UK: Brexit And Aviation - Update

Last Updated: 14 March 2017
Article by John Milligan and John Balfour

Most Read Contributor in UK, November 2017

In our special issue Bulletin issued on 27 June, we gave an early view of the main EU air law consequences of Brexit. Essentially, these are that, unless and to the extent that some replacement arrangement is agreed and put in place:

  • UK airlines will cease to be Community carriers, and hence cease to benefit from the free access to routes in the EU given by Regulation 1008/2008
  • the requirement that UK airlines be majority owned and effectively controlled by EU nationals will nolonger apply, although the UK could continue to apply such a requirement, or could introduce a new, different requirement
  • the UK will no longer be party to agreements between the EU and third countries (in particular the US) granting access to traffic rights
  • the UK will no longer be a member of EASA
  • the single sky legislation will no longer apply to the UK
  • all the other various EU legislation affecting aviation (such as Regulation 261/2004 and other passenger protection legislation, and legislation relating to airports) will cease to apply to the UK.

Where are we now? And what is likely to happen?

Read the June Bulletin:

www.clydeco.com/blog/brexit/article/the-eu-air-lawconsequences-of-brexit-for-the-uk

Although seven months have passed since then, it is not yet any clearer whether and if so to what effect such replacement arrangements will be proposed or sought, let alone whether they are likely to be agreed.

However, in her speech on 17 January, the Prime Minister gave some important indications as to the UK's general policy and approach. She made it clear that the UK is leaving the EU, including the single market, and that the UK will not seek to hold on to "bits of membership" or adopt a model already enjoyed by other countries. At the same time, the UK will pursue "a bold and ambitious Free Trade Agreement with the EU" that "should allow for the freest possible trade in goods and services between Britain and the EU's member states".

What does this mean for aviation (not specifically mentioned in her speech)? It could be said to suggest a somewhat contradictory approach - that on the one hand we would not wish to remain part of the European Common Aviation Area, while on the other we should seek some very similar sort of arrangement. However, the two objectives need not necessarily be contradictory, if continued effective membership of the EU single aviation market is achieved by way of a bespoke comprehensive free trade agreement, rather than by becoming party to an existing agreement such as the ECAA Agreement or by a specific aviation deal.

The crux will obviously be whether the remaining 27 EU Member States are willing to agree to this. While initial general indications from the EU side may not have appeared very helpful, the recent indication by Michel Barnier that there might be a case for a special deal relating to the City and financial services, because of its importance to the EU, opens the possibility of a similar constructive approach to aviation, for similar reasons, albeit as part of a comprehensive package.

If there is to be any real prospect of such a special deal for aviation, it will be important to get the message across to the Commission and the governments, electorates and business lobbies in the EU Member States that such a deal is in the interests of industry and passengers not only in the UK, but also in all EU Member States.

The single EU aviation market, in which UK airlines and passengers play a major role, brings significant benefits to users of air transport, airports and the tourism business throughout the Member States, which will be jeopardised if the UK is not permitted to continue to participate. Furthermore, UK exit threatens not only UK airlines and interests, but has direct possible adverse effects on non-UK airlines and interests in various ways, including in particular:

  • Although they will continue to be Community air carriers, and benefit from other continuing provisions of Regulation 1008/2008, non-UK airlines which have significant 5th or 7th freedom services involving a point in the UK, such as Ryanair, Wizz Air and Norwegian, will no longer automatically be entitled to operate these services.
  • Certain airlines are established in the UK but owned and controlled by other EU nationals - such as Thomas Cook and TUI. If the UK were to introduce a new requirement of ownership/control differing from that in Regulation 1008/2008, such airlines could be at risk of losing their UK operating licence.
  • Unless continuing participation is agreed, the UK will no longer be party to the EU/US open skies agreement, and the Bermuda II Agreement between the UK and the US, which has been dormant, will come back to life - including its limitation to US carriers operating at Heathrow! Partly for this reason, it is highly unlikely that this situation will be allowed to arise. While also perhaps not very likely, it is not impossible - particularly given the apparent state of relations between the EU and the new US Presidency - that the US could seek and conclude a separate bilateral deal with the UK and, having secured its principal objective, continued access to Heathrow, give notice of termination of the rump of the agreement with the EU, or at least threaten to do so.

"In her speech on 17 January, the Prime Minister also made it clear that the European Communities Act 1972 will be repealed (and with it the body of existing EU law – the "acquis") but at the same time such acquis will be converted into British law, so that the same rules and laws will continue to apply unless and until the British Parliament decides on any changes.

Hence, laws such as Regulation 261/2004 will continue to apply as they do at present, with necessary consequential amendments, unless and until Parliament decides to repeal it (highly unlikely) or amend it (less unlikely). The retention of the EU 'acquis' will not of course have the effect of conferring rights under EU law on UK nationals, except to the extent that such rights are conferred by any trade agreement concluded with the EU."

Competition law

While the question of the continued application of EU aviation legislation will depend on the agreement reached between the UK and the EU, there will be less uncertainty and possibility of change as far as competition law is concerned. This is because EU competition law applies in any event to any agreement (formal or informal), including cartels, alliances, or abuse of a dominant position, which affects trade between Member States, irrespective of whether the party or parties are located within the EU. Agreements or abuses which produce effects confined to the UK would be outside the scope of EU competition law, but UK competition law on agreements and abuses closely mirrors EU law (Articles 101 and 102 of the Treaty on the Functioning of the European Union ("TFEU")) so such practices would continue to be subject to those very similar national laws. 'Block exemption' regulations exempting categories of agreements such as vertical or technology transfer agreements, would no longer apply in the UK, but agreements which comply with them would remain exempt under EU law.

Articles 101 and 102 TFEU would, however, no longer apply in the UK and the jurisdiction of the European courts would cease. The UK would, therefore, have the ability to investigate and reach its own conclusions in cases which currently fall within the exclusive jurisdiction of the EU, which could be a benefit, but would require additional resources. It may be that the UK authorities and courts may be required, at best, to 'have regard' to the jurisprudence of the EU courts. This could potentially result in a divergence of jurisprudence. These and related issues are discussed in detail by the First Roundtable of the Brexit Competition Law Working Group ('BCLWG'), a body set up to develop policy suggestions for the UK Government.

First BCLWG Roundtable, 23 November 2016, see:

http://www.bclwg.org/activity/bclwg-note-first-rountable?_sf_s=roundtable

Mergers or joint ventures within the meaning of the EU Merger Regulation 139/2004 ('EUMR') would continue to be subject to the compulsory notification regime to the European Commission, if the relevant global, EEA and/ or EEA Member State turnover thresholds are met. The 'one-stop principle', whereby EU national authorities have no jurisdiction over mergers caught by the EUMR, will no longer exclude the UK authorities from claiming jurisdiction over such mergers, thus requiring notification to both UK authorities and the Commission, unless it is provided for in the EU/UK agreement. The BCLWG has set out possible options to enable the Competition and Markets Authority to deal with the expected increase in workload, an anticipated 50 extra merger investigations annually.

These have included the possibility of not conducting an indepth investigation if it appears that a parallel review by the Commission would result in an effective remedy.

Second BCLWG Roundtable, 5 December 2016, see:

http://www.bclwg.org/activity/bclwg-note-second-roundtable?_sf_s=roundtable

As regards state aid (Articles 107-109 TFEU), the UK would no longer be prohibited by EU law from granting subsidies or other advantages to undertakings such as airlines or airports, nor would UK companies be able to invoke EU state aid rules as against other EU states or undertakings. It may be that such matters would be the subject of a trade agreement reached with the EU in the event of the UK leaving the EU. In any event, action could, in theory, be brought against the UK under Regulation 868/2004 which prohibits unfair subsidies granted by third countries to airlines. Regulation 868/2004 has never been invoked, let alone resulted in enforcement action by the Commission, and is currently subject to review.

Brexit And Aviation - Update

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