Aerospace: where are we now? A great deal was written in the immediate aftermath of June’s referendum result as to the potential impact of Brexit on aerospace interests in the UK and the possible shape of the future regulatory landscape. Much of the literature was inevitably speculative and could only draw on existing models from other countries’ trading relationships with the EU as a guide to the UK’s possible post-Brexit arrangements.

As we near the year end, the impetus in the Government for the swift triggering of Article 50 continues against a back-drop of constitutional legal argument about Parliament’s role in the process, and political debate over a “hard” or “soft” Brexit. However, is there any more clarity for the aviation industry as to how its interests might be affected and protected during and after the next 2-3 years? Below we look briefly at the headline issues and consider whether the Government and aviation industry are any closer to resolving them.

Traffic rights within the EU

Continued access for UK airlines to open skies on the EU – a right which currently depends entirely on the UK’s membership of the EU – remains a major priority for the UK industry. For any carriers with wide European networks, Brexit represents a significant challenge and for those who operate extensive fifth freedom rights and cabotage rights in the EU, the impact could be even greater. For UK airlines which include elements of European ownership, the potential disapplication of the current regulatory regime for granting operating licences based on EU ownership and control threatens their continued ability to operate as they now do; likewise EU-based airlines which have UK (rather than European) ownership and control find their own continued licensing placed in jeopardy.

Without a solution, the spectre of some airlines moving their operations to the EU whilst they can (subject to meeting ownership and control requirements both now and post-Brexit) and others having to hope they can fall back on bilateral arrangements between the UK and individual EU countries is very real.

Traffic rights to third countries

The principal concern here are those traffic rights that are currently enjoyed by UK airlines by virtue of air services agreements negotiated at EU level with third countries, notably, though by no means exclusively, the US. If the UK no longer benefits from such agreements following Brexit, then for UK and US airlines alike, a solution is required to ensure that those traffic rights continue by some other means, whether by a new UK-US bilateral agreement or by the UK being permitted to be party to the existing EU-US agreement.

Similarly, there will remain multiple bilateral air services agreements between the UK and third countries which are likely to require some adjustment following Brexit. However these agreements are unlikely to be the priority for the Government’s negotiators over the coming months.

Safety regulation

Current safety regulation of the UK aerospace industry is almost entirely overseen by the European Aviation Safety Agency (EASA) whose remit has increased over the last 15 years to the point where virtually all licences and approvals are issued by or under its aegis. EASA certifications are widely granted reciprocal recognition in other countries and indeed the UK has played a key role over the years in developing and refining EASA’s regulations.

If the UK were no longer to participate in EASA – which on a “hard” Brexit could happen – the ongoing validity of existing certifications would be in jeopardy, pending new domestic safety regulation and a renewed status for the UK Civil Aviation Authority (CAA) as the UK authority with sole responsibility for issuing approvals. The impact would be far-reaching for aerospace companies, affecting aircraft certificates of airworthiness and air operator certificates and the ability for airline group companies easily to move aircraft around their fleets, type certificates for aerospace products, approvals of design and production organisations, and maintenance organisation approvals. However EASA’s remit goes further to include many other aspects of civil aviation including aerodrome licensing, third country operator approvals, and flight crew licensing.

In a global industry which champions uniform and consistent regulation, regarding it as a major factor in promoting and enhancing safety, it would be a retrograde step to revert to safety regulation being promulgated by piecemeal domestic legislation – even if the necessary resources are made available to the CAA to achieve that.

A bespoke arrangement?

There are a great many regulatory issues affected by Brexit which require attention in many industry sectors, and aerospace is no different. Aviation in the UK is overwhelmingly regulated by EU legislation and, whist the key priorities for the Department for Transport over the coming months are likely to continue to be traffic rights and safety regulation, the industry will want to know how Brexit will affect many other issues including air passenger rights, other consumer regulation, environmental issues, security, ground handling rules, and implementation of new rules on the sale of package holidays.

In trying to discern the future for aviation following Brexit, there has been an understandable focus on existing models – chief amongst them an assumption that the UK will become part of the European Common Aviation Area, or will, like Switzerland, have a raft of treaties with the EU, including one which essentially continues to apply EU open skies and the suite of EU aviation regulations such that little will change for UK aviation interests or indeed for EU companies with operations in or to the UK. However, as time has moved on since June, those solutions appear further away, not closer.

As sensible as the other existing models – such as the Swiss model or membership of the European Common Aviation Area - appear in order to limit the impact of Brexit on the aviation sector, the UK’s wider political climate cannot be ignored. There is a growing recognition that full access for the UK to open skies in Europe may well not be achievable given the UK’s likely refusal to accept Treaty freedoms, including the fraught question of freedom of movement.

The Government’s role is to secure the best arrangement possible for ongoing access to EU routes and to preserve routes to and from key third countries where those routes are currently agreed at EU level. In the context of traffic right to and within the EU, it is possible that a bespoke bilateral air services agreement between the UK and the EU may be the best that can be achieved, albeit an imperfect solution if it results in loss of fifth freedom and cabotage rights.

Currently it is likely that, whatever the answer to access to EU open skies, the UK’s continued participation in and oversight by EASA ought to be inevitable as the upheaval of reverting to safety regulation at national level would be a huge backwards step, as well as expensive and difficult to resource.

What will the Great Repeal Bill achieve?

In the context of the aerospace issues highlighted in this briefing, the short answer is “very little”. Simply inserting EU aviation regulations into UK law, as is proposed, will not address the central issues, namely the licensing, operation, and safety oversight of the UK aviation industry which are conducted at EU level and are entirely premised on the UK’s membership of the EU. If the EU licensing and safety oversight function is taken away, domestic oversight (by the CAA) must take its place, but that is not achieved merely by the Great Repeal Bill, which also does not address the continuation (or not) of traffic rights.

The intended importation into English law of EU legislation also brings with it questions as to the continued influence of European Court of Justice jurisprudence following the Great Repeal Act. As in other industries, key EU aviation regulations have been very extensively construed and amended by CJEU case law. Once those regulations are part of English law, will the English courts apply just the “black letter” regulations; the regulations as interpreted by the case law; or the case law up until a stipulated cut-off date? Whichever approach is chosen, the effect on some regulations, for instance EC Regulation 261/2004 on denied boarding, cancellations and delays, could be fundamentally different. These are among the questions which cannot be ignored in debates over a Great Repeal Bill.

HFW perspective: current priorities for the aerospace industry

In this current phase whilst the Government departments are working hard on educating both themselves and the Department for Exiting the EU on the key issues for industry sectors, it is essential for the aerospace industry to ensure that its priorities are being recognised. Much good work is being done by the Department for Transport and by industry associations in this regard. Individual organisations however must continue to assess their own priorities – how they currently operate and their understanding of the EU regulations that enable them to operate in that way. Fundamental to that process is recognition of the current regulations that are essential to the continued viability of the business. In other words, what operations and related regulations are “nice to have”, but crucially, where are the lines in the sand? A UK airline, for example, it can continue to operate flights to Spain if current EU passenger rights rules on flight delays and cancellations remain or are amended or repealed; the rules may change but the operation continues. The same UK airline cannot fly to Spain at all if it has no traffic rights.

The Government will only be able to represent the interests and priorities of the aviation industry in the discussions that will ensue when Article 50 is triggered if it is comprehensively educated as to what those interests, priorities and lines in the sand are. During the biggest period of regulatory upheaval in a generation, it is essential that the aerospace industry takes every opportunity to communicate those matters to its associations and direct to the Government.