Top EU officials have warned airlines, including the lowcost EasyJet and Ryanair, that, in order to continue flying routes departing and arriving within the EU after Brexit, they will need to have their headquarters in the Union and more than 50% of their capital share must be owned by Member States or nationals of Member States guaranteeing them effective control, whether directly or indirectly, of the company.

A major part of some airline companies’ business models involves operating on domestic routes within a Member State or routes across the EU; these companies may need to review and increase their investments outside the UK in order to maintain their market shares.

Press reports suggest that EasyJet is about to formally announce the establishment of an EU operating company so that it can obtain an EU air operating certificate. While Ryanair, based in Ireland, will not have to relocate, it has nevertheless been reported that the 60% of its capital owned by European investors will be reduced to 40% once UK shareholders are excluded, so it will be essential for it to increase the proportion of its capital held by European shareholders to comply with EU regulations.

Other airlines are also likely to change their shareholdings in order to keep or increase the proportion of European capital to above 50%. This might be the case of International Airlines Group, IAG, the parent company of British Airways, Iberia and others European carriers whose operations might be at risk after Brexit.

While some airlines have already started to seek alternative headquarters and to examine how they might ensure that their capital is majority-EU owned, others continue to hope that the European Commission will be flexible on the rules in the aviation agreement following Brexit

The change of airlines’ financial and operational structures, aimed at achieving a stronger presence on the European continent, could have substantial negative economic consequences for the UK. Furthermore, if carriers choose to have domestic flights on the continent operated through the establishment of EU operating companies, this would lead to a reduction in staff in the UK.

London could react to a strict enforcement of EU rules on foreign ownership by adopting similar legislation preventing EU-owned airlines from operating on domestic routes within the UK. Nevertheless, stakeholders in the aviation industry hope for an early deal that ensures that damage to the industry is limited.