UK: Airline regulation – what you need to know with Brexit approaching

Legalflyer: December 2016


The UK's vote to leave the European Union (EU) on 23 June 2016 has led to immediate political and economic consequences for the UK, including a change in Conservative Prime Minister and sharp falls in the value of the pound against other currencies. The details of the UK's future relationship with the EU remain elusive. While Prime Minister Theresa May has announced an intention to trigger negotiations for UK exit of the EU by formally invoking Article 50 TEU before the end of March 2017, no firm indication has been given of her negotiating priorities or strategy. Consequently, a spectrum of possible outcomes remains on the table, ranging from a close future relationship with the EU including membership of the European Economic Area (EEA) and the European Free Trade Association (EFTA) - the current position of Norway - to a situation with no express UK-EU trade agreement, with the UK relying on World Trade Organisation rules as the basis for its trading relationship with the EU, an outcome commonly referred to as "hard Brexit". Recent indications that the UK is leaning towards a hard Brexit – or that the EU would only be willing to accept Brexit on "hard" terms – may be little more than posturing before the true negotiations begin.

A recent additional factor is the UK Government's challenge to the high court's ruling that parliamentary agreement is needed before invoking Article 50 TEU and a Supreme Court decision is expected on this early in 2017.

The impact of Brexit on the aviation industry is similarly unresolved. Prior to the referendum, executives of several leading airlines came out in public support of the UK's continued membership of the EU, citing freedom to fly across Europe as the foundation of modern low-fare air travel, and pointing out the dampening effect of uncertainty on demand. Although there have as yet been no changes to UK law as a result of the Brexit vote, there was an immediate and sustained impact on the share price of leading European airlines. For example, International Consolidated Airlines Group (IAG), the consolidated group comprising British Airways, Iberia and Aer Lingus, saw its share price fall from 528p on the day of the referendum to 345p the following Monday. This represented a fall of nearly 35%, from which IAG's share price had not substantially recovered at the time of writing. There was a similar impact on the share price of other major airlines serving the UK as can be seen in Fig 1, in contrast to the FTSE All-Share index, which thus far recovered relatively quickly from the Brexit result. It was notable that the share prices of EU airlines such as Air France-KLM and Lufthansa were also negatively impacted by the Brexit result.

Fig 1: Impact of Brexit on airline share prices

We begin by discussing the significant expected impact on flying rights and airline ownership regulations, before considering additional areas of regulation, and concluding with a brief consideration of areas which are likely to remain unchanged.

Flying rights

Before the EU undertook a project of liberalisation, competition in international air transport markets was constrained by a strongly protectionist framework. Most airlines were national, state-owned "flag carriers". The right to operate international flights between states was governed by a network of bilateral air services agreements (ASAs), which had the effect of protecting the flag carriers of the contracting states who were typically assigned reciprocal flying rights to each other's territories to the exclusion of competitors. In certain cases, the two flag-carriers also pooled revenues, effectively monopolising service on routes between their respective nations.

A significant step in this process came with the European Court of Justice's decision in the Open Skies cases, where nationality clauses in agreements between eight EU Member States and the US were found to be contrary to the provisions of the EC Treaty. This development was followed by a Road Map identifying the following "three pillars" of EU aviation policy:

  1. Bringing existing ASAs in line with EU law (by removing nationality clauses);
  2. Concluding comprehensive aviation agreements with key strategic partners; and
  3. Creating a Common Aviation Area within the EU, and with its neighbouring countries.

Progress was made on the second of these pillars with the signing of the EU-US Open Skies Agreement in 2007. This granted EU and US airlines unlimited rights to operate services to each other's territories, and the right for US airlines to operate "behind and beyond" services within the EU on flights to/from the US but no reciprocal access for EU airlines to the US domestic market. The Open Skies Agreement is likely to have been a contributing factor to the 18% increase in transatlantic traffic from 2006-2016, with the number of available transatlantic city pairs increasing by 30%, and the number of annual transatlantic passengers increasing to over 52 million.

The third pillar of the roadmap entailed the creation of the European Common Aviation Area (ECAA), a structure by which the market liberalisation opening air transport markets to airlines in Member States has been extended to various non-EU States. Switzerland is not a member of the ECAA but rather benefits from access to the EU market under a separate bilateral agreement with the EU on air transport. The terms of the EU-Switzerland bilateral agreement impose on Switzerland the majority of EU aviation legislation, the EU nationality airline ownership rules, and – in conjunction with other parallel bilateral agreements – free movement of people, an asserted red line for the UK Government.

Options post-Brexit

As things stand, the UK Government has indicated it will push ahead with Brexit, including giving notice under TEU by March 2017. With a "hard" Brexit, the UK might gain the rights to formulate an independent aviation policy, and no longer need to comply with EU aviation rules (at least within the UK), but could lose flying rights and other associated benefits of being an EU member state. Under "soft" Brexit, this dynamic would be reversed, with the flying rights and other benefits of EU membership likely retained, but less ability to formulate independent aviation policy.

The aviation solution does not have to be completely aligned with that in other industries, but a "hard" Brexit as regards other policy areas may make a "soft" Brexit solution for aviation more difficult. In this context it is worth bearing in mind the economic factors at play clearly favour the retention of an open aviation area between the UK and EU. The UK is currently by far the most significant contributor of air passenger traffic within the EU. UK passengers account for around one third of all intra-EU journeys, and around one quarter of all journeys from the EU to third countries. UK passengers make a significant contribution to the EU economy as tourists (notably in Mediterranean destinations) facilitated by unfettered air access – with the travel balance heavily outbound, with around 54 million UK-to-EU round trips in 2015, compared with 26 million EU-to-UK round trips.

Transatlantic travel

With regard to transatlantic travel, in the "hard" Brexit context, the UK would have the option of seeking to reinstate the pre-EU protectionist position which prevailed under the previous 'Bermuda II' agreement with the US. This could limit UK-US flying rights to certain national carriers. However, the US may well be reluctant to agree to such a move, and there is also the question as to whether the old "jewel" of Heathrow access rights would remain as attractive in the post-Brexit world - notably if EU flying rights to and from the UK are limited.

Intra-EU travel

With regard to intra-EU travel, restrictions on flying freedom between the UK and EU would have a dramatic impact on UK citizens, but also on UK-EU trade, and must be considered an unlikely outcome given the generally liberalised approach to flying rights encouraged by both the UK and EU in recent years. The most effective way for the UK to retain access to the EU air transport market post-Brexit would be to join the ECAA. However this is not necessarily straightforward. The text of the ECAA Agreement requires that a candidate for joining the ECAA must: (i) comply with EU aviation laws; and (ii) establish a framework of close economic cooperation or "Association Agreement" with the EU. Even if the UK meets these requirements, all current signatories to the ECAA Agreement would have to agree to the accession, which could expose the UK to the risk that other ECAA member States see an opportunity to exclude disruptive UK low-cost airlines from the EU market. However, given that the UK accounts for the greatest share of passenger air traffic of any Member State, other EU Members may be wary of taking steps which would limit their access to this valuable market.

Airline ownership

EU law requires airlines which are granted operating licences by Member State authorities to be majority owned and controlled by EU nationals in order for them to benefit from the right to operate intra-EU air transport services. Similarly, under bilateral air services agreements, in many cases airlines need to be owned and controlled by nationals of the relevant countries in order to be eligible for flying rights under those agreements.

Currently, for intra-EU flying and flying to third countries which have agreed "EU designation" clauses in place of national ownership and control requirements, the flying rights of all EU carriers are equivalent. However, in the post-Brexit environment, these national ownership requirements could have complex implications for certain airlines. In the case of IAG, for example, separate "nationality structures" are in place to ensure that for each of British Airways, Aer Lingus and Iberia, distinct bodies of British, Irish and Spanish shareholders respectively can be identified and have their voting rights magnified in respect of any issues relating the airlines' ability to meet "national" ownership and control requirements required by their route licences. Because the majority of services served by these carriers are currently governed by EU designation clauses, this structure is not extensively tested. However, in a post-Brexit world such structures could come under much closer scrutiny, making mergers between UK and EU airlines more challenging.

Post-Brexit, the potential airline ownership options are interesting. The UK could further relax airline ownership nationality restrictions to permit the full merger of UK and non-UK airlines. The UK's Civil Aviation Authority (CAA) is thought to be more open to such consolidations than its European counterparts, having previously spoken of its desire to "allow capital to flow." Such a move might result in higher investment in UK airlines from the Gulf, as well as an increased likelihood of a full merger between UK and non-UK airlines, such as Delta and Virgin Atlantic. However, the challenge would remain that non-UK majority ownership could pose problems for such UK airlines where they rely on UK nationality in order to be designated for flying rights under bilateral ASAs governing their international route licences.

Moreover, it remains to be seen whether a post-Brexit UK will trend towards this kind of additional liberalisation, or conversely will begin instigating more protectionist policies. The UK Prime Minister has been critical of the UK Government's handling of the failed takeover of AstraZeneca by Pfizer, stating that "a proper industrial strategy wouldn't automatically stop the sale of British firms to foreign ones, but it should be capable of stepping in to defend a sector that is as important as pharmaceuticals is to Britain." This, along with repeated references to "industrial strategy", and establishment of a Department for Business, Energy and Industrial Strategy, suggests greater economic liberalisation may not be the UK's post-Brexit priority.


The position of Heathrow, with its recently announced expansion with a third runway, could be interesting in the post-Brexit world. Heathrow currently serves both as London's leading airport for point-to-point traffic, but also as an important hub for EU traffic flowing transatlantic or elsewhere in the world. It is one of the busiest airports in the world for international traffic and home to the most valuable airline route in the world: Heathrow – JFK. The new Heathrow runway is a consequence of severe capacity constraints at the airport resulting in single pairs of airport slots trading for a reported $75 million.

But if Brexit reduces flying rights between the UK and the EU, will Heathrow remain as attractive as a transatlantic stopover, or will more traffic flow over Dublin, Amsterdam or other gateways to the EU unaffected by changes to post-Brexit flying rights? Some diversion of traffic at least seems inevitable if the UK does lose unrestricted EU flying rights.

We consider a potential timeline for a third runway at Heathrow in a separate article in this December edition of Legalflyer.

Other impacts

Regulation 261

If the consequences of Brexit for UK airlines include losing the benefit of unlimited access to EU markets, they could equally be relieved of the burden of much EU aviation regulation. In the field of consumer protection, Regulation 261/2004 gives passengers rights of financial compensation, refund and care in the event that their flight is delayed or cancelled. The regulation has been criticised by airlines for imposing liability on them for events outside their control, such as adverse weather conditions. UK airlines may welcome some reduction in exposure to these rules. Regulation 261 applies to flights (i) departing from the EU; and (ii) arriving in the EU, if operated by an EU airline. If Regulation 261/2004 was repealed post Brexit, UK airlines would therefore no longer be liable for claims relating to flights from the UK to the EU, or from the UK to third countries, reducing the costs of operating such services. However, any savings would be limited if the UK chose to introduce equivalent domestic protections and, in the event that the UK seeks to remain inside the ECAA, no saving at all would be made as compliance with Regulation 261/2004 is a term of the ECAA agreement.

Safety standards

Similarly, a new position outside the EU could permit the UK to diverge from the European aviation safety regime and exercise greater domestic control in this area. This would however entail a loss of influence – the UK currently has a say in European safety standards both through its representation on the Council of the European Union and its place on the Membership Board of the European Aviation Safety Agency (EASA). As with consumer protection, compliance with European aviation safety regulation is required under the ECAA agreement and it may be doubted whether the UK would prioritise greater domestic control in this area over the benefits of EU market access offered by continued ECAA membership.

Bargaining power

A position outside the EU aviation framework may also see the UK lose bargaining power when it comes to international negotiations. During the past decade, the EU and Russia have repeatedly clashed over the latter's imposition of Siberian overflight charges on EU airlines operating routes to Asia. Russia and the EU reached an agreement in December 2011 to phase out the charges, a result which the UK might have struggled to achieve without the collective influence of other EU Member States. On the other hand, Russia has since failed to comply with its obligations under the 2011 agreement, which raises questions about the effectiveness of the EU's collective bargaining power.

Aspects unaffected by Brexit

Aircraft demand

In contrast to the potentially significant changes discussed above, Brexit is likely to have a lesser impact on other aspects of the aviation industry. For example, global growth in demand for aircraft will continue, with Asia the main driver and Brexit likely to be seen as a regional issue. This will mean that the demand for aircraft, aircraft engines and parts, and aircraft finance services, will be largely unaffected by Brexit. The position of Airbus will be interesting given it will have a presence both within and outside the EU, but there should not be any material impact on overall demand for their products.

English law

English law is likely to remain the preferred choice to govern aircraft financing and other commercial contracts, given the flexible range of security options and attractive remedies available to creditors - factors which will be unaffected by the UK's departure from the EU. Brexit should have no impact on the effectiveness of parties' choice of law – the common law position in the UK suggests courts will respect express choice of law clauses, as will courts in the remainder of the EU due to the requirements of the Rome I Regulation.

A similar picture emerges for English courts as a choice of jurisdiction. Upon leaving the EU, the UK would cease to be subject to the Brussels Regulation, and so no longer benefit from the mutual recognition of jurisdiction of Member States' courts and accompanying provisions for enforcement of judgments across the EU. The uncertainty brought on by this change could be mitigated by the UK joining the Lugano convention, which incorporates substantially equivalent terms, and which counts non-EU states such as Norway and Switzerland as signatories. In any case, many aircraft financiers will continue derive comfort from the UK's network of bilateral treaties, which provide for recognition of English court judgments in many jurisdictions outside the EU.


There can be no certainty on the issues discussed above until the terms of the UK's exit from the EU are negotiated with its remaining members, a process which is expected to be slow and onerous. Whatever the shape of the deal that emerges, aircraft finance is unlikely to see major changes but the future approach to a host of issues of importance to airlines – notably UK airlines - remain unclear. It is in both parties' interests to negotiate a deal which as far as possible maintains the status quo, and a deal that includes UK membership of the ECAA, or agreeing a bilateral treaty with similar terms, would be a positive outcome. Perhaps unsurprisingly, however, the EU's liberalised aviation framework is closely tied to wider issues of European integration, such as acceptance of the four freedoms of the single market. It is to be hoped that the UK Government is able to secure an outcome which does not compromise liberalised air services across Europe.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Similar Articles
Relevancy Powered by MondaqAI
Shepherd and Wedderburn LLP
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Shepherd and Wedderburn LLP
Related Articles
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Sign Up
Gain free access to lawyers expertise from more than 250 countries.
Email Address
Company Name
Confirm Password
Mondaq Newsalert
Select Topics
Select Regions
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions