Brexit scenarios for business aviation - January 2018 - For EBAA - GBAA
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Brexit scenarios
for business aviation
January 2018
For EBAA
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
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
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
Section 1
5 Section 1 Executive summary
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
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).
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 811
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 rightsSection 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. 29515
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 leaves25
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 (CustomsSection 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 toYou can also read
