What will Brexit do to US aviation and aerospace?
Brexit has gone from a clever contraction (excuse the “double entendre”) to an economic earthquake of global proportions. Pundits have predicted that this vote will destroy the world’s commerce, will induce a dangerous tsunami of democratic devolutions (Texit, Scotland/Northern Ireland?), will disrupt no one nowhere and will result in everything along a continuum of consequences from extreme to nil.
Here are initial observations on four major categories of possible impact. If you have your own perspective, please add in the below comment section.
I. COMMERCIAL AVIATION
The rights to fly between the UK and US may be embedded in the US-EU Open Skies Agreement, but there is little doubt that the same regime will be replicated almost instantaneously by two ancient allies. The bilateral flight rights will remain intact, but the 5th Freedom Rights may become entangled in some post exit EU “retaliation.” The economic demands from travelers within the EU’s Continental Castle will eventually compel the reconnection with the UK.
As much as the Eurocrats would like to replace LHR’s dominance somewhere within their borders, London’s global air transportation node cannot be easily planned elsewhere. Consider the EC debate as to whether CDG or FRA should be designated as the new European hub?
Here is a good analysis of how Brexit will impact airlines within Europe—Brexit up in the air: implications for aviation if the UK votes to leave the European Union. The European Common Aviation Area:
“…extends the liberalised aviation market beyond the EU member states to include Norway, Iceland, Albania, Bosnia and Herzegovina, Croatia, the former Yugoslav Republic of Macedonia, Montenegro, Serbia and Kosovo. The ECAA covers 36 countries and 500 million people. Norway and Iceland (and Liechtenstein) are also part of the European Economic Area, which extends the EU’s wider single market to these non-EU countries.
If the UK were to leave the EU, its airlines would no longer enjoy automatic access to this market, although the UK might be expected to negotiate continued access. The most obvious way for the UK to do this would be to participate in the ECAA Agreement in the same way as countries such as Norway currently do.”
The article provides excellent analysis of the intra-European trade impacts of Brexit, too.
Interestingly, Ryanair, which maximizes the benefits of ECAA’s multi-lateral rights, urged the voters to remaIN. Ryanair Holdings’ Chief Executive Officer Michael O’Leary said:
“’For the U.K., O’Leary reckons a Brexit would trigger ‘chaos’ for a couple of weeks, followed by years of disruption while trade agreements with the EU are renegotiated. The airline would also most likely end its expansion in the region and might cut jobs’, he said.
The CEO, who favors an overhaul of the EU to make it less bureaucratic and simplify regulations, said that whatever the result of the vote Thursday the U.K. debate will have been vital ‘in teaching those people in Brussels a lesson.’
‘There’s going to be a much stronger case for reform, where we get them back to focusing on making Europe an efficient single market and a lot less focused on political integration and jobs for the boys in Brussels,” he said.’”
That’s a very interesting perspective given that Ryanair is an Irish carrier, that it may be the most successful low fare carrier in Europe and it had complained about the EU’s restrictive rules.
The markets and commentators seem to indicate that the sky may be falling, perhaps in the short term:
- Ripple effects of Brexit likely to hit American Airlines, U.S. aviation industry – “American Airlines’ stock price dropped sharply in early hours of trading Friday as news of the United Kingdom’s exit from the European Union roils markets and portends choppy skies for the trans-Atlantic and European aviation markets.”
II. BUSINESS AVIATION
EASA and the continental CAA’s have not been as friendly to this segment of aviation as the FAA has been. Patrick Ky’s presence at EBACE may have suggested some increased receptivity to the operations of corporate aircraft, but the UK’s CAA looked like a proponent of these users’ value. Here are two perspectives on the impact of Brexit on BA (business aviation, not the monster airline with the Union Jack on its tail);
- Business Aviation: The European Question—Marc Bailey, Chief Executive Officer, British Business and General Aviation Association (BBGA—“The USA and the FAA regulations are in some ways far more advanced than their European counterparts using Part 135 and Part 91 versus Part 121 for scheduled Air Carriers. EASA legislation tends to look more like Part 121, However, the important thing to understand is that no system is perfect and it is very difficult to cherry pick parts from one code to read across to another. This is because the systems have evolved from a different starting point…One thing is for sure. We will be fully engaged as a consequence of the decision taken and whichever way the coin falls, our relationships nationally and internationally will not be diminished because aviation is a close knit as a community. As such we will continue to work together, irrespective of the decision.”
- Could a bleak Brexit future await British bizav? “Of around 620 fixed-wing business aircraft based in the UK, approximately 290 are on the UK ‘G’ registry and, he suggests: “UK operators may find a transition to EU registers/AOCs beneficial for oversight, tax regimes, access, cross-border simplicity, employment terms, aircraft resale and acquisition, import, export and so on.” The result could be a significant move of bizav operations to the Continent…Considering domestic traffic, with more than half the UK’s based fixed-wing bizav fleet registered outside the country, it’s inevitable that in 2015 a large proportion of its domestic AOC bizjet traffic – 42% – was on non UK-registered aircraft. Would these be cabotage flights post-Brexit, he asks?” James Dillon-Godfray, responsible for airport and business aviation development at London Oxford Airport.
The 800# gorilla on this issue is located in Toulouse and Airbus made it clear that it preferred RemaIN. Its post vote position was a concern that its transborder investments in the UK would remain competitive. Its perspective was shared by most of the European Aerospace, Automobile, Security and Defense sector companies. The US’ AIA published (endorsed?) a pro-RemaIN blog written by Richard Gale from the UK’s Aerospace & Defence Trade Association, ADS Group. A consultant reviewed the pro’s and con’s and concluded:
“The Bottom Line
The Brexit panic the markets and the media is overdone. Yes, a change in EU membership has occurred. But Britain retained its own currency and was only half-in anyway. Bilateral treaties with be formed and life will go on. The only ones really impacted are the politicians in Brussels, whose empire is going to shrink after a reality check by the British citizens who said enough is enough. Aviation will be just fine, thank you”
This last comment in the expert opinion is echoed by one of the UK’s small aviation manufacturers, Britten-Norman, which was clearly fed up with the “special status” which his company did not experience with the folks in Brussels and Cologne. The 60 year old company employs 170 aeronautical workers indicated their displeasure by flying a ‘Brexit’ Banner” behind one of its signature aircraft.
Its CEO William Hynett said that “like all other British companies, whether they understand it or not, we are burdened by European bureaucracy, which in itself adds costs to our business.”
The impact of the overbearing EUreaucrats on Britten-Norman was demonstrated by this example, cited by Mr. Hynett:
“…EU rules on chemicals threatened how a flight-safety-critical component used to deice engine could be done. Finding an alternative would have been long and difficult. Instead, the company decided to buy the component from the United States, where rules do not apply…”
The UK CAA has the technical stature to stand on its own without EASA and will quickly reestablish its relationships with the FAA and around the world. As a matter of its certification policy, it can choose to mirror EASA’s new rules, modify the FAA’s approach and most likely define its own technical trail.
IV. The EC, EASA and ETS
“Last week, the EU Parliament’s Sky and Space Intergroup held a high level discussion forum between MEPs, industry and EU institutions – exchanging views on the future of the European Aviation Safety Agency (EASA). EASA, which regulates and maintains the safe operation of Civil Aviation across Europe, is set to go through a period of reform and modernisation – as the European Commission publishes proposals to change the legislation that underpins EASA’s roles and responsibilities, by the end of this year.”
The British industry trade association was of the opinion that being part of the EU, the UK would be able to provide greater policy input into the EASA transformation. Patrick Ky has expressed on on-going interest in expanding his safety agency’s jurisdiction to enforce its rules within the member states.
This speech and other pronouncements support the concerns of Britten-Norman. Without the UK, Ky’s goal may be more achievable, but perhaps the shock of losing one of the founding countries may cause the EU to be more cautious?
→ It will also be newsworthy to follow whether the EU continues with, escalates or pulls back on its ”An Aviation Strategy for Europe”. That design to expand its influence by making agreements with other contracts to teach the local CAA the EASA standards may not be a priority post Brexit.
The global aviation community and its international safety-setting organization have long held concerns about the EU/EC/EASA efforts to enact a Emissions Trading Scheme for all flights into and out of its European Member Countries’ airports. ICAO, the US and many of the UN chartered agency have vehemently opposed the Brussels CO2 emissions regulations.
London’s Heathrow is the world’s #1 international hub and as such, the EU’s ETS program would have captured a substantial percentage of the world’s airline flights to/from LHR. With Brexit, that critical jurisdictional link/leverage will be inapplicable.
Even without regard to the Heathrow Exit, the whole EC Carbon trading scheme was in trouble, as evidenced by the decline in Carbon trading allowance (see below table).
That is a policy debate which will take a long time to resolve finally, but without the inclusion of the Heathrow hub, achieving its CO2 goals will be more difficult to attain.
Brexit’s impact on AVIATION IS a multi-faceted and likely one or more topics have been missed in this summary. All observations on this momentous vote’s impact on aviation would be welcomed. Please use the comment section below.