In terms of aviation, the EU is unique. Outside the EU, governments decide which airlines can operate services, where they can fly, and what fares they charge. Typically, each government designates its own leading airline and allows only one from its partner country to operate services between the two. Since competition is limited, there is no downward pressure on fares and passengers pay high prices.
In the EU single aviation market, which extends beyond the EU28 to eight neighbouring countries in the European Civil Aviation Area (ECAA), the ability of governments to impose constraints on designation, market access, fares, regulation and ownership has been removed.
Airlines from any EU member country are free to fly to, from, between, and within the territory of any other EU member state, provided they have a licence issued by their national authority.
Common safety standards applied by the European Air Safety Agency (EASA) and competition rules, including control of state aid, enforced by the European Commission and the Court of Justice of the European Union (CJEU) ensure a level playing field. The EU’s common air transport policy covers security, air traffic management and consumer protection, and importantly includes external relations.
As the UK government has said it will leave the single market, the UK will no longer be part of the regional multilateral system created by the EU. Provided that a transition period is agreed in the negotiations, the status quo will continue for a fixed period, which will minimize disruption. Once the transition period expires, however, the UK will become a third country.
There are three major areas that need to be addressed to ensure the smooth continuation of traffic beyond the transition period.
Services between the UK and the EU
When the transition period expires, licences issued by the UK regulator to UK airlines will cease to be recognised by EU members. This is why some UK airlines have sought to create companies elsewhere in the EU that are majority-owned and controlled by EU nationals. UK airlines will lose the extensive traffic rights they enjoy within the EU, and EU airlines will be similarly affected in the UK. Unless an agreement is struck, air services between the EU and the UK will have no framework within which to continue.
The options to avoid this are limited. First, ECAA membership – which would give operators the level of rights they currently enjoy – is only possible provided that the UK continues to comply with EU rules, as well as the CJEU’s interpretation of EU law, which the UK appears to have ruled out. It would also require the unanimous agreement of the member states.
Second, unlike trade, there is no ‘WTO option’ for aviation, as it is regulated by the Chicago Convention – an international agreement of almost 200 countries setting out the core principles of civil aviation. Third, the bilateral agreements the UK had with EU countries for aviation before it became a member are now considered to be null and void, so cannot be revived.
This leaves three possibilities. First, the UK and EU could sign a ‘neighbourhood agreement’, offering limited rights to UK airlines, with partial application of EU rules. Second, they could sign an ‘overseas agreement’ similar to that which the EU has in place with the US and Canada. Under such an agreement, the UK would be likely to face attempts from the EU27 to divert particularly transatlantic traffic away from Heathrow.
The third option is no deal. This would prevent UK and EU airlines operating to and from the UK. The EU27 have, however, signalled their willingness to be helpful in the latest version of their negotiating guidelines.
UK services to non-member states
Moreover, once the UK leaves the EU, UK airlines will no longer possess the traffic rights under the 114 agreements negotiated by the EU, nor will the airlines of non-member states have an agreement with the EU under which they can operate services to the UK.
Recent reports of an attempt by the UK to negotiate a post-Brexit air service agreement with the US illustrate some of the challenges that it is likely to confront. The talks broke up reportedly due an unwillingness on the part of the US to offer the UK better terms than the current EU–US agreement.
In future, the UK will have less leverage in negotiating with third countries than it enjoyed collectively as part of the EU. Ownership rules are also likely to be a problem. The UK’s future bilateral agreements will only grant traffic rights to UK airlines that are majority owned by UK nationals (as opposed to EU agreements, where the requirement is majority ownership and control by EU nationals). Early reports suggest major UK airlines do not fulfil this criterion.
Licences issued by the UK Civil Aviation Authority (CAA) will no longer be valid for operating in the EU when the UK ceases to be an EU member state, and the mutual recognition of certificates and approvals will end. It appears unlikely that the UK will be able to remain affiliated to EASA, so the CAA will assume responsibility for certifying aircraft and parts, and licensing pilots and maintenance engineers.
However, the CAA has explicitly refused to make any plans for assuming the functions of EASA, on the publicly stated grounds that “it would be misleading to suggest [that] that’s a viable option” – which is an astounding position for a UK government agency to take.
The stakes for aviation in the negotiations are high. The most likely scenario is that market access will be lost by both sides, and that UK industry and consumers will be hit especially hard.
It is hard to see any outcome that will benefit UK airlines or consumers, airlines from abroad that serve the UK, or the employees in firms that depend on air transport.
By Hussein Kassim, senior fellow at The UK in a Changing Europe. This article was taken from the Article 50: one year on report.
The views expressed in this analysis post are those of the authors and not necessarily those of the UK in a Changing Europe initiative.