An overview of the effects on the UK aviation market of the UK's decision to leave the EU.
As the dust settles on the UK's referendum decision to leave the EU, it is business as usual in terms of applicable law and regulation until the terms of Brexit are known and the formal Article 50 process is triggered to instigate the withdrawal process. In many cases, there are a number of potential options which the UK could follow post-Brexit and this briefing seeks to identify some of the key issues for the aviation market and explore, in brief, the various options.
Although the legal framework will not change in the short term, Brexit does have a wider, immediate impact (both positive and negative) on the aviation market. Relevant factors include foreign exchange movements (affecting fuel prices and tourism numbers), share price movements, delay in political decision making as a result of changes in government personnel (as demonstrated by the deferral of the decision on the Heathrow/Gatwick runway question) as well as general uncertainty in relation to the future landscape, which could impact capital investment decisions, availability of funding and other strategic matters.
The legal position
In this section, we consider the impact of Brexit on the UK legislative framework. This analysis applies both to aviation-sector specific legislation (eg regulations affecting passengers' rights) as well as general legislation which affects the sector, such as legislation in relation to consumer rights, data protection, State Aid, competition, employment and the environment.
The European Communities Act 1972 (ECA) provides the statutory authority for EU Treaty provisions and directly applicable secondary legislation to have legal effect in the UK without the need for further enactment in the form of national legislation. EU legislation which does not have direct effect is enacted in the UK either by statute or by secondary legislation.
If the government chooses to repeal the ECA, UK statutory instruments made under the ECA will lose their justification for implementation in the UK. Even though they will not automatically be repealed, this potentially raises an issue as to their legal status. Once the UK leaves, future changes to the EU-law-derived legislation will not be able to be implemented through the ECA.
In any event, the UK will need to implement domestic legislation to fill the "EU void". This could be effected by re-implementing EU law verbatim or by drafting new legislation, which could, for example, include versions of EU legislation which are tailored to address specific UK requirements. This is clearly a momentous task and uncertainty in this area will be a key concern for the industry.
Key aviation-specific issues
In addition to the significant issues affecting companies generally, there a number of key issues which go to the heart of the UK aviation industry, including:
- access to the single EU aviation market
- access to the US and other aviation markets
- safety regulation.
Access to the single EU aviation market
As a result of EU Regulation 1008/2008, UK-owned-or-controlled airlines are able to operate throughout the EU single aviation market without restrictions on matters such as frequency and capacity. This liberalisation delivers significant benefits to passengers, airlines and airports and has been extended to a number of non-EU members via mechanisms such as bilateral agreements and membership of the EEA and European Common Aviation Area (ECAA).
UK airlines will clearly need to have access to the EU market. Solutions include the options outlined above (membership of the EEA/ECAA or bilateral treaties) but the viability of the options will depend on the approach taken by member states, particularly in the case of ECAA membership which requires unanimous member state approval.
Alternatively, airlines may seek to restructure their ownership and/or obtain their operating licences from an EU Member State so as to continue to benefit from Regulation 1008/2008. This would be the less preferable option for the UK given the impact on the UK skills base and UK employment should headquarters and operational control move overseas.
Access to the US and other aviation markets
Similar issues apply in respect of access to the US aviation market and the markets in other countries with which the EU has access agreements. The EU/US "open skies" agreement is of critical importance as it effectively liberalised the transatlantic aviation market. The potential solutions are similar to the EU market solutions, namely to "piggy-back" on the EU arrangements or to negotiate bilateral agreements.
Given the importance of UK/US travel and, in particular, landing slots at Heathrow, we would expect that the negotiations with the US would be less fraught than they might be with certain EU countries which may react negatively to Brexit.
The European Aviation Safety Agency (EASA) plays a key role in regulating the civil aviation market in the EU, with a particular emphasis on safety and airworthiness. EASA also plays a leading role in working with other aviation authorities outside the EU (eg USA, Canada, Brazil) in order to promote the free movement of EU aeronautical products, professionals and services throughout the world. Although the EU regulations establishing EASA will cease to apply on Brexit, it will be in the interests of all parties for the UK to continue to participate in EASA. Although there are precedents for non-EU participation and this should be workable for the UK, this is another critical piece of the post-Brexit jigsaw which will need to be addressed.
Clearly the industry will welcome certainty in all of these areas as soon as possible. It will be interesting to see how the negotiations with the EU member states play out in this area. While the involvement of the UK in the single aviation market delivers undeniable benefits to passengers throughout the EU, the UK will have to deal with the possibility of members states seeking to protect the interests of their own domestic airlines and/or adopting an aggressive negotiation stance.
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