Brexit scenarios for business aviation - January 2018 - For EBAA - GBAA

 
Brexit scenarios for business aviation - January 2018 - For EBAA - GBAA
Brexit scenarios
for business aviation
January 2018

                        For EBAA
Brexit scenarios for business aviation - January 2018 - For EBAA - GBAA
Brexit scenarios for business aviation - January 2018 - For EBAA - GBAA
1

Foreword
by Brandon Mitchener, CEO, EBAA

On the 23 June 2016, the UK voted            for a future relationship. It is our hope
to leave the European Union. This            and aspiration that this phase places the
decision will result in a new relationship   views and concerns of business aviation
between the twenty-seven remaining           at its core.
members of the European Union and
the United Kingdom.                          Business aviation contributes a total of
                                             192,000 jobs to the European economy
On the road to that new relationship         directly, with an additional 182,000
numerous challenges must be overcome         estimated to be generated indirectly.
and agreed upon. This report aims to         The sector generates EUR 42bn in
place the challenges of the Business         Output, EUR€15bn in Gross Value Add,
Aviation sector firmly at the heart of       benefiting a number of economies across
discussions between the EU and the           the EU. Germany, the UK, Italy and
UK. It presents the current relationship     France are key locations where business
between the EU and the UK before             aircraft operate, and it is paramount
presenting six scenarios for a future one.   that this business activity continues
It maps out the key topics of interest       uninterrupted after Brexit.
for the business aviation industry -
traffic rights, ownership and control,       The EBAA looks forward to working with
Value Added Tax (VAT) / Customs duty         negotiators in both Brussels and London
and the future relationship with the         to ensure the specific expectations of the
European Aviation Safety Agency (EASA)       business aviation sector are appreciated,
– analysing how these topics would fare      and that any future agreement is mindful
under a future scenario.                     of the very direct consequences that could
                                             arise for our sector and the European
Following the publication of the             businesses and citizens we serve.
Joint Report of the EU and UK Brexit
negotiations on 8 December 2017, and         Brandon Mitchener
the approval of the European Council         CEO, European Business
to move to phase two of negotiations,        Aviation Association
negotiators must now agree a framework
Brexit scenarios for business aviation - January 2018 - For EBAA - GBAA
Contents

Section 1           Section 2

05.                 09.                   10.                  11.                 12.                  13.
Executive           Overview              Introduction         Current UK          Brexit models        Types of business
summary                                                        aviation                                 aircraft operation
                                                               relationships

                                                                                                        Section 3

15.                 18.                   19.                  19.                 19.                  23.
Traffic rights      Ownership and         VAT / Customs        European Aviation   Other                Brexit: Impact of 6
                    control               duty                 Safety Agency                            possible models
                                                               (EASA)

24.                 25.                   28.                  30.                 33.                  39.
Model 1: Maintain   Model 2: Join         Model 3: Negotiate   Model 4: Join       Model 5: Revert to   Model 6: Negotiate
status quo          the European          a UK-EU bilateral    the European        previously agreed    new ASAs
                    Economic Area         aviation agreement   Common Aviation     bilateral ASAs (no   with EU and /
                                          on the Swiss model   Area (ECAA)         “aviation deal”)     or individual
                                                                                                        Member States

                    Annex 1               Annex 2              Annex 3             Annex 4              Annex 5

39.                 43.                   47.                  61.                 65.                  73.
Other               Business aviation:    Traffic rights       Ownership and       Customs duties /     European Aviation
arrangements        Key types of                               control             VAT                  Safety Agency
                    aircraft operations
Brexit scenarios for business aviation - January 2018 - For EBAA - GBAA
3

Annex 6            Annex 7         Annex 8          Annex 9

79.                83.             87.              91.
Air traffic        The Cape Town   Other relevant   Conclusion –
management /       Convention      EU law           Summary table
Single European
Sky ATM Research
project
Brexit scenarios for business aviation - January 2018 - For EBAA - GBAA
Section 1
Brexit scenarios for business aviation - January 2018 - For EBAA - GBAA
5

Section 1

Executive summary
Brexit scenarios for business aviation - January 2018 - For EBAA - GBAA
Section 1

Following the Joint Report of the EU and UK Brexit negotiators
on 8 December 2017, the aviation industry might be forgiven
for issuing a collective sigh of relief that, nearly nine months
after the triggering of Article 50, discussions will finally move
on to the future trading relationship between the EU and the UK.

However, there is of course a huge            models” for aviation, which are:          also discussed extensively in this report.
amount of work to be done, and three
dangers for the business aviation sector.     1. Maintenance of the status quo.         By way of brief summary we note some
The first is that, on the basis of the                                                  of the points and conclusions reached in
                                              2. The UK joins the European Economic     this report in respect of these four areas:
EU’s negotiating stance that “nothing
                                                 Area (EEA).
is agreed until everything is agreed”
                                                                                        Traffic rights
the future relationship in respect of         3. Negotiation of UK-EU bilateral.
aviation will not be subject to any form         aviation agreement (Swiss model).      –– Operating licence holders enjoy
of bespoke standalone arrangement but                                                      unfettered access to intra-EU routes
will need to be part of an overarching        4. The UK joins the European Common
free trade agreement. The second is              Aviation Area (ECAA).                  –– This includes 7th freedom (e.g. UK
that negotiators may come to a deal                                                        operator: Amsterdam-Lyon) and 9th
                                              5. No “aviation deal”: reversion to          freedom (e.g. UK operator: Milan-
relating to the airline industry without
                                                 previously agreed bilateral air           Rome) routes
consideration of the needs of the
                                                 services agreements (ASAs).
business aviation sector, which are
                                                                                        –– Only models 1 (status quo) and 2 (EEA)
not necessarily the same. Regulation          6. Negotiation of a new ASAs with EU         would preserve the existing regime
of the business aviation market has              and / or individual Member States.
traditionally followed in the slipstream                                                –– Model 3 (Swiss model) – does not
of the wider aviation industry, and           This report analyses the impact of           include 8th and 9th freedoms
there is now an opportunity to raise          each of these models in four main            (“cabotage”)
specifically the requirements of this         areas in particular:
unique sector.                                                                          –– Model 4 (ECAA) – 3rd and 4th
                                              1. Traffic rights / market access.           freedoms available immediately, intra-
The third danger is that liberalisation of                                                 EU 5th freedom available at Stage 2,
the air transport sector in the EU, which     2. Ownership and control.
                                                                                           and full market access only at Stage 3
by general consensus, and ironically, is
                                              3. VAT / Customs duties.
one of the EU’s finest achievements and                                                 –– Models 5 (revert to previous ASAs) and
has been of considerable benefit, may be      4. European Aviation Safety Agency           6 (negotiate new ASAs) – likely up to
partially or even wholly rolled back.            (EASA).                                   5th freedom only

The purpose of this report is to examine      The wider impact of EU membership         The following should also be noted:
what a future regulatory environment          is not of course limited to European
between the EU and the UK in relation                                                   –– 1956 Paris Agreement: this covers
                                              markets, as the EU has negotiated
to the business aviation market may                                                        non-scheduled routes but only for 24
                                              various multilateral Air Transport
look like, in order to arm EU and UK                                                       Contracting Parties (including the UK)
                                              Agreements with third countries on
negotiators with the background                                                            and certain restrictions apply
                                              behalf of the UK. Upon leaving the
information they may require. On the          EU, the UK will automatically cease       –– Private flights largely unaffected
basis that negotiating strategy must be       to be party to those multilateral
informed by (to use military parlance)        agreements and will have to negotiate
selection and maintenance of the aim,         new arrangements with those third
this report focuses on six possible “Brexit   countries. This “external dimension” is
Brexit scenarios for business aviation - January 2018 - For EBAA - GBAA
7

Ownership and control                         The risk of Brexit is:
                                                                         Majority UK owned                        Majority EU owned
EU liberalisation in air transport created
                                                                         and controlled                           and controlled
the concept of the “Community air
carrier”, which is relevant to EU business                               Risk of losing “Community air            Continuing status in the UK
                                              UK operators
aircraft operators providing commercial                                  carrier” status vis-à-vis the EU.        will depend on future UK rules.
air transport services i.e. chartering
aircraft. Reg 1008 / 2008 requires a                                                                              Ability to fly to and within
                                                                         Risk of losing “Community
Community air carrier to be majority          EU operators                                                        the UK will depend on future
                                                                         air carrier” status in the EU.
owned and effectively controlled by EU                                                                            UK rules.
nationals.                                    Only models 1 (Status quo), 2 (EEA), 3 (Switzerland) and 4 (ECAA – final stage only)
                                              apply common EU ownership and control rules.

VAT / Customs duties                          EASA                                                    “Hard Brexit” scenario

Current UK Government policy is that the      EASA is an agency of the EU under                       The risks of a “no deal” (or “cliff edge”)
UK will be leaving the EU Customs Union,      Basic Regulation 216 / 2008. There is no                scenario are:
and will likely therefore need to establish   appetite for the UK not being in the EASA
its own standalone customs zone, aligned      regime – it would be expensive and time-                –– WTO rules do not provide a fall-back
in some way with the EU zone. Absent an       consuming to build up an alternative                       position for aviation.
agreement, post-Brexit importation of a       infrastructure, with considerable risk of
                                                                                                      –– UK operators would lose “Community
business aircraft through the UK will not     divergence. Norway, Iceland, Lichtenstein
                                                                                                         air carrier” status and therefore intra-EU
automatically provide “free circulation“ in   and Switzerland have been granted
                                                                                                         traffic rights (including 7th and 9th
the rest of the EU (and vice versa).          participation under Article 66 of the
                                                                                                         freedoms).
                                              Basic Regulation and are members of the
                                              Management Board without voting rights,                 –– EU operators with significant UK
                                              and EASA allows for numerous “Working                      shareholdings may fail Reg 1008 / 2008
                                              Relationships” (e.g. Turkey.) It is likely that            ownership and control test.
                                              the UK would follow one of these models,
                                              but would thereby lose influence over the               –– If the UK re-introduces a UK O&C
                                              legislative process. A specific issue for non-             requirement, UK operators with large
                                              commercial business aircraft operations                    EU shareholding could be at risk.
                                              is whether or not Reg 965 / 2012 Part-NCC
                                                                                                      –– EU aviation legislation would no longer
                                              will continue to apply to the UK post-Brexit.
                                                                                                         apply to the UK (unless specifically
                                                                                                         re-enacted).

                                                                                                      –– The UK may cease to be a member of EASA.
                                                Summary tables
                                                                                                      –– The UK will cease to benefit from
                                                The tables in Annex 9 summarise                          third country aviation agreements
                                                the conclusions of this report.                          concluded by the EU (e.g. US Open
                                                                                                         SkiesAgreement).
Brexit scenarios for business aviation - January 2018 - For EBAA - GBAA
Section 2
9

Section 2

Overview
Section 2

1. Introduction                                 The eight annexes set out background
                                                material and further detail in relation to
Following the United Kingdom’s exit from
                                                the following aspects of business aviation
the European Union in March 2019, EU
                                                which will be particularly impacted by
law will (subject to any agreed transition
                                                Brexit, five of which are also discussed in
period) no longer automatically apply to
                                                this overview:
the UK, leaving much uncertainty for
the future of air transport, including the
business aviation market. In order to             Topic                                   Section 2 - Overview   Annex
ensure continued access to liberalised
air transport markets and a familiar
regulatory environment, some form of              Key types of aircraft operations        Para 4                 1
arrangement between the UK and the EU
will be necessary to provide a suitable legal
framework post-Brexit.                            Traffic rights                          Para 5                 2

There has been much commentary in the
media on the potential impact of Brexit on        Ownership and control                   Para 6                 3
airlines. By contrast, this report focusses
on the current regulatory environment
applicable to business aviation operators,        Customs duties / VAT                    Para 7                 4
and the potential impact of Brexit on such
operators.

This report consists of the main body and         EASA (including licensing)              Para 8                 5
eight annexes.
                                                  Air traffic management / Single
In the main part of the report, we set out                                                                       6
                                                  European Sky ATM Research
what we consider to be the six possible
“Brexit models” for aviation, and analyse
the impact of each of these models on             The Cape Town Convention                                       7
business aviation, and in particular on the
eight topics summarised below.
                                                  Other relevant EU law                                          8
11

2. Current UK aviation relationships

The UK’s current air services
relationships, which will need to be
addressed post-Brexit are as follows:

                                                                 Number of countries that UK has an air services
                                                                 relationship with through each type of arrangement

Traditional bilateral Air Services Agreement (ASA)                                    111

EU internal aviation market (EU Member States)                                        27

EU internal aviation market (EEA Member States)
                                                                                       3
(Norway, Iceland, Liechtenstein)

EU internal aviation market
                                                                                       1
(Switzerland)

EU internal aviation market (ECAA Agreement)

(Albania, Bosnia & Herzegovina, Macedonia, Montenegro, Serbia,
                                                                                       6
Kosovo)

EU comprehensive Air Transport Agreements with third
countries                                                                              7
(USA, Canada, Georgia, Israel, Jordan, Moldova, Morocco)

Source: UK Department of Transport.
Section 2

3. Brexit models                                Certain of these options (for example,
                                                joining the EEA) appear to have already
In our view, there are six possible post-
                                                been dismissed by UK Government
Brexit models for the UK in relation to
                                                policy, as set out in Prime Minister
European aviation generally which will be
                                                Theresa May’s speech in Florence on
discussed further in Section 3 of this report
                                                22 September 2017. For completeness
in the context of business aviation:
                                                we shall in this report consider them
I. Status quo: A deal is reached agreeing       all, nevertheless, as each example is
   to full continuation of the present          instructive and can inform debate as to
   status quo for aviation including            what each of the UK and the EU might
   business aviation.                           aim for from a future relationship in
                                                relation to aviation.
II. EEA: The UK joins the European
    Economic Area (“EEA”).                      We also discuss in this report the
                                                possible impact of Brexit on non-
III. Switzerland model: The UK                  scheduled commercial traffic from the
     enters into a Swiss-style “packages        UK to the US (and vice versa) and to
     agreement” with aviation as one of the     other non-EU countries.
     packages.
                                                In this context we shall also discuss:
IV. ECAA: The UK joins the European
    Common Aviation Area (“ECAA”).              I. Transitional arrangements: under
                                                   these it would be envisaged that the
V. No deal: There is no special deal               present status quo would continue for
   for aviation and the UK reverts                 a limited period pending negotiation
   to previously agreed bilateral Air              and agreement of a long-term
   Services Agreements (i.e. before                deal. This appears to be the UK
   EU liberalisation), the main result             Government’s current preferred
   of which is that, to the extent they are        position for the first two years after
   relevant, old bilateral regimes                 March 2019, but is not a solution or
   will revive.                                    model for aviation as such.

VI.New arrangements: The UK                     II. Comity and reciprocity: the legal
   negotiates a new Air Services                    principle of “comity and reciprocity”
   Agreement with the EU (not Swiss                 could be relied on to bridge the gap
   style i.e. not part of a ‘package                while an agreement is reached.
   agreement’) (it being acknowledged
   that separate bilateral Air Services         III. Separate deal: whether a separate
   Agreements with individual Member                 deal for business aviation might be
   States are unlikely to be permitted by            achievable.
   the Council).
13

4. Types of business aircraft operations       perspective. The reason for this focus
                                               is because the main impact of Brexit
There are four principal types of business
                                               will be on the traffic rights available to
aircraft operations:
                                               commercial business aircraft operators,
I. Commercial air transport (Part-CAT).        as opposed to operators / managers who
                                               conduct only private flights.
II. Non-commercial operations with
    complex aircraft (Part-NCC).               In our view Brexit will have very little
                                               impact on the (fairly unrestricted) traffic
III. Non-commercial operations with            rights available to business aircraft
     aircraft other than complex (Part-NCO).   managers who conduct private flights
                                               only. This would include for example
IV. Specialised operations (Part-SPO).
                                               operators who manage aircraft on
These are described in detail in Annex 1       behalf of the aircraft’s owner without
(Business aviation: key types of aircraft      that aircraft being available for charter
operations) below.                             or hire by third parties, or in-house
                                               company flight departments operating
The characterisation and rules                 aircraft for the wider group company
summarised above derive principally            of which it is part and is cross-charging
from EASA. Their applicability to the          internally for the service. As discussed
UK post-Brexit will depend on the              in detail in this report, the main impact
UK’s relationship with EASA, which             on such operations will depend on
is discussed in detail in this report,         whether the UK remains subject to EASA
primarily in Annex 5. For example, Part-       rules or not, and the applicable regime
NCC applies to EU operators of certain         if not (for example, would Part-NCC or
types of business aircraft, and to EU          an equivalent apply post-Brexit?). The
registered aircraft operated by foreign        extensive discussion on traffic rights in
operators. Clearly, if post-Brexit there is    this report will be largely irrelevant to
no agreement in place applying Part-           non-commercial operations.
NCC to UK operators and UK registered
aircraft then Part-NCC would no longer
be applicable in the UK.

This report concentrates primarily
on commercial air transport (i.e. (i)
above). In this context, the report
examines non-scheduled flights, the
unscheduled nature of such flights being
the principal characteristic of business
aircraft operations from a traffic rights
Section 2

5. Traffic rights                                        –– 1956 Multilateral Agreement on
                                                            Commercial Rights of Non-Scheduled
UK and EU business aircraft operators
                                                            Air Services in Europe
The adjacent table (Figure 1) is a                          This Agreement (also known as
summary of the possible impact of each                      the “Paris Agreement”) operates
of the “Brexit scenarios” on both UK                        independently of the EU legal
and EU business aircraft operators with                     framework and liberalises traffic
respect to traffic rights.                                  rights for certain categories of
                                                            non-scheduled flights. Due to the
Non-EU Operators                                            liberalisation of the EU air transport
                                                            market within the EU in the 1990s and
The position for non-EU operators is
                                                            between the EU and its key aviation
described below in Annex 2 (Traffic
                                                            partners, the 1956 Agreement has
rights), noting that UK operators
                                                            gradually become obsolete, although
themselves may become “third country
                                                            it may provide a legal framework for
operators” for these purposes in the
                                                            the operation of certain non-scheduled
event of a scenario where no deal is
                                                            air services if no specific arrangement
reached for aviation (and conversely
                                                            is put in place by the time UK leaves
EU operators may become “third party
                                                            the EU. It is, however, limited in
operators” in relation to flights from the
                                                            scope, in particular it only applies to
EU to the UK).
                                                            civil aircraft registered in a Member
Please note the following which may                         State of the European Civil Aviation
apply unless superseded by a new                            Conference (“ECAC”).
agreement:
                                                           This Agreement is discussed in detail
–– The Chicago Convention 1944                             in Annex 2 (Traffic rights).
   Non-commercial non-scheduled
   operations have a right to operate
   3rd (i.e. set down traffic) and 4th
   (i.e. pick up traffic) freedom flights
   to Contracting States under the
   Convention on International Civil
   Aviation of 1944 (the “Chicago
   Convention” or “Convention”),1
   subject only to an advanced notice
   requirement.

1
    The Convention on International Civil Aviation (the “Chicago Convention”), 7 December 1944, (1994) 15 U.N.T.S. 295
15

    Figure 1
                                                              Access to routes
                                                                                                                     Impact on other
Possible models        Likelihood                     Implications                  Impact on UK operators
                                                                                                                     EU operators

Maintain             –– Unlikely scenario,          –– No foreseeable change      –– No foreseeable change         –– No foreseeable change
Figure 1
status quo              considering that the           from the arrangements         from the arrangements            from the arrangements
                        other EU Member                applicable as of Brexit       applicable as of Brexit          applicable as of Brexit
                        States would have to           date (30 March 2019)          date (30 March 2019).            date (30 March 2019).
                        unanimously consent            until a deal is reached.
                        to this outcome.
                                                    –– Uncertainty over the
                     –– Contrary to the UK             applicable dispute
                        negotiating position.          resolution mechanism.

Join the             –– Framework for               –– Highly desirable           –– Continued access to           –– Continued access to
European                aviation is likely to be       for both UK and EU            the liberalised Single           the UK and its internal
Economic Area           dictated by agreements         operators; preserves          Aviation Market based            market based on Reg.
                        in other areas, in             full market access.           on Reg. 1008 / 2008              1008 / 2008 (all nine
(e.g. Norway)           line with the EU’s                                           (all nine freedoms               freedoms available).
                                                    –– EEA EFTA Member
                        negotiating position i.e.                                    available).
                                                       States adopt majority                                       –– EU non-scheduled
                        negotiations are to be
                                                       of “EEA relevant”          –– UK non-scheduled                 commercial operators
                        conducted as “a single
                                                       EU law without                commercial operators             treated the same as
                        package”: “individual
                                                       having any influence          treated like Community           UK operators.
                        items cannot be settled
                                                       over the legislative          operators with full access.
                        separately” – no sector-
                                                       process (creates
                        by-sector participation
                                                       sovereignty issues).
                        in the Single Market.

                     –– Contrary to the UK
                        negotiating position:
                        UK would have to keep
                        all four “freedoms”
                        without any restrictions,
                        including free
                        movement of persons.

Negotiate a          –– UK-EU bilateral aviation    –– Good option for            –– Flights to and from           –– Flights to and from
UK-EU bilateral         agreement will likely          securing 1st to 7th           the UK: Swiss-style              the UK: Swiss-style
aviation                be negotiated as part          freedom rights,               bilateral covers 3rd and         bilateral covers 3rd and
agreement               of a larger package;           but notable lack of           4th freedoms.                    4th freedoms.
                        standalone agreement           “cabotage” rights (i.e.
(e.g. Switzerland)                                                                –– Flights within the EU:        –– Flights within the UK:
                        is unlikely.                   8th and 9th freedoms).
                                                                                     Swiss-style bilateral            Swiss-style bilateral
                     –– Aviation regulated by       –– Applies aviation acquis       covers 5th and 7th               does not cover 8th
                        one of seven inter-            interpreted in line           freedoms.                        or 9th “cabotage”
                        linked bilaterals, most        with CJEU decisions                                            freedoms – UK unlikely
                                                                                  –– Flights within an EU
                        likely including free          delivered prior to                                             to grant rights for
                                                                                     Member State: Swiss-
                        movement of persons            the adoption of the                                            commercial non-
                                                                                     style bilateral does
                        - contrary to the UK           agreement.                                                     scheduled flights
                                                                                     not cover 8th or 9th
                        negotiating position.                                                                         without reciprocity.
                                                                                     “cabotage” freedoms.
                     –– Swiss-style bilateral
                        allows for separate
                        regulation and no
                        CJEU oversight.
Section 2

 Figure 1 cont.
                                                             Access to routes

Possible models     Likelihood                   Implications                  Impact on UK operators       Impact on other EU operators

Join the          –– Contrary to the aims       –– Supported by the industry. –– Flights to and from the –– Flights to and from the UK:
European             of Brexit – allows for a                                    UK: ECAA Agreement           ECAA Agreement covers
                                                –– Viable option; UK
Common               gradual grant of market                                     covers 3rd and 4th           3rd and 4th freedoms from
                                                   already applies full
Aviation Area        access in parallel with                                     freedoms from the            the onset.
                                                   EU aviation acquis and
                     increasing regulatory                                       onset.
                                                   could potentially be                                    –– EU carriers able to operate
(e.g. Serbia)        convergence; requires
                                                   fast-tracked to 3rd        –– Flights within the EU:       between the UK and any
                     acceptance of EU
                                                   stage under the ECAA          intra-EU 5th freedom         airport in the EU (including
                     aviation law across all
                                                   Agreement (i.e. full          rights available in          to / from other EU Member
                     areas (NB importance
                                                   access to the Single          the 2nd stage and 7th        States).
                     of ‘sovereignty’ issues in
                                                   Aviation Market) –            freedom rights available
                     Brexit debate).                                                                       –– Flights within UK: ECAA
                                                   effectively maintaining       at the final stage.
                                                                                                              Agreement covers 8th or
                  –– No automatic right to         status quo.
                                                                              –– Flights within an EU         9th “cabotage” freedoms,
                     join, other EU Member
                                                –– Securing 7th freedom          Member State: full           but only at the final stage.
                     States may oppose UK’s
                                                   and / or “cabotage” rights market access (including
                     joining.
                                                   will be challenging.          “cabotage”) and right of
                  –– ECAA generally aimed                                        establishment only at the
                                                –– UK would have no
                     at States increasing (not                                   final stage.
                                                   ability to shape EU
                     decreasing) the level of
                                                   legislation it is required
                     association with the EU.
                                                   to adopt.

                                               –– ECAA Agreement
                                                  entered into force on 1
                                                  December 2017.

Revert to /       –– Simple fall back          –– Depends on whether      –– Flights to and from the –– Flights to and from the
renegotiate          option that can be           previous bilateral         UK: existing bilateral     UK: existing bilateral
bilateral            almost immediately           agreements have been       agreements likely          agreements likely provide
Air Service          implemented, but not         suspended or revoked.      provide sufficient         sufficient basis for 3rd and
Agreements           all existing bilateral                                  basis for 3rd and 4th      4th freedoms.
                                             –– Stable framework
                     agreements may be                                       freedoms.
                                                providing legal certainty                            –– Flights within the
                     revived.
                                                for the continuation of –– Flights within the           UK: existing bilateral
                  –– Counterparties             air services.                EU: existing bilateral     agreements do not cover
                     may bargain for the                                     agreements unlikely to     8th or 9th freedoms –
                                             –– Most existing bilateral
                     exchange of 5th, 7th or                                 exchange 5th and 7th       UK unlikely to grant
                                                agreements are likely
                     9th freedom rights.                                     freedoms.                  “cabotage” rights for
                                                to contain restrictions
                                                                                                        commercial non-scheduled
                  –– Reversion is unlikely      on designation, routes, –– Flights within the
                                                                                                        flights without reciprocity.
                     scenario given the         capacity, frequency and      EU: existing bilateral
                     regression from the        pricing – a significant      agreements do not
                     liberalised regime         step back from current       exchange 8th and 9th
                     currently in force         liberalised regime.          freedoms.
                     (but not impossible
                                             –– UK-US Bermuda
                     if no deal is put in
                                                II Agreement is
                     place), success of
                                                particularly restrictive,
                     renegotiation is
                                                providing for single
                     uncertain.
                                                designation per route
                                                on most transatlantic
                                                routes, and restricted
                                                services to London
                                                Heathrow to two US
                                                and two UK airlines and
                                                limited 5th freedom
                                                services.
17

 Figure 1 cont.
                                                              Access to routes

Possible models     Likelihood                     Implications                Impact on UK Operators       Impact on other EU operators

Negotiate        –– UK-EU bilateral aviation –– The suitability of           –– Flights to and from the   –– Flights to and from the
completely          agreement will likely       this arrangement is             UK: exchange of 3rd          UK: existing bilateral
new bilateral(s)    be  negotiated as part      entirely dependent              and 4th freedoms is          agreements likely provide
with the EU and     of a larger package;        on what rights can be           standard practice.           sufficient basis for 3rd and
/ or individual     standalone   agreement      negotiated, and with                                         4th freedoms.
                                                                             –– Flights within the EU:
Member States       is unlikely.                how many States.
                                                                                exchange of 5th and       –– Flights within the
                  –– Likelihood wholly           –– EU Member States            7th freedoms could           UK: existing bilateral
                     dependent upon                 would probably be           be possible under            agreements do not cover
                     willingness of EU              precluded from              a comprehensive              8th or 9th freedoms – UK
                     Member States and              negotiating directly with agreement such as              unlikely to grant “cabotage”
                     third countries to             the UK whilst the EU’s      the EU-US Open Skies         rights for commercial non-
                     enter into new bilateral       current Brexit mandate      Agreement.                   scheduled flights without
                     agreements.                    remains in force.                                        reciprocity.
                                                                             –– Flights within the
                  –– European Commission         –– Negotiation is not          EU: existing bilateral
                     could be granted a             a quick process.            agreements do not
                     mandate to negotiate                                       exchange 8th and
                     on behalf of the EU,                                       9th freedoms.
                     precluding separate
                     agreements with
                     individual Member States.

                  –– UK may be prevented
                     from renegotiating
                     agreements prior to
                     formal exit from the EU
                     making it more difficult
                     to implement new
                     agreement prior to exit.
Section 2

6. Ownership and control                            State, but would still not be entitled to be
                                                    issued an EU operating licence if it is not
The ownership and control rules are
                                                    majority owned and effectively controlled
discussed in detail in Annex 3 (Ownership
                                                    by Member States and / or nationals
and control) below. These apply to
                                                    of Member States. In the case of a UK
‘Community air carriers’ i.e. in the business
                                                    business aircraft operator which is
aviation context an EU business aircraft
                                                    owned and controlled by EU nationals
operator which is providing commercial air
                                                    at present, its continuing status in the
transport services. The principal place of
                                                    UK would depend on UK rules going
business of a ‘community air carrier’ must
                                                    forwards, which some commentators are
be the Member State which granted that
                                                    suggesting may be more liberal than is
carrier its Air Operator Certificate (“AOC”).
                                                    currently the case under Regulation 1008
Further, one of the criteria for being a
                                                    / 2008.
‘Community air carrier’ (and holding an EU
operating licence) is that, under Regulation        Conversely, it follows that an EU business
(EC) No 1008 / 2008 (“Regulation 1008 /             aircraft operator which is majority owned
2008”),2 Member States and / or nationals           and effectively controlled by UK nationals
of Member States must (i) own more                  could lose its status as a ‘Community air
than 50% of the carrier and (ii) effectively        carrier’ under Regulation 1008 / 2008.
control it.
                                                    The principal disadvantage of losing status
Following a scenario where the UK leaves            as a ‘Community air carrier’ is losing
the EU with no new agreed arrangements              access to the liberalised commercial air
being in place, a UK business aircraft              transport market in the EU, as discussed
operator will not be entitled to remain or          in detail in Annex 2 (Traffic rights).
become a ‘Community air carrier’, as its
principal place of business will be in the
UK (and therefore outside the EU) and its
AOC will have been issued by a country
which is not an EU Member State. That
operator could endeavour to set up a
principal place of business in the EU, and
obtain an AOC from the relevant Member

2
  Regulation (EC) No 1008 / 2008 of the European Parliament and of the Council of 24 September 2008 on common rules for the operation of air services in
the Community (Recast) (OJ L 293, 31.10.2008, p. 3)
19

7. VAT / Customs duty                            8. European Aviation Safety Agency
                                                    (EASA)
It is current UK Government policy that
the UK will be leaving the EU Customs            When the UK ceases to be a Member State
Union. In summary this will have the             of the EU, absent a special arrangement,
following consequences in relation to            it will no longer be a member of EASA. To
VAT and customs duty as applying to              what extent UK operators of UK-registered
business aviation:                               aircraft would be affected will largely
                                                 depend on the UK’s membership of or
I. The rules in relation to VAT / Customs        relationship with EASA.
   duty above will continue to apply in
   the UK (and in The Isle of Man) post-         EASA is discussed in detail in Annex 5
   Brexit, at least during an interim period     (European Aviation Safety Agency).
   pending any amendment.
                                                 9. Other
II. However, these rules would apply to a
                                                 In this report we shall also discuss the
    standalone separate UK customs zone.
                                                 impact of Brexit on:
III. The interpretation of and development
                                                  i. Air traffic management and
     of these rules would no longer be
                                                     EUROCONTROL – see Annex 6.
     subject to the jurisdiction of the Court
     of Justice of the European Union (the        ii. The Cape Town Convention – see
     “CJEU”). The applicability of pre-Brexit         Annex 7.
     CJEU judgments would be a matter for
                                                  iii. Other relevant aviation law – see
     the UK legislature / courts.
                                                       Annex 8.
IV. Going forwards, it would be open to the UK
    to amend the rules or adopt new rules.

V. An importation of a business aircraft
   through the UK / Isle of Man would not
   therefore automatically provide “free
   circulation” in the remainder of the
   EU – without a form of agreement being
   in place between the UK and the EU to
   allow for this.

VI. The temporary admission rules
    applicable in the EU will in principle
    apply to UK registered business
    aircraft – as these will no longer be
    EU registered aircraft. Again, this is
    provided that there is no agreement
    in place between the UK and the EU
    providing for an alternative.

The current applicable VAT / Customs duty
regime and the possible impact to Brexit
is discussed in detail in Annex 4 (Customs
duties / VAT) below.
Section 2

     Figure 1
                                                          Access to routes

Possible models        Ownership and control rules            Customs duties / VAT                    European Aviation Safety Agency

Join the European    –– The EEA Agreement                   –– EEA EFTA States are not part of      –– Member of EASA’s Management
Economic Area           incorporates Reg. 1008 /               the EU Customs Union and EEA            Board without voting rights.
                        2008 and preserves current             is not a customs union.
(e.g. Norway)                                                                                       –– “Loss of democratic control”: UK
                        ownership and control rules.
                                                            –– EEA Agreement establishes a             applying EU safety regulations
                     –– Norway, Iceland and                    free trade area: no tariffs on          notwithstanding lack of control
                        Liechtenstein considered as            trade between the Contracting           over the legislative process.
                        EU Member States and their             Parties (except for agricultural
                        nationals as nationals of EU           and fishery products).
                        Member States for the purpose
                                                            –– Ability to negotiate free trade
                        of Reg. 1008 / 2008.
                                                               deals with non-EU countries.

                                                            –– Complicated “rules of origin”
                                                               apply.

Negotiate a UK-EU    –– The EU-Switzerland Agreement        –– Switzerland is not part of the       –– Member of EASA’s Management
bilateral aviation      incorporates Reg. 1008 /               EU Customs Union.                       Board without voting rights;
agreement               2008 and preserves current
                                                            –– The EFTA Agreement                   –– UK would have to apply EU
                        ownership and control rules.
(e.g. Switzerland)                                             supplemented by a series                safety regulations without
                     –– Switzerland treated as an EU           of bilateral agreements                 the ability to influence their
                        Member State and its nationals         establishes a free trade area           contents and to vote on the
                        as nationals of EU Member              in certain goods and services           proposed measures.
                        States for the purpose of Reg.         (i.e. limited access to the single
                        1008 / 2008.                           market).

Join the European    –– ECAA State Parties have to          –– ECAA States not part of the EU       –– ECAA State Parties in the 1st
Common Aviation         adopt the EU aviation acquis,          Customs Union.                          transitional period may sit on
Area                    including Reg. 1008 / 2008.                                                    the Management Board as non-
                                                            –– ECAA Agreement does not
                                                                                                       voting observers.
(e.g. Serbia)        –– Full implementation of the             contain provisions on customs
                        air carrier licensing rules            duties and VAT.                      –– As they progress to the 2nd
                        and access to air routes in                                                    transitional period, the ECAA
                                                            –– In preparation for their accession
                        suspension until the end of the                                                Joint Committee determines
                                                               to the EU, ECAA State Parties
                        2nd transitional period.                                                       their precise status and
                                                               align their legislation with the
                                                                                                       conditions for participation.
                     –– National ownership and                 acquis.
                        control rules apply until full
                        implementation of the ECAA
                        Agreement.
21

 Figure 1 cont.
                                                             Access to routes

Possible models           Ownership and control rules            Customs duties / VAT                   European Aviation Safety Agency

Revert to /             –– Almost all bilaterals impose        –– Bilateral Air Service Agreements    –– Bilaterals do not usually
renegotiate                “national” ownership and               may contain separate provisions        contain provisions on
bilateral Air Service      control requirements.                  on customs duties (see for             EASA membership.
Agreements                                                        example Article 9 of the original
                        –– UK would have to adopt its own                                             –– UK would have to renegotiate
                                                                  UK-US 1977 Bermuda II
                           rules on ownership and control.                                               its participation in EASA.
                                                                  Agreement).
                        –– UK commercial non-scheduled                                                –– Possible cooperation on
                           operators would have to                                                       the basis of a Working
                           comply with nationality and                                                   Arrangement, separate
                           ownership requirements                                                        from the bilateral.
                           under the relevant bilaterals,
                           which could pose a challenge
                           to non-UK majority owned
                           and effectively controlled air
                           carriers.

                        –– Scheduled UK operators would
                           no longer benefit from EU
                           designation under bilateral
                           agreements of other EU
                           Member States; the extent to
                           which this would affect non-
                           scheduled operators would
                           need to be analysed on a case-
                           by-case basis.
Section 3
23

Section 3

Brexit: Impact of
six possible models
Section 3

In this section of the report we will examine and analyse the
impact of six possible models that may be applicable to the UK
for aviation generally, and for business aviation, following the
UK leaving the EU.

Background material to the discussion in       will need to be ready by October 2018 for      oversight of the process. The Withdrawal
this section of the report is contained in     there to be sufficient time for ratification   Agreement will need to be ratified by the
the annexes.                                   before the end of the two-year Article         UK Parliament.
                                               50 deadline. The UK Government has
1. Model 1: Maintain status quo                repeatedly made clear that it wants the        On the EU side, ratification will require
                                               full outline of a trade deal to be agreed      an enhanced qualified majority among
1.1. Commentary
                                               in order to turn the transition phase into     the remaining Member States. This
The first possibility is maintenance of        an implementation period that sees the         means that no single Member State
the existing relationship between the          UK’s future trade relationship (based          could veto the deal, but that it would
UK and the EU in respect of aviation           on a “deep and special partnership”)           need to reach a critical level of support.
generally, including business aviation,        take shape rapidly after March 2019.           (Specifically, it would need to be
on a permanent basis following the UK’s        The EU takes a different view: Mr Tusk         agreed by 20 out of 27 Member States,
departure from the EU. This assumes            in his suggested guidelines to EU States       representing 65 per cent of the EU
that agreement is reached between the          spoke only of holding “preliminary and         population). In some cases approval by
UK and the EU on the same basis as the         preparatory” discussions on the future         the Member States requires approval
existing rules by the deadline for the UK’s    relationship. If the EU gets its way and       of regional parliaments as well as
exit from the EU (whether 30 March 2019        forces the UK to negotiate a classic           national parliaments: the deal will need
or later, if the Article 50 negotiations are   Free Trade Agreement from scratch              to be ratified by a total of 38 European
extended). It should be noted that Article     it could easily take five to eight years,      parliaments, each effectively having
50 only requires that after the end of the     according to experts. The EU-Canada            a veto. The European Parliament will
two-year negotiation period there will be      FTA runs for 2,000 pages and took 10           also need to approve the deal. This will
an agreement on “arrangements for [the         years to negotiate. The answer will in         require a simple majority of its 751 MEPs
departing Member State’s] withdrawal,          part depend on whether the UK seeks            (MEPs from the UK would probably be
taking account of the framework for            a high alignment model – in which the          allowed to vote, because at this stage the
its future relationship with the Union”.       UK agrees to stay very close to EU rules       UK would still formally be part of the EU).
It is therefore possible for any deal          and regulations – or opts to embrace
maintaining (or, more accurately in such                                                      We do not discuss the impact on
                                               an independent trade policy for the UK.
context, reverting to) the status quo to be                                                   business aviation operations in Europe
                                               As mentioned elsewhere in this report,
agreed and implemented later, possibly                                                        of maintaining the status quo as clearly
                                               the EU’s approach (reiterated in the
much later, with no deal or a transitional                                                    the current regime would continue to
                                               Joint Report of 8 December 2017) is that
arrangement in place in the interim period.                                                   be applicable post-Brexit. Extensive
                                               “nothing is agreed until everything is
                                                                                              relevant aviation legislation would clearly
                                               agreed” so it is unlikely that there will be
The UK-EU Withdrawal Agreement (or                                                            need to be amended or supplemented:
                                               a special deal for the aviation sector, let
however it will be described) will need                                                       to take but one example, the reference
                                               alone the business aviation sector, in the
to set out the arrangements in three                                                          in the ownership and control clause of
                                               absence of an overarching trade deal – the
distinct areas: (i) an exit deal – setting                                                    Regulation 1008 / 2008 would need to be
                                               UK will not be permitted to “cherry pick”.
out the terms of the UK’s withdrawal,                                                         amended or supplemented so as to refer
(ii) a new deal setting out an agreement       The final agreement will need to be            to nationals of a Member State and / or
on the future UK-EU relationship or            agreed by both parties: the EU side and        the UK.
some framework for that relationship,          the UK as departing Member State. The
and (iii) the rules for a transition /                                                        However, it should be noted that it
                                               major policies set out in the Withdrawal
implementation period, if any. The                                                            may be the case that the status quo is
                                               Agreement will be directly implemented
European Council summit in Brussels on                                                        maintained between the EU and the
                                               into domestic law in the UK by primary
22-23 March 2018 will assess what kind of                                                     UK in respect of the liberalised aviation
                                               legislation – not by secondary legislation
trade deal can be expected. A final treaty                                                    regime now largely formulated in
                                               under the EU (Withdrawal) Bill. This will
on withdrawal and transition (and trade)                                                      Regulation 1008 / 2008 (licensing and
                                               allow for Parliamentary scrutiny and
                                                                                              market access) but that the UK leaves
25

the Customs Union and / or EASA. We          accession by further parties and provides    2.2. Ownership and control
discuss in detail below the implications     a procedure for this in the agreement
                                                                                          The EEA Agreement incorporates
of the UK leaving the Customs Union          itself.
                                                                                          Regulation 1008 / 2008 and therefore
and / or EASA (please see Model 5: Revert
                                             The implications of this external            preserves the current ownership and
to previously agreed bilateral ASAs (no
                                             dimension for UK business aircraft           control rules. Going forwards post-Brexit,
“aviation deal”) below). It should be
                                             operators are discussed further below        if the UK were to join the EEA that would
recalled that it is current UK Government
                                             in Model 5: Revert to previously agreed      mean that the UK will be treated as an
policy that the UK aims to maintain
                                             bilateral ASAs (no “aviation deal”) below.   EU Member State and its nationals as
full liberalised market access to the UK
                                                                                          nationals of EU Member States for the
Single Aviation Market when the UK
                                             There is a difficult timing issue for the    purpose of Reg. 1008 / 2008. This would
leaves the EU but will leave the Customs
                                             UK on all arrangements with third            therefore mean that (a) a UK operator
Union.
                                             parties which is that according to the       would continue to be entitled to the
1.2. External dimension                      EU the UK may not legally enter into         status of a “Community air carrier”,
                                             negotiations with third counties until       regardless of whether it is owned and
There is also, however, an external          after it has left the EU.                    effectively controlled by UK or EEA
dimension.                                                                                interests, and (b) an EEA operator that
                                             2. Model 2: Join the European                is owned and controlled by UK interests
First, separate arrangements will need to       Economic Area                             would continue to be entitled to be a
be agreed between the UK and the EEA
                                             The second option for the UK to follow       “Community air carrier”.
States (Norway, Iceland and Liechtenstein)
as the UK will no longer be automatically    would be to join the European Economic
                                                                                          2.3. VAT / Customs duties
party to the EEA Agreement (or else the      Area (EEA), thus following the model of
old bilaterals with these States may be      Norway, Iceland and Liechtenstein.           The EEA is not a customs union and the
revived and applied).                                                                     EEA EFTA States are not part of the EU
                                             2.1. Traffic rights                          Customs Union. As described in Annex
Secondly, a separate arrangement will        The main advantage of this model is          4 (Customs duties / VAT), the UK would
need to be put in place with Switzerland     that the UK would continue to have full      therefore form its own separate customs
as the UK will no longer be party to the     access to the liberalised Single Aviation    zone and an aircraft imported through
EU – Switzerland Agreement (or else the      Market, including all 9 freedoms of the      the Isle of Man/UK would not (without
old UK- Switzerland bilateral may be         air (as to which see Annex 2 (Traffic        any further agreement between the
revived and applied).                        rights), through the application of          UK and the EU) have “free circulation”
                                             Regulation 1008 / 2008.                      status within the EU. Conversely, an
Thirdly, the same applies to the
                                                                                          aircraft imported into the EU for “free
relationship between the UK and the six      This would mean that the existing            circulation” in the EU would not have
parties to the ECAA Agreement (Albania,      regime will continue to apply, such that     that status upon entry into the UK.
Bosnia & Herzegovina, Macedonia,             UK business aircraft operators would         A UK registered aircraft would have
Montenegro, Serbia and Kosovo).              be treated the same as EU operators,         “foreign carrier” status for the purposes
                                             and would continue to have the same          of the EU temporary admission regime,
Fourthly, as the UK will no longer be
                                             rights. Since all nine freedoms of the       so the EU temporary admission rules
an EU Member State it will no longer
                                             air would apply a UK charter operator        would need to be analysed in relation
be a party to the EU-US Open Skies
                                             would therefore continue to be able to fly   to any UK registered aircraft entering
Agreement, nor will it be a party to
                                             a 7th freedom route (for example Paris       the EU with no intention to effect a full
the other six agreements that the EU
                                             to Rome) as well as 9th freedom routes       importation for free circulation within
has reached with other countries to
                                             (for example Paris to Nice). Conversely,     the EU. (It should be recalled that it is
which the UK is a party by virtue of its
                                             EU non-scheduled commercial operators        open to a “foreign carrier” to effect a full
membership of the EU (Canada, Georgia,
                                             would continue to have the right to          importation into the EU). Conversely, an
Israel, Jordan, Moldova and Morocco). It
                                             continue to fly on 7th freedom routes        EU registered aircraft entering the UK
would be open to the UK to join these
                                             into the UK (e.g. an Italian business        could do so under the UK’s temporary
agreements as a non-EU State (similarly
                                             aircraft operator flying for charter from    admission regime rather than being
to Norway which has acceded to the
                                             Paris to London Luton) or out of the UK,     fully imported into the UK, pursuant to
EU-US Open Skies Agreement), with the
                                             as well as 9th freedom routes within the     whatever applicable rules the UK will
consent, of course, of the other parties.
                                             UK (e.g. a Maltese charter operator flying   adopt post-Brexit. We note in this regard
The US-EU Open Skies contemplates the
                                             from Farnborough to Edinburgh).              that, as described in Annex 4 (Customs
Section 3

duties / VAT), when the UK leaves the      2.6. Commentary                              The option of joining the EEA appears to
EU it is the UK Government’s intention                                                  have already been discounted by the UK
                                           The EEA envisages a high level of
that the existing rules will be codified                                                Government, as set out in Prime Minister
                                           integration between the Member States,
in domestic UK legislation without                                                      Theresa May’s speech in Florence on 22
                                           as the principal objective of the EEA
amendment, but they would be subject to                                                 September 2017. In this speech Prime
                                           Agreement is to promote the continuous
amendment and repeal going forwards.                                                    Minister May declared: “One way of
                                           and balanced strengthening of trade and
                                                                                        approaching this question [of the future
2.4. EASA                                  economic relations between the Parties,
                                                                                        UK-EU relationship] is to put forward a
                                           with a view to creating a homogeneous
As a member state of the EEA the UK                                                     stark and unimaginative choice between
                                           economic zone.
would remain a member of EASA.                                                          two models: either something based on
However, the EEA States are members        The EEA Agreement does not provide           European Economic Area membership; or
of EASA’s Management Board without         for gradual liberalisation, as envisaged     a traditional Free Trade Agreement, such
voting rights: it would therefore be       by the ECAA or the EMAA Agreements,          as that the EU has recently negotiated
necessary for the UK to apply EU safety    which means that if any part of EU           with Canada. I don’t believe either of
regulations notwithstanding a lack of      aviation legislation required under          these options would be best for the UK or
control over the legislative process. It   Annex XIII to the Agreement is not           best for the European Union.”
may be unpalatable for the UK to suffer    adopted, no benefit under the Agreement
                                                                                        By way of summary, the impact of the
such a “loss of democratic control”.       is obtained. In other words, it would be
                                                                                        UK joining the EEA on the four principal
                                           necessary to apply EU aviation legislation
2.5. External dimension                                                                 areas that we have been analysing is:
                                           in full.
As an EEA Member the UK would
                                           For the UK to join the European
be party to the ECAA Agreement
                                           Economic Area, it would have to apply
but, because it would no longer be
                                           not only EU aviation legislation, but
an EU Member State, the UK would
                                           most other EU legislation, including
need to enter into arrangements
                                           that relating to the free movement of
with Switzerland and with the seven
                                           goods, persons, services and capital,
countries with which the UK’s current
                                           without having a say on the adoption of
aviation relationship is governed by an
                                           this legislation. About 11,500 pieces of
EU agreement (USA, Canada, Georgia,
                                           “EEA relevant” EU legislation have been
Israel, Jordan, Moldova and Morocco).
                                           adopted by the EEA, including 260+ in
Absent any such agreement the “no deal”
                                           the area of air transport. This may not
scenario would apply to the relationship
                                           be politically acceptable in the UK given
between the UK and these states, as
                                           that three of the objectives of withdrawal
discussed further in Model 5: Revert
                                           from the EU and “red lines” are greater
to previously agreed bilateral ASAs (no
                                           control over immigration, disapplying the
“aviation deal”).
                                           jurisdiction of the CJEU and recovery of
                                           sovereign powers more generally.
27

    Model 2
                                                Join the European Economic Area

                        UK operators                          EU operators                           Comment

Traffic rights        –– Continued access to the            –– Continued access to the UK and      –– Highly desirable for both UK
                         liberalised Single Aviation           its internal market based on           and EU operators; preserves full
                         Market based on Reg. 1008             Reg. 1008 / 2008 (all 9 freedoms       market access.
                         / 2008 (all nine freedoms             available).
                                                                                                   –– EEA EFTA Member States adopt
                         available).
                                                            –– EU non-scheduled commercial            majority of “EEA relevant”
                      –– UK non-scheduled commercial           operators treated the same as UK       EU law without having any
                         operators treated like Community      operators.                             influence over the legislative
                         operators with full access.                                                  process (creates sovereignty
                                                                                                      issues).

Ownership and         –– The EEA Agreement                  –– The EEA Agreement
control                  incorporates Reg. 1008 /              incorporates Reg. 1008 /
                         2008 and preserves current            2008 and preserves current
                         ownership and control rules.          ownership and control rules.

                      –– UK treated as an EU Member         –– Community air carriers treated
                         State and its nationals as            the same as UK operators.
                         nationals of EU Member States
                         for the purpose of Reg. 1008 /
                         2008.

VAT / Customs rules   –– EEA EFTA States are not part       –– UK outside of the EU Customs
                         of the EU Customs Union and           Union; but part of the free trade
                         EEA is not a customs union.           area – no tariffs between the
                                                               Contracting Parties.
                      –– EEA Agreement establishes a
                         free trade area: no tariffs on
                         trade between the Contracting
                         Parties (except for agricultural
                         and fishery products).

                      –– Ability to negotiate free trade
                         deals with non-EU countries.

                      –– Complicated “rules of origin”
                         apply.

EASA                  –– Member of EASA’s                   –– EU Member States are members
                         Management Board without              of the EASA Management Board
                         voting rights.                        with full voting rights.

                      –– “Loss of democratic control”:
                         UK applying EU safety
                         regulations notwithstanding
                         lack of control over the
                         legislative process.
Section 3

3. Model 3: Negotiate a UK-EU bilateral       regardless of whether it is owned and        regularise these relationships post-Brexit
   aviation agreement on the Swiss model      controlled by UK or EU / EEA interests,      are discussed further in Model 5 below in
                                              and (b) an EU / EEA operator that is         relation to the “no deal” scenario.
The 1999 Air Transport Agreement
                                              owned and controlled by UK interests
between Switzerland and the EU could                                                       3.6. Commentary
                                              would continue to be entitled to retain
provide a model to be adopted by the UK.
                                              the status of a “Community air carrier”.     It is questionable whether a Swiss-
3.1. Traffic rights                                                                        style air transport agreement with the
                                              3.3. VAT / Customs duties
                                                                                           EU is achievable. Switzerland entered
The benefit of this model is that it would
                                              Switzerland is not part of the EU            into seven agreements each covering
allow UK operators to enjoy access to the
                                              Customs Union. Following the Swiss           a specific sector (including freedom
EU internal air transport market without
                                              model would entail the UK leaving the        of movement of people, which has
requiring a high level of integration
                                              Customs Union (as noted above this is        subsequently been rejected in a Swiss
with the EU (though the EU-Switzerland
                                              consistent with current UK Government        referendum in February 2014), and all
Agreement does apply the whole of the
                                              policy), with the consequences, described    of which are to be terminated if anyone
EU aviation acquis to Switzerland, to be
                                              above in the EEA context.                    is breached (the so-called “guillotine
interpreted in line with CJEU judgments
                                                                                           provision”). It seems relatively likely
prior to 1999).                               3.4. EASA                                    that a UK-EU air transport agreement
However, in the case of Switzerland,          Switzerland is within the remit of EASA.     would not be negotiated on its own, but
8th and 9th freedoms of the air are not       However, Switzerland is a member of          as part of a larger package: as is well
exchanged (and 5th and 7th freedom            EASA’s Management Board without              known, the negotiation position of the
rights have only been exchanged since         voting rights. With the same status it       EU is that nothing is to be agreed until
2004). It is not therefore automatically      would be necessary for the UK to apply       everything is agreed, i.e. aviation will not
permitted for a Swiss business aircraft       EU safety regulations notwithstanding        be the subject of a separate standalone
operator to fly on a commercial route         a lack of control over the legislative       agreement but will be included in the
between (for example) Milan and Rome,         process. It may be unpalatable for the       overall all-encompassing ‘new deal’ UK-
nor is it permitted for an EU business        UK to suffer such a “loss of democratic      EU package. This could ultimately have
aircraft operator to fly commercially         control”. We understand that it is the       similar disadvantages as the EEA model.
between (for example) Zurich and              UK Government’s intention to secure
                                                                                           The impact on the principal areas that
Geneva. A similar restriction could           full membership in EASA including
                                                                                           we have been analysing is:
therefore apply post-Brexit to UK             voting rights (not provided for in the
operators (in respect of any route within     EU-Swiss Agreement) so that it has a say
an EU Member State) and EU operators (in      in the adoption of technical and safety
respect of any route within the UK). This     regulations, not least as it takes part in
would be a considerable restriction for the   the manufacture of Airbus aircraft and
UK operator in particular.                    component parts.

Of course 8th and 9th freedom rights could    3.5. External dimension
be exchanged on a reciprocal basis in a UK-
                                              Assuming that the Swiss-style bilateral
EU Swiss-style agreement, but trade-offs in
                                              will be between the UK and the EU the
other areas would seem likely.
                                              UK would need to negotiate and arrange
3.2. Ownership and control                    its relationships with the EEA States,
                                              Switzerland, the EFTA states and the
The EU-Switzerland aviation bilateral         seven countries with which the UK’s
incorporates Regulation 1008 / 2008           current aviation relationship is governed
and therefore preserves the current           by an EU agreement (USA, Canada,
ownership and control rules. Going            Georgia, Israel, Jordan, Moldova and
forwards post-Brexit, if the UK were to       Morocco). As discussed in this report,
negotiate a similar bilateral with the EU     these are all countries with which the
that would therefore mean that (a) a UK       UK’s current aviation relationship is
operator would continue to be entitled to     pursuant to agreements reached by
the status of a “Community air carrier”,      the EU. The consequences of failing to
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