So whatever rights there are will only be available to airlines of that country. Now it gets interesting.
In Europe, companies of one country can incorporate and set up principle places of business in other European countries. European ownership is the test, not national ownership.
With the exception of BA, which is now arguably a Spanish airline, but not named as such in any old style UK-Spain ASA, most UK airlines will be able to meet the ownership and control test. But how Dutch is KLM? How Swiss is Swiss? Not many ASAs that name airlines used words like Ryanair, or Wizz.
Finally, the ball might be in the UK court. It could capitalise on the strict nature of pre-common market ASAs to knock out many EU27 air carriers – a potential bargaining chip in Brexit negotiations. All that will take is understanding and careful negotiation. Time to wheel in the crack UK negotiating team. Oh, wait…
