Brexit Deal Gives Crisis-Hit Airlines And OEMs Visibility

For airlines, aerospace manufacturers and the wider industry that have been calling for clarity on how Brexit would affect their operations since the controversial 2016 vote, the setting of concrete terms comes as a relief after years of fraught negotiations between the UK and EU.

While the UK officially left the EU at the end of January 2020, the transition period in which the two sides’ previous relationship continued ran out Dec. 31. They finally announced they had reached a deal only on Dec. 24.

• Airlines have prepared to meet new ownership requirements
• Design-certification recognition is a relief for OEMs

The EU-UK Trade and Cooperation Agreement came into force provisionally Jan. 1, ahead of formal ratification. Crucially for airlines, it allows for maintaining International Civil Aviation Organization (ICAO) third and fourth freedoms, meaning they can keep operating direct flights between the UK and EU. That had been a key concern for operators, even though temporary contingency measures had been set out to ensure short-term connectivity.

But nonscheduled flights and cargo flights must be agreed bilaterally between the UK and individual EU member-states under the agreement. That could lead to more complicated administrative processes for airlines, which can ill afford a decline in efficiency as they face their biggest-ever crisis because of the COVID-19 pandemic.

In late December, after a new, more transmissible strain of the coronavirus led to an abrupt travel ban, images of long lines of trucks waiting in southeast England highlighted the importance of streamlined customs and border processes to keep goods moving.

European and UK airlines have for some time been looking at changing their ownership structures in a bid to meet EU regulations that require them to be majority-owned by nationals from the EU (or Iceland, Liechtenstein, Norway or Switzerland).

Existing UK airlines must be majority-owned by EU/European Free Trade Association or UK nationals to maintain access to traffic rights, although any new UK airlines need to be majority-UK-owned.

Once the deal was struck, International Airlines Group (IAG)—the parent company of Aer Lingus, British Airways, Iberia, Level and Vueling—said it had taken steps to comply, including implementation of a national ownership structure for Aer Lingus and changes to the group’s long-standing ownership structure in Spain.

The group also announced changes to its board structure.   

“It is disappointing that it has become necessary to make these changes to the board. However, we are pleased that the EU-UK Trade and Cooperation Agreement recognizes the potential benefits of further liberalization of airline ownership and control, because we believe that it is in the best interests of the industry and consumers,” IAG Chairman Antonio Vazquez said.

When Vazquez retires later this month, he is scheduled to be succeeded by chair-elect Javier Ferran, and the IAG board will be reduced to 11 directors.

UK-based EasyJet has capped its non-EU ownership at 49.5% to meet the EU requirements and plans to suspend non-EU-shareholder voting rights on a “last-in, first-out basis,” preventing affected shareholders from speaking or voting at meetings.

As of Jan. 1, EasyJet was 47.35% EU-owned, with the remaining 52.65% held by non-EU interests.

Wizz Air, headquartered in Budapest, Hungary, but which previously was set up as Wizz Air UK as part of its preparations to deal with the potential consequences of Brexit, also announced changes to its ownership structure Dec. 29, after disclosing its Hungarian-licensed airline would have been approximately 80%-owned by non-EU interests had no action been taken.

Like EasyJet, Wizz Air Hungary has restricted some shareholders’ rights to speak or vote at company meetings, applying the restriction proportionally across all of its non-EU shareholders and saying this was “the fairest and most appropriate method.”

“The board expects to serve restricted-share notices in respect of approximately 60% of the ordinary shares,” Wizz Air said.

Irish LCC Ryanair also announced plans to restrict its non-EU voting rights to protect its EU-airline licenses post-Brexit. While UK shareholders will not be required to sell shares, they cannot attend, speak or vote at any general meeting, or acquire further shares.

Ryanair said Dec. 29 all ordinary shares and depositary ones held by or on behalf of non-EU nationals would be treated as “restricted” stock.

The UK aerospace and defense manufacturing sector is breathing a sigh of relief that its needs were considered in the agreement, but the sector’s intra-European supply chains still will face disruption and higher costs because of border checks and customs documentation requirements. The agreement calls for recognition of safety certificates and licenses issued by both the UK Civil Aviation Authority and European Union Aviation Safety Agency (EASA), now that the UK has ended its participation in EASA. But as UK aerospace trade association ADS notes, contact between the two organizations was limited during the UK/EU negotiations, and because their priority is to establish the technical implementation procedures to support the airworthiness-recognition process, this could take several weeks. The agreement states that design certificates issued under EU rules before Jan. 1 remain valid.

ADS also points out there was no amendment to the agreement on maintenance that would require UK-based companies to arrange third-country EASA approvals in order to serve customers in Europe.

With the UK exiting EASA, the UK made arrangements with international regulators in the U.S., Canada, Brazil and Japan to ensure bilateral agreements on certification would be recognized after Dec. 31.

The agreement additionally maintains UK access to European research and development programs including the European Horizon initiative, under which sits the EU’s Clean Sky green-aviation initiative. The UK will continue to support the EU’s Copernicus Earth-observation program through 2027 and be able to access the EU’s space surveillance and tracking services for monitoring space debris, despite not participating in the program. The UK will no longer participate in the EU’s Galileo global navigation satellite system or the European Geostationary Navigation Overlay Service (EGNOS) programs although the services will continue to be available. EGNOS augments the landing systems at 16 UK airports.

A principal cause of concern for airlines before the agreement had been rules governing the transfer of passenger data between the EU and UK, with airlines warning that under a no-deal scenario they could risk fines from the UK for not providing the required passenger name records, or fines from the EU for breaching data-privacy regulation. But the deal sets out a framework for handling passenger data that has left carriers relieved on this front.

In addition to aviation security, air traffic management and aviation safety, the deal protects codeshare agreements with certain limited exceptions and covers wet leases. The text says UK airlines can wet-lease from UK and/or EU carriers and other wet-lease providers with no restrictions other than relevant regulatory agreements. EU airlines must show member-state authorities this is justified on the basis of exceptional or seasonal-capacity needs, or operational difficulties.

—With Victoria Moores in London