Tuesday, 2 January 2018

The early bird catches the worm


Ryanair is an EU-based airline set up in Dublin. After Brexit it will have no problems flying from Ireland to other member states, just as it doesn't now. The difficulties will emerge with respect to the continuity of its three internal UK routes: Edinburgh-Stansted, Stansted-Belfast and Belfast-Gatwick. Shortly before Christmas, reports The Guardian, Ryanair used its new UK-based subsidiary, Ryanair UK, to apply for an aviation license so as to continue operating these three routes after we leave the EU.

In order to conduct its activity in the EU, Ryanair needs to be in possession of an Air Operator Certificate (AOC). The certificate is issued by the competent governmental authority of the member state it is based in. AOCs rely on Regulation (EC) 1008/2008 on 'common rules for the operation of air services in the Community' for their authority. Ryanair was given its AOC by the Irish Aviation Authority and the awarded certificate is recognised EU-wide as part of a harmonised system.

Once an airline is issued with an AOC it can operate anywhere in the EU. In the case of the UK, we are dealing with the Civil Aviation Authority (CAA). The CAA issues different types of AOCs and applicants must determine which one is relevant to them. Factors like the type of aircraft and routes operated will help to inform the applicant of their required certificate. Every single UK airline operating routes within the EU follows this procedure with no exceptions.

On Brexit, whether this be in 2019 or 2021, the UK is no longer part of the Community to which the above regulation refers. This means that AOCs granted by the UK's Civil Aviation Authority are no longer valid and recognised in the EU. Article 3.1 of the Regulation explains: "This Regulation regulates the licensing of Community air carriers, the right of Community air carriers to operate intra-Community air services and the pricing of intra-Community air services."

The literature is therefore clear that AOCs are applicable to the Community only. In the case of Ryanair this isn't such a big deal as it is not a UK airline. The purpose of setting up a subsidiary company in the UK is to begin the process of gaining an operating license to allow its services to continue in what will become a third country. As regards internal UK routes, Ryanair enjoys quite considerable market share, particularly through its low-price London to Belfast services.

EasyJet has precisely the opposite problem. It operates using an AOC granted by the CAA but as it is a UK-based airline it will have no trouble with its domestic operations. The issue for them is access to the Community, and so they have decided to spend £10m on establishing a subsidiary in Vienna, called EasyJet Europe. Post-Brexit they will need to maintain equivalence with EU regulations and either re-apply for a new license or apply for continuity on the current one.

Once Brexit has taken place, the UK will likely unilaterally recognise EU-administered AOCs in order to allow for maximum stability as far goes inbound European flights. The Regulation, along with the rest of the EU acquis, will find a home in UK law but will need to be altered so as to only include UK-relevant sections. The result of all this will be that our airlines will end up in possession of two adjacent licenses, one for the Community and one for the UK.

Airlines which set up skeleton teams in the EU, which I might suggest will be most, will find no substantive operational changes. In accordance with the Regulation, they will need to prove to the Commission on request that they are maintaining regulatory conformity (Article 8.1) and a review conducted by the competent authority of the member state in which they set up will take place two years after their new Community licenses take effect (Article 8.2).

This strategy will likely be adopted by other UK airlines and I see this as being a common development in 2018. Unlike with other common EU systems, such as Whole Vehicle Type Approvals, where producers will not have the same amount of flexibility, there is a useful workaround for Britain's airlines. But that workaround can be expensive. Airlines will not want to fork out on the costs of setting up subsidiaries and those that do might decide to abandon intra-UK routes altogether.

Another important point to make is that the cited Regulation laying out the common rules for the operation of air services makes clear that the text has EEA relevance. This means that setting up a subsidiary in the EU will allow airlines access to the airspace of EFTA EEA states, and that when the UK Government recognises EU-granted AOCs, that recognition will automatically spread to Norway and Iceland too. Switzerland, as ever, has its own distinct relationship with the EU governing aviation.

This post only attempts to explain why there is a need for subsidiaries and the preparatory arrangements currently being made by airlines. The question of our continued participation in the European Common Aviation Area (ECAA), and therein our access to the Single European Sky, is separate and very much up in the air. My understanding is that during the transition period (2019-2021) we will continue to operate under these frameworks with no substantive changes.

What comes after is anybody's guess. If our ECAA membership lapses then we will need to be invited by the Commission to rejoin, as per Article 32 of the agreement. Given that a prerequisite for membership is full equivalence with EU law it is entirely possible that a precursory invitation will be extended in negotiations to come. Participation at Eurocontrol, which assists in the development of the Air Traffic Management system, can be pursued separately as it is not an EU agency.

The CAA has also recommended that the UK remain under the umbrella of the European Air Safety Agency (EASA), the EU's aviation regulator. It will not have the expertise nor capacities to completely reconstruct distinct regulation in any quick or efficient way. And nor is there any real point in doing so. The commercial aviation sector in its current form is well established and we gain nothing and disrupt everything with unnecessary disentanglement.

The EU has shown willingness to work closely with neighbours in so far as promoting aviation integration and this need not change with the UK. Projects of mutual interest can and ought to be prioritised. We have regulatory conformity and this should provide an absence of technical barriers to continued participation in the ECAA. Luckily for us the matrix of aviation organisations before us transcends EU membership and thus smooth cooperation is perfectly achievable.






2 comments:

  1. This is just the superficial technicality. The more important development is that the British shareholders of easyjet, ryanair, IAG and WizzAir will be effectively wiped out if the UK doesn't stay in the EEA.

    http://www.cityam.com/276138/easyjet-plans-brexit-shake-up-could-force-uk-holders-sell

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    Replies
    1. That's because this is what I've decided to write about.

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