BREXIT: SOME IMPLICATIONS FOR CIVIL AVIATION BREXIT: SOME IMPLICATIONS FOR CIVIL AVIATION Chris Lyle, FRAeS Chris Lyle, FRAeS 5 April 2017 [] February 2017
Europe and the UK 1951 – Establishment of European Coal and Steel Community (UK rejects on grounds of “supranational” authority) which evolves through the Treaty of Rome in 1957 into the European Economic Community (6 States) 1963 , 1967 – De Gaulle vetoes UK entry as “insular”, “incompatible” 1973 – UK, Denmark and Ireland join 1981, 1986 – Greece, then Portugal and Spain join
Europe and the UK 1992 – EEC Becomes European Union, Euro introduced – European Economic Area agreement for extension of free movement of persons, services, goods and capital to EFTA States (accepted by Iceland, Liechtenstein and Norway, rejected by Switzerland through referendum) 1995 – Austria, Finland and Sweden join EU – Schengen Agreement on borderless territory, currently acceded to by 22 EU States (not UK) and 4 other European States 2002 – Euro replaces 12 national currencies (not £) 2004, 2007, 2013 – 10, 2, 1 States join EU, for a total of 28 States
The road to invoking Brexit 23 June 2016 – UK referendum supports (51.9% to 48.1%) July 2016 – New PM and Cabinet agree to invoke Article 50 of 2009 Lisbon Treaty (never before used) “by end March 2017” which would start a maximum two year withdrawal process July 2016 to January 2017 – Successful legal petition on need for prior action by UK Parliament 17 January 2017 – UK PM indicates “hard” rather than “soft” Brexit (an inevitability given position of the other 27 EU States?) 28 January - 13 March 2017 – Parliamentary consideration (PM presents “White Paper” with objectives on 2 February) 16 March 2017 – Royal Assent 29 March 2017 – UK invokes Article 50
The Brexit process 29 March 2017 – Two year time limit begins 5 April 2017 – EU Parliament passes a motion on negotiations 29 April 2017 – Summit of EU27 States to discuss UK withdrawal Negotiating positions established and negotiations proceed Draft deal to be put to EU27 Council of Ministers and thence approval by at least 20 EU27 countries with 65% of EU27 population, followed by ratification by EU Parliament Extension of the two year deadline subject to similar EU approval process Failure on agreement results in the exiting State falling out of the EU with no new provisions in place UK Parliament will review a deal Broader issues may be on the table, eg security, nuclear shield, territorial fishing rights, status of Gibraltar If UK revokes Article 50 during two year period, it may be accepted subject to approval by all EU27 States and conditions to be specified, but after that UK would have to apply like any other country (Article 49 of Lisbon Treaty )
UK’s global trade in transportation services, 2015 Source: UK ONS, “The Pink Book”
Europe and UK, aviation UK is a member of aviation agreements based on 35 shared pieces of EU legislation, a common regulator in the European Aviation Safety Agency (EASA) and a court acting as a referee on the shared rules, the European Court of Justice (ECJ) For the 60 th Anniversary of the Treaty of Rome in March 2017, 9 aviation associations issued a joint declaration entitled European aviation says “It’s time to stand up for the EU”
Europe and UK, air transport agreements 1987, 1990, 1992 – First, second and third air transport liberalization packages create a single aviation market amongst all EU States 2006 – European Common Aviation Area adds 9 more States “Comprehensive” agreements with third countries as a single trading bloc, presently with Canada, Georgia, Israel, Jordan, Moldova, Morocco, Ukraine, United States - Negotiating with Australia, Brazil, New Zealand - Mandates for negotiation with Algeria, Azerbaijan, Lebanon, Qatar, Tunisia, Turkey, UAE, ASEAN bloc “Horizontal” agreements with a number of States to align legalities UK will have to withdraw from all the above and negotiate “replacement” agreements bilaterally with EU27 or with EU27 States and with EU partner States
Implications for civil aviation Membership of institutions Safety, Security and ATM Environmental Protection Economics (manufacturing, leasing, regulation, operations) Considerable uncertainty remains regarding the precise details of the exit, for aviation as for all else
Membership of institutions EASA – an EU body and linked to ECJ, UK could pay to continue (cf Norway) but would lose its vote ECJ – withdrawal by UK anticipated Eurocontrol, ECAC, ICAO – little change likely SESAR – joint initiative of EU and Eurocontrol, funded primarily by EC An administrative quagmire with UK influence on Single European Sky likely to diminish
Safety, Security and ATM The UK “Great Repeal Bill” to “convert the acquis communitaire ” (to be accompanied by “some 7 to 15” other bills and cover some 18 000 plus regulations) will presumably include import of 140 aviation-specific regulations on industry licensing, operations and safety oversight Common EU27 and UK rules and regulations likely to continue Security covered by Tokyo/Hague/Montreal Conventions EU airspace reform to lose momentum?
Environmental Protection Noise and LAQ have EU rules but LHR Third Runway? Emissions, three parallel issues: EU ETS and ICAO CORSIA integration (including intra- EC services and “stop the clock”) UK participation in EU ETS which covers EU States plus Iceland, Liechtenstein and Norway (cf ECAA) US participation in CORSIA (may add to concerns of Russia, China and India)?
Economics – Manufacturing and infrastructure Some “unknown unknowns”: UK operations of Airbus, BAE Systems, Bombardier, Britten-Norman, Leonardo Helicopters (formerly Augusta Westland), Rolls-Royce, numerous parts suppliers; “ passporting ”, business aviation Redesign of immigration and customs facilities (but reintroduction of duty free for flights to EU27) Impact on third runway at Heathrow R&D reduced funding (eg European Horizon 2020 and “Clean Sky 3”) Spending and investment decisions? As with all other economics issues, value of £ critical
Economics – Leasing Over 40% of aircraft worldwide currently leased 14 of 15 largest aircraft lessors have operations in Ireland Over 50% of leased aircraft managed by Irish firms (skewing the country’s economic data significantly!) Irish corporate taxes low, inconsistent with EU tax harmonization and will lose UK ally in opposition (cf fine on Apple)
Economics - Regulation The UK’s “Great Repeal Bill” and accompaniments will presumably include import as required of aviation-related legislation such as slot allocation, CRS, ground handling, air passenger rights (with watering down?), assistance to pax with reduced mobility, etc
Economics – Regulation Replacement of EU-wide agreements would require bilateral agreements with almost all of 36 ECAA States and 9 with third States Better options would be: UK joining ECAA (cf Norway, but would probably have to accept EEA provisions and would have to accept all current and future EU27 aviation legislation without having any influence on it) or a bilateral with EU27 (cf Switzerland, which had to accept number of conditions including free movement of labour) Associate status for UK with EU27 cf Ukraine has been mooted but raises considerable uncertainties, notably for civil aviation
Economics – Regulation Domestic operations by UK carriers in EU27 countries (eg easyJet Paris-Nice) will be prohibited (Article 7 etc of Chicago Convention) International operations by UK carriers between EU27 countries and to/from EU27 countries with third countries (fifth freedom) may require separate negotiations and would probably be subject to reciprocity JVs, alliances and transferred/new AOCs may help (cf code- sharing as a means of getting round bilateral provisions)
Economics – Operations within Europe ASK’s between UK and ECAA, 2016 Source: CAPA
Economics – Operations within Europe EU destinations account for 49% of passengers and 54% of scheduled commercial flights from the UK Ryanair – 36% of intra-EU capacity to/from UK easyJet – 34% of intra-EU capacity within EU27 (bmi regional, Flybe similar) Costs in dollars (eg fuel, aircraft ownership) and Euros (eg EU ATC charges) a large proportion of airline expenditure
Economics – Operations within Europe EU requires airlines to be majority EU-owned and have a significant base on EU territory OWNERSHIP (%) Airline EU UK EU27 easyJet 84 35 49 Ryanair 60 20 40 British Airways does not operate within EU27 but IAG (operational HQ in UK, incorporated in Spain) may need to disinvest shareholders in order to be majority EU27-owned and allow other IAG carriers to continue to operate easyJet to set up a company in EU27 (with UK subsidiary for UK domestic operations), Ryanair in the UK?
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