Insights / 04-08-2016 / London

Under EU Parliament and Council Regulation 1008/2008 (“Regulation 1008”) no undertaking established in the Community is permitted to carry by air passengers, mail, and/or cargo for remuneration and or/hire unless it has been granted an operating licence. It confers the status of “Community carrier” to any airline that meets the conditions of the Regulation, which include:

1. Having its principal place of business located in a Member State, defined as “the head office or registered office … within which the principal financial functions and operational control, including continued airworthiness management … are exercised” under Article 2(26); and
2. That Member States and/or nationals of Member States own more than 50 % of the undertaking and effectively control it, whether directly or indirectly through one or more intermediate undertakings, except as provided for in an agreement with a third country to which the Community is a party, under Article 4(f).

If the UK withdraws from the EU without a new agreement conferring the same rights as exist during membership, UK carriers would be left, at least in theory, with no rights to fly scheduled services into, or within, the EU. This is because they would no longer be “Community air carriers” and also because under international law (established by the Chicago Convention of 1944) every state has “complete and exclusive sovereignty over the airspace above its territory”. Thus, permission is required to even access that airspace. Chicago did grant to contracting parties (now nearly all states) certain rights for non-scheduled services but not for scheduled services for which “special permission” is required – hence the need for international air service agreements. Additionally, the 1944 multilateral International Air Services Transit Agreement (adopted by most states, including 26 of the 28 EU States) does grant 1st and 2nd freedoms (the right to over fly and stop for “non-traffic purposes”) for scheduled international air services between contracting states.

This, of course, puts aviation in a totally different situation from other industries. The key issue with UK withdrawal from the EU for most industries is not access to the market but that of customs duties that could apply without free-trade agreements. For air carriers from the UK there would simply be no right of access (at least for scheduled flights). Still, as dramatic as this may seem, it should be remembered that the international aviation industry has always operated within this framework and bilateral air service agreements are the essential business norm.

The real issue for UK carriers is what will be achievable in terms of new rights if Brexit happens. It is highly likely that rights to fly to and from EU destinations (e.g. 3rd and 4th freedom rights) would be negotiated but what about additional rights (e.g. 5th freedoms adding sectors or standalone sectors between two non-UK points located in the EU)? For a UK carrier after Brexit, there could potentially therefore be a loss of the ability to offer services, for example, between Amsterdam and Berlin or Milan and Rome. This would have serious consequences for UK carriers, particularly for carriers servicing the tourist market.

On the other hand, EU carriers would also be required to hold the relevant traffic rights in order to continue flying to/from the UK. Furthermore, UK carriers which are currently not substantially owned and effectively controlled by UK nationals – but by EU nationals – would no longer qualify as UK carriers for the purpose of traffic rights and for holding a UK operating licence.