Aviation Sector Report

Home , 1990s, Newquay Airport

1. This is a report for the House of Commons Committee on Exiting the European Union following the motion passed at the Opposition Day debate on 1 November, which called on the Government to provide the Committee with impact assessments arising from the sectoral analysis it has conducted with regards to the list of 58 sectors referred to in the answer of 26 June 2017 to Question 239.

2. As the Government has already made clear, it is not the case that 58 sectoral impact assessments exist. The Government’s sectoral analysis is a wide mix of qualitative and quantitative analysis contained in a range of documents developed at different times since the referendum. This report brings together information about the sector in a way that is accessible and informative. Some reports aggregate some sectors in order to either avoid repetition of information or because of the strong interlinkages between some of these sectors.

3. This report covers: a description of the sector, the current EU regulatory regime, existing frameworks for how trade is facilitated between countries in this sector, and sector views. It does not contain commercially-, market- or negotiation-sensitive information.

Description of sector 4. The UK is a global player in the aviation sector and has the third largest aviation network in the world. It was the largest air transport system in Europe in 2015, serving 250 million terminal passengers.12 The UK has direct connections to over 370 international destinations with at least a weekly service and nearly 200 with at least a daily service from at least one UK airport.3 49 per cent of the UK’s adult population flew abroad at least once in 2014.4 Aviation is a significant industrial sector in its own right, directly contributing at least £22 billion to the UK economy in 2015.5

5. Aviation also underpins several other sectors including international trade in goods, global business and tourism: • International trade in goods: In 2015, goods worth £155 billion were shipped by air between the UK and non-EU countries, over 40 per cent of the UK’s extra-EU trade by value;6

1 http://ec.europa.eu/eurostat/statistics-explained/index.php/Passenger_transport_statistics 2 https://www.gov.uk/government/statistical-data-sets/avi01-traffic-passenger-numbers-mode-of-travel-to-airport 3 A new aviation strategy for the UK: call for evidence, https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/636625/aviation-strategy-call-for- evidence.pdf 4 British Social Attitudes Survey (DfT) 2014, https://www.gov.uk/government/statistics/british-social-attitudes- survey-2014 5 A new aviation strategy for the UK: call for evidence, https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/636625/aviation-strategy-call-for- evidence.pdf 6 HMRC trade statistics, 2015, https://www.uktradeinfo.com/Statistics/BuildYourOwnTables/Pages/Home.aspx 1

• Global business: The UK’s geographical location and extensive aviation network makes it a very attractive location for global business; • Tourism: 73 per cent of visitors to the UK come here by air, 61 per cent of which came from other EU countries.7

6. Taken together, the aviation and aerospace sectors combined provide the UK with over half a million jobs, either directly or indirectly and often in high value roles.8 Employment in the aviation sector is spread across all regions of the UK, as shown below:9

A Growing, Improving And Integrated Market 7. The aviation sector has seen significant growth, bringing much greater levels of connectivity, with the UK and EU at the forefront of these trends. Since the 1990s the trend in the aviation sector is one of global growth and the UK has been a significant participant in this growth. In 2015 there were 3.3 billion air passengers worldwide.10 Asia and the Pacific accounted for the largest proportion of world air traffic in 2014, representing a notable 7 per cent growth. This was followed closely by Europe and North America who also displayed a substantial share of world air traffic.11 Overall, the global demand for seats has grown on average by 5.5 per cent per year.12 Although airlines are still subject to restrictive ownership and control requirements in

7 ONS, Travel trends 2015, Section 4 Overseas Residents Visits to the UK, https://www.ons.gov.uk/peoplepopulationandcommunity/leisureandtourism/datasets/overseasresidentsvisitstothe uk 8 https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/636625/aviation-strategy-call-for- evidence.pdf 9 Direct employment by region, excluding Northern Ireland, https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/636625/aviation-strategy-call-for- evidence.pdf 10 ICAO statistics, 2015 https://www.icao.int/annual-report-2014/Pages/the-world-of-air-transport-in-2014.aspx 11 ICAO statistics, 2015 https://www.icao.int/annual-report-2014/Pages/the-world-of-air-transport-in-2014.aspx 12 IATA, http://www.iata.org/pressroom/pr/Pages/2017-02-02-01.aspx

some countries, we have seen a trend to liberalise aviation markets. The EU and its Member States have been at the forefront of this trend, but it has also been pushed by North American states and more recently Gulf States. This trend continues, with southeast Asian nations (the ASEAN 10 country regional block) now forming their own internal aviation market.

Growth in global aviation13

8. We have seen a notable trend in the emergence of low cost carriers (in comparison to Full Service Carriers, Legacy Carriers or Charter Carriers). In Europe, these airlines have developed a business model based upon taking advantage of the very liberal internal market and the ability to source labour from across the EU.

9. In 2015 air services in Europe accounted for almost 928 million passengers carried (approximately 26.3 per cent of world traffic).14 The overall passenger growth in the UK over the past five years is largely attributed to EU-27 destinations - see the chart below.

10. Growth in passenger numbers has been stimulated by the steadily falling cost of aviation since the 1990s.15

13 ICAO, 2015 , https://www.icao.int/annual-report-2014/Pages/the-world-of-air-transport-in-2014.aspx 14 ICAO, 2016, https://www.icao.int/annual-report-2015/Documents/Appendix_1_en.pdf 15 https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/278966/boc-transport.pdf 3

International passengers at UK airports by region, 2000-201516

11. Passenger experience in the UK and EU has also been improving, driven by high safety standards and improving air traffic management. Aviation safety has been steadily improving throughout the world and in 2013, the EU had the lowest rate of fatal accidents in the world.171819 In Europe average delays per flight have decreased by 30 seconds per flight in July 2015, when compared to July 2014.20 Under the ‘Single European Sky’ a new operating concept for flight planning and the air traffic management system has been agreed (this is detailed further in Section 2.)

12. Aviation demand correlates closely with economic growth. As an economic enabler and vital piece of infrastructure the demand for aviation relies on the health of the rest of the economy. This can be seen from the drop in passenger numbers at the time of the 2008 financial crisis - see diagram below. The sector is also sensitive to wider economic confidence as well as several macroeconomic factors such as fuel prices and exchange rate. Passenger numbers at UK airports increased by 5.5 per cent in 2015. This was the fifth successive year of growth following three years of decline from 2008 to 2010.21

16 Table AVI0105, Air traffic at UK airports, Department for Transport, https://www.gov.uk/government/statistical- data-sets/avi01-traffic-passenger-numbers-mode-of-travel-to-airport 17 Figure 1, https://www.easa.europa.eu/system/files/dfu/European-Aviation-Safety%20Plan-%28EASp%29- 2014-2017.pdf 18 EASA Member States 19 Figure 2, https://www.easa.europa.eu/system/files/dfu/European-Aviation-Safety%20Plan-%28EASp%29- 2014-2017.pdf 20 https://www.eurocontrol.int/sites/default/files/content/documents/official-documents/facts-and-figures/coda- reports/flad-july-2015.pdf 21 DfT analysis of Table AVI0101, Air traffic at UK airports, Department of Transport, https://www.gov.uk/government/statistical-data-sets/avi01-traffic-passenger-numbers-mode-of-travel-to-airport 4

Growth in UK aviation, indexed 199122

13. There has been a trend of consolidation, partnership and network integration in parallel to the growth of low-cost, point to point travel. This has resulted in the expansion of ‘hub-and-spoke’ networks run by major carriers and alliances at the world’s largest airports. The three major airline alliances control half of global seat capacity.

14. In Europe, the major hubs are at Amsterdam Schiphol, Paris Charles de Gaulle, Frankfurt International and at London Heathrow.23 These European hubs have faced strong competition over recent years, in particular from Middle Eastern hubs and carriers. However, different international hubs are better placed to compete in different markets due to their location. The image below shows the top 15 interregional transfer passenger flows in 2012.

22 DfT analysis of Table AVI0101, Air traffic at UK airports, Department of Transport, https://www.gov.uk/government/statistical-data-sets/avi01-traffic-passenger-numbers-mode-of-travel-to-airport; Gross Domestic Product, ONS, https://www.ons.gov.uk/economy/grossdomesticproductgdp, 2016 23 Airports Commission Final Report , 2015 5

Inter-regional transfer passenger flows for 201224

A Connected Market That Provides Multiple And Reciprocal Economic Benefits 15. Our major airports help increase the UK’s and EU’s connectivity. Heathrow is the UK’s hub airport and one of Europe’s dominant hubs.25 For many years, Heathrow Airport has been the busiest international airport in the world by passenger volumes.26 Passengers travelling from North America often use Heathrow as a stop, before transferring on to the EU. Transfer passengers benefit the UK economy primarily through increased connectivity. Their demand has helped to make more flights and routes viable, generating connectivity benefits to UK residents. On top of this, they have directly contributed to revenue and employment for UK (EU and other) airlines and Heathrow airport through their expenditure on airfares and at airport businesses.

24 Airports Commission Final Report, 2015 https://www.gov.uk/government/publications/general-aviation- economic-value 25 Heathrow, Amsterdam, Charles de Gaulle Paris, Dublin and Frankfurt International, http://ec.europa.eu/eurostat/statistics-explained/index.php/Air_transport_statistics, 2015 26 ICAO, 2015: Air Transport Yearly Monitor, https://www.icao.int/sustainability/Documents/Yearly%20Monitor/yearly_monitor_2015.pdf 6

Passenger growth at selected world hubs, 2010-201527

16. There are economic benefits for the UK and EU associated with tourism, enabled by aviation. Levels of both inbound and outbound tourism are affected by aviation connectivity. 73 per cent of visitors to the UK come here by air, 61 per cent of which came from other EU countries.28 UK GDP is positively affected by inbound tourism, with overseas residents making 37.6 million visits to the UK in 2016 and spending an estimated £22.5 billion overall.29

17. In 2013, direct Gross Value Added (GVA) from tourism was worth £59 billion to the UK economy, 3.7 per cent of UK GVA. Of this, England was responsible for £50.4 billion, followed by Scotland (£5.2 billion), Wales (£2.8 billion), and Northern Ireland (£0.6 billion).30

18. Of the ten countries whose residents visited the UK the most frequently in 2016, eight were EU countries31. Residents from Europe spent £11.7 billion on visits to the UK, an increase of 5 per cent compared to 2015.32

19. Likewise, UK tourists flying to Europe contribute significantly to local economies and GDP. Outbound tourism was responsible for 70.8 million trips abroad in 2016, which

27 Table AVI0301, Major airports and airlines worldwide, https://www.gov.uk/government/statistical-datasets/avi03-passenger-traffic; https://www.gov.uk/government/collections/transport-statistics-great-britain 28 ONS, Travel trends 2015 Section 4 Overseas Residents Visits to the UK, https://www.ons.gov.uk/peoplepopulationandcommunity/leisureandtourism/datasets/overseasresidentsvisitstothe uk 29 https://www.ons.gov.uk/peoplepopulationandcommunity/leisureandtourism/articles/traveltrends/2016 30 The regional value of tourism in the UK, 2013, ONS 10 May 2016, https://www.ons.gov.uk/peoplepopulationandcommunity/leisureandtourism/articles/theregionalvalueoftourisminth euk/2013 31 https://www.ons.gov.uk/peoplepopulationandcommunity/leisureandtourism/articles/traveltrends/2016 32 Overseas Travel and Tourism quarterly dataset, table 3, https://www.ons.gov.uk/peoplepopulationandcommunity/leisureandtourism/datasets/overseastravelandtourism 7

was 8 per cent more than in 2015.33 Spain is still by far the most visited country by UK residents (14.7 million visits in 2016), followed by France, Italy, Ireland, and the USA.34 UK outbound spending accounted for £43.8 billion in 2016 (statistically this outbound tourism spend is classed as a UK import from the countries visited).35 Of these visits 53 million (75 per cent of total outbound visits) were to the EU, and accounted for £25.4 billion spend (58% of total outbound spend).36

20. The majority of international flights to/from the UK involve European destinations.37

International passengers at UK airports38

21. This air connectivity plays an important role supporting key developing sectors in the regions outside London. The number of routes between UK airports and destinations in European countries is increasing. In particular, UK regions have benefited from this improved connectivity. Manchester, Edinburgh, Birmingham and Glasgow have all experienced growth in excess of 35 per cent in passenger numbers since 2010.39 Similarly, some regional airports in Europe are highly dependent upon the UK aviation and outbound tourist markets.

22. Manchester Airport can be seen as the UK’s global gateway in the north of England, offering direct flights to around 200 destinations worldwide.40 Other regional airports in the UK also provide significant connectivity to their local areas, for instance, at Glasgow airport there were over 9 million passenger movements in 2016, at Belfast

33 https://www.ons.gov.uk/peoplepopulationandcommunity/leisureandtourism/articles/traveltrends/2016 34 Ibid. 35 Ibid. 36 Overseas travel and tourism quarterly dataset, https://www.ons.gov.uk/peoplepopulationandcommunity/leisureandtourism/datasets/overseastravelandtourism 37 Table AVI0105, Air traffic at UK airports, Department for Transport, https://www.gov.uk/government/statistical- data-sets/avi01-traffic-passenger-numbers-mode-of-travel-to-airport 38 Table AVI0105, Air traffic at UK airports, Department for Transport, https://www.gov.uk/government/statistical- data-sets/avi01-traffic-passenger-numbers-mode-of-travel-to-airport Figures for Spain include Canary Islands. Figures for Portugal include Madeira. 39 https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/636625/aviation-strategy-call- for-evidence.pdf 40 http://www.manchesterairport.co.uk/destinations-and-guides/a-z-list-of-destinations/ 8

International and City combined over 7.7 million, at Newcastle 4.8 million and at Cardiff 1.3 million.41

23. Aviation connectivity may also promote the geographical concentration of economic activity (agglomeration); for example, manufacturers with time critical supply chains cluster around airports. Based on figures from 2011, in Scotland, Glasgow and Edinburgh airports directly employ a combined total of around 7,500 people, whilst Birmingham employs 7,500 and Bristol 2,700.42 Manchester airport directly employs around 20,000 people across the north west, but the airport also supports a further 20,000 jobs through the supply chain, based in approximately 140 different organisations.43 The existence of Manchester Airport, has enabled the ‘Airport City’ development which is estimated to have a value of £800m.44 Further examples of such clustering are the UK technology sector, for which all of the top ten ranked areas are located in close proximity to either Heathrow or Gatwick airports, and the ‘Aerohub’ enterprise zone established at Newquay airport targeted at aerospace companies.

24. Similarly, air freight is playing an increasingly important role in moving goods to and from the UK, especially to and from EU destinations. While most goods travel by ship, there has been a growing volume of goods shipped by air in recent years. Over the period 1975-2004, manufactured goods traded by air grew by 7.4 per cent per year while goods traded across the ocean grew by 4.5 per cent per year.45 Aircraft also tend to carry more valuable goods over longer distances: only 2 per cent of the volume of our exports to the US travel by air, but they make up 67 per cent of the value of our exports to the US.46

25. In 2015 goods worth £155 billion were shipped by air between the UK and non-EU countries - over 40 per cent of the UK’s extra-EU trade by value.47 65 per cent of aviation freight is handled at Heathrow, with East Midlands Airport and Stansted being the next largest airports for freight.48 An example of the importance of air freight is our trade with the United States, where it amounts to a total value of £44.7 billion, or 56 per cent of the total value of goods traded.49

26. Aviation connectivity enables foreign market access to UK firms and UK market access to foreign firms, thereby promoting trade and outward/inward investment. This

41 Table_10_1 and Table_10_2, CAA Airport Data 2016, https://www.caa.co.uk/Data-and-analysis/UK-aviation- market/Airports/Datasets/UK-Airport-data/Airport-data-2016/ 42 New Economy (2011) Manchester Airport: Strategic Opportunities, a report for Association of Greater Manchester Authorities http://www.neweconomymanchester.com/media/1425/manchester_airport_- _strategic_opportunities_october_2011.pdf 43 New Economy (2011) Manchester Airport: Strategic Opportunities, a report for Association of Greater Manchester Authorities, http://www.neweconomymanchester.com/media/1425/manchester_airport_- _strategic_opportunities_october_2011.pdf 44 https://www.gov.uk/government/news/joint-british-chinese-partners-to-construct-new-800-million-manchesterairport-city 45 Hummels, D. (2007) Transportation Costs and International Trade in the Second Era of Globalisation, Journal of Economic Perspectives, 21, 3, pg131-154 https://www.aeaweb.org/articles?id=10.1257/jep.21.3.131 46 HMRC trade statistics, 2015 https://www.uktradeinfo.com/Statistics/BuildYourOwnTables/Pages/Home.aspx 47 HMRC trade statistics, 2015 https://www.uktradeinfo.com/Statistics/BuildYourOwnTables/Pages/Home.aspx 48 Table TSGB0202c (AVI0102c), Transport Statistics Great Britain 2015, https://www.gov.uk/government/statistics/transport-statistics-great-britain-2015 49 HMRC trade statistics, 2015, https://www.uktradeinfo.com/Statistics/BuildYourOwnTables/Pages/Home.aspx 9

in turn generates a number of benefits for the UK economy, for example it allows the high value UK service sector businesses access to the world.

27. The table below shows the value of UK services exported to foreign countries (£ billion) and the number of seats available from Heathrow in 2010.

Value of UK services exported to foreign countries (£ billion) and the number of seats available from Heathrow, 201050

Wider Aviation Markets Benefits 28. There are also wider benefits to the economy from aviation connectivity. For example, multinational businesses operating in the UK recruit from a global pool of talent in IT, creative industries, financial services, advanced engineering and many other sectors. For their employees the ability to return home easily is an important part of the package that adds to the UK’s competitive advantage. The same considerations apply to UK businesses posting staff to important overseas markets.

29. Further benefits generated by aviation for the UK economy include: ● Development of economies of scale from exports: by increasing the scale of production to serve foreign markets, UK firms achieve a reduction in their unit cost of production;

50 Airports Commission, Discussion Paper 2: Connectivity and the Economy https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/138162/aviation-connectivity-and- the-economy.pdf 10

● Increased competition: from imports and inward investment, leading to lower prices and higher productivity in the UK; ● Specialisation benefits: aviation connectivity allows the UK to focus on the production (and export) of goods/services that can be efficiently produced in the UK and to import those goods/services that can be more efficiently produced by our trading partners; ● Dynamic productivity effects: once UK firms start accessing a foreign market, knowledge of that foreign market improves, meaning that UK firms can take advantage of business opportunities that were previously unknown to them; and ● Access to foreign technological knowledge and methods of production: local UK firms can exploit to raise their productivity.

30. General Aviation (GA) activity (covering private business flights, as well as leisure flying) is an important part of the aviation sector. GA economic activity in 2013 has been estimated at about £3 billion, supporting over 38,000 jobs, 9,700 directly related to flying and the remainder to manufacturing.51

The current EU regulatory regime 31. The EU aviation acquis establishes the rules which the UK has signed up to as a member of the EU internal aviation market. EU aviation rules govern three key areas and detail on these is set out below: ● General internal market measures and external relations; ● Safety – European Aviation Safety Agency (EASA); and ● Air Traffic Management – Single European Sky.

32. There is further EU legislation which governs: ● Ground handling – Regulation 96/67; ● Airport charges Directive – Directive 2009/12; ● Allocation of take-off and landing slots at busy airports – Regulation 95/93; ● Passenger rights – Regulation 261/04 (cancellation/delay compensation) Regulation 1107/06 (disabled passengers), Directive 2015/2302 (Package Travel); ● Noise management - Regulation 598/2014; and ● Security – The common basic standards are set out in Regulation 300/2008 with more detailed requirements in Regulation 2015/1998.

General Internal Market Measures 33. The internal aviation market has liberalised access for community airlines flying between points within the EU provided that they have a licence that meets EU conditions. The primary economic framework for air transport in the EU is contained in Regulation 1008/2008, which harmonises rules on operating licences, market access, aircraft registration and leasing, public service obligations, traffic distribution and pricing.

51 York Aviation, 2015, The Economic Value of General Aviation in the UK, for the DfT, https://www.gov.uk/government/publications/general-aviation-economic-value 11

Safety 34. The Civil Aviation Authority (CAA) is the UK’s independent aviation regulator. It levies a charge on the aviation industry to fund its regulatory activity. Safety (and some environmental) regulation is set by the European Aviation Safety Agency (EASA). The Warsaw and Montreal Conventions govern international carriage by air and provide for air carrier liability in the event of death or personal injury, destruction or loss or damage to baggage or cargo, and damage arising from delay.

35. EASA was created in 2003 and reached full competency in 2008 through the introduction of Regulation 216/2008 which sets out common safety rules and objectives for civil aviation in Europe. EASA has competence (either full or shared) over: ● Initial, additional and continuing airworthiness certificates of aircraft and products; ● Air crew and flight limits; ● Air operations; ● Third Country Operator Authorisations that certify compliance with safety requirements for foreign aircraft; ● Prohibiting unsafe airlines; ● Safety oversight in Air Traffic Management and Air Navigation Services; ● Air Traffic Controller licences and certificates; ● Airspace and airborne collision avoidance; and ● Administrative procedures related to aerodromes.

36. EASA prepares draft rules for consideration and adoption by the European Commission. Member States’ National Aviation Authorities (NAAs) then implement the adopted rules with monitoring from the Agency. The UK’s NAA is the CAA. EASA also has a number of executive tasks, for example the initial airworthiness certification of new and modified products (e.g. specific models of aircraft and engines) and the certification of organisations based in third countries. The Department for Transport and UK stakeholders are currently involved in more than 50 rulemaking activities within EASA and the UK is one of the NAAs that contributes the most technical expertise to these working groups.

37. The system is underpinned by the set of common safety rules which are designed for uniform application across the EU. Those rules apply both to the air transport industry, individuals, organisations and products and to the NAAs themselves.

38. All regulations that derive from the EASA Basic Regulation (EU 216/2008) are currently subject to a vote by the EASA Committee as part of the comitology process.52 As a member of the EU, the UK is represented at the EASA Committee, which is the EU comitology committee on aviation safety, and has a seat on the EASA Management Board, which is the Agency’s management body. While third countries are able to propose regulations and shape their development at EASA,

52 Comitology refers to a set of procedures through which EU countries manage how the European Commission implements EU law. 12

they do not have a vote at this stage. However, they do have observer status in the EASA Committee. In practice, regulations proposed by EASA as the technical advisory body are rarely voted against by Member States on safety policy grounds, as they prepared on a consensus-based approach.

39. Norway and Switzerland participate in the EU’s safety systems through their agreements with the EU. Norway and Switzerland are both associate members of EASA and both make a financial contribution to the running of the organisation.

Air Traffic Management (ATM) 40. ATM is a broad term that describes the technical communication, navigation and surveillance systems and operational procedures that ensure the safe separation and expeditious flow of air traffic through controlled airspace. States are obligated to provide an ATM system and arrangements for air navigation in a way that facilitates the international nature of air travel.

41. NATS is the UK’s en-route air navigation service provider (ANSP) providing air traffic control services handling 2.4 million flights and 250 million passengers in UK airspace each year.53 It is regulated by the CAA under a license covering en-route services and services provided in a portion of the North Atlantic. Many elements of its economic and safety regulation are governed currently by EU regulations set under the Single European Sky legislative framework.

Single European Sky (SES) Legislative Framework 42. The key objectives of the SES legislative framework are: • To restructure European airspace as a function of air traffic flows; • To create additional airspace capacity; and • To increase the overall efficiency of the ATM system.

43. The SES consists of four Basic Regulations (numbers 549/2004, 550/2004, 551/2004 and 552/2004 – SES I package) that cover the provision of air navigation services, the organisation and use of airspace, and the interoperability of the European Air Traffic Management Network. The SES I package was revised in 2009 by a further package of legislation, SES II, which included economic and performance regulation and a framework for developing and deploying new concepts for air traffic management developed as part of Single European Sky ATM Research (SESAR) programme.

44. SES legislation requires that all Member States work together to make improvements to the organisation of airspace and delivery of air navigation services with a focus on air traffic flows rather than being limited by national borders, for example by forming Functional Airspace Blocks (FABs). All EU States were obligated to form FABs by December 2012. EU legislation encourages third country participation in FABs so some countries which border EU Member States, for example Norway and

53 See NATS website: https://www.nats.aero/about-us/what-we-do/atc-explained/ 13

Switzerland, are part of FABs with EU Member States. There are nine FABs and the UK is a member of the FAB with Ireland. Work is collaboratively undertaken between the UK and Irish civil aviation authorities and air navigation service providers to optimise airspace, articulate performance plans and deliver performance targets at the FAB level.

EUROCONTROL 45. EUROCONTROL, the European organisation for the safety of air navigation, is an inter-governmental organisation set up by its Member States to facilitate collaboration and ensure safe and seamless ATM across Europe. It currently has 41 member states, including non-EU States such as Turkey and the Ukraine.54 EUROCONTROL provides the operational co-ordination of the European air traffic system, technical expertise and legislative assistance to the Commission, industry and EUROCONTROL member states. Operationally, EUROCONTROL ensures that air traffic is planned daily against available airspace capacity. It works to minimise delays in the event of crisis situations or strikes. The UK is a signatory to the EUROCONTROL convention in its own right, independent of its membership of the EU.

46. Although it is not an EU agency, the EU has designated EUROCONTROL to carry out certain functions under the SES legislative framework, for example: administering regulations; assisting the Commission’s work in the Performance Review Body; and the Network Manager, which centralises responsibility for tasks including airspace design and flow management with a view to improving the network.

Devolution, Overseas Territories And Crown Dependencies

47. Aviation is primarily a reserved matter, although certain aspects of economic regulation of the sector, for example Air Passenger Duty, are devolved.55

48. The Crown Dependencies are the Bailiwick of Jersey, the Bailiwick of Guernsey and the Isle of Man. Crown Dependencies have their own directly elected legislative assemblies, administrative, fiscal and legal systems and their own courts of law. Principal legislation made by the Islands’ legislatures requires Royal Assent or sanction. The Ministry of Justice examines such legislation to ensure that there is no conflict with international obligations (including European Convention on Human Rights compliance) or any fundamental constitutional principles. UK legislation rarely extends to the Crown Dependencies

49. Due to the nature of the Crown Dependencies’ legislative arrangements there is freedom to choose the regulatory frameworks that are implemented. For example, Jersey has chosen to participate in the EASA system as a third country but follows UK rules on other aviation matters such as security. Each of the Crown Dependencies has an airport.

54 https://www.eurocontrol.int/about/member-states 55 Air Passenger Duty is devolved to Scotland and devolved to Northern Ireland in relation to long-haul flights. 14

50. Unlike other Overseas Territories, Gibraltar is part of the EU. The Government of Gibraltar is responsible for implementing the relevant applicable EU legislation. The UK Government is working closely with the Government of Gibraltar to ensure the best possible agreement for the UK and Gibraltar.

51. Crown Dependencies and Overseas Territories have their own aviation safety regimes. For the purposes of Air Service Agreements (ASAs), the Crown Dependencies and Overseas Territories are considered part of UK territory. For Crown Dependencies, Overseas Territories and Devolved Administrations, connectivity to global, domestic and European destinations will continue to be important.

Existing frameworks for how trade is facilitated between countries in this sector

52. The arrangements described in this section are examples of existing arrangements between countries. They should not be taken to represent the options being considered by the Government for the future economic relationship between the UK and the EU. The Government has been clear that it is seeking pragmatic and innovative solutions to issues related to the future deep and special partnership that we want with the EU.

53. The Prime Minister has set out that the UK is seeking an ambitious arrangement with the EU which builds on our unique position of regulatory alignment. We should seek a set of arrangements which is in the best interests of citizens and businesses - both in the UK and across the EU.

54. International air services are not covered by WTO rules but governed by ASAs between individual countries (or regional blocs) which determine levels of market access.56 ASAs are part of the international framework of air transport that has developed from the 1944 Chicago Convention. ASAs will set out the access between two states, and might also stipulate the number of carriers, provisions for freight traffic and a range of other aviation related business.

55. The UK has bilateral ASAs with 111 countries (including, for instance, Brazil, Russia, India and China). Our access to EU Member States, and some third countries, such the US and Canada, is currently derived from our membership of the EU. In total, this accounts for access to 44 markets which include some of our major trading partners and together they account for around 85 per cent of international passenger movements to and from UK airports57

56. Since the privatisation of the commercial aviation industry in the UK, and following the removal of commercial restrictions within the EU internal aviation market during the 1990s, the UK has actively sought to liberalise and deregulate its ASAs, aiming,

56 Air traffic rights and services directly related to air traffic are exempted from the General Agreement in Services 57 Table AVI0105 https://www.gov.uk/government/statistical-data-sets/avi01-traffic-passenger-numbers-mode-of- travel-to-airport 15

on a reciprocal basis, to allow carriers to operate competitively, on a level playing field, and within an appropriate regulatory framework.

57. The 1944 Chicago Convention also established the International Civil Aviation Organisation (ICAO), a UN special agency that develops international aviation guidelines and standards. ICAO has 191 state members. The UK is a permanent representative on ICAO’s Council - ICAO’s main executive body – independent of its membership of the EU. The EU is an ad-hoc observer in many ICAO bodies and at ICAO Council the EU is represented based on an ad-hoc invitation.58 ICAO has no ability to set regulation or enforce its rules, compliance is drawn from members’ domestic legislation. The UK and the EU have developed their aviation regulatory framework on the basis of ICAO’s global standards.

58. Summarised below are examples of frameworks which facilitate aviation between the EU and non-EU countries.

European Common Aviation Area Agreement 59. The UK is currently part of the European Common Aviation Area (ECAA) by virtue of its membership of the EU.59 The ECAA agreement sets out the framework for an integrated aviation market, and aims to extend the EU’s internal aviation market to several non-EU countries.60 The level of market access granted is linked to the degree to which countries adopt the aviation acquis. For example, Norway is part of the ECAA through its membership of the European Economic Area (EEA). It has adopted the full aviation acquis, and has full and open access to the European single aviation market. The Former Yugoslav Republic of Macedonia has not completely aligned its aviation regulations and has more limited market access.

60. The EU-Switzerland Air Transport Agreement is a bespoke bilateral agreement which predates the ECAA. It is one of seven bilateral agreements between the EU and Switzerland which stand or fall as a package. Switzerland agreed in 2002 to adopt and implement the aviation acquis in full. Switzerland has been granted liberalised access to the internal market, though its traffic rights do not extend to the ability to fly between two destinations within a Member State.

EU Multilateral Agreements With Third Countries US Open Skies Agreement 61. The EU has concluded liberal agreements with third countries. The EU-US Air Transport Agreement is an example of this. It offers liberal market access for the EU and US, with air carriers being able to fly an unlimited number of frequencies on any route between the US and EU Member States. Prior to this agreement, transatlantic routes were restricted in the points that could be served, the carriers that could

58 https://ec.europa.eu/transport/modes/air/international_aviation/european_community_icao_en 59 European Common Aviation Area: includes the EU countries, Albania, Bosnia and Herzegovina, the former Yugoslav Republic of Macedonia, Iceland, Montenegro, Norway, Serbia and the United Nations Interim Administration Mission in Kosovo. 60 ECAA Agreement: http://ec.europa.eu/world/agreements/downloadFile.do?fullText=yes&treatyTransId=3421 16

operate them and at what frequency. The agreement encourages principles of competition and regulatory cooperation.

Neighbouring Countries Multilaterals (Inc. Israel, Morocco, Moldova, And Jordan) 62. Several countries neighbouring the EU have concluded agreements with the EU. The terms of these agreements differ from the other but none of these countries have been granted the right to operate flights within the EU. They are distinct from the US agreement in that they extend to regulatory alignment, meaning that the respective third countries have agreed to adopt and implement some, most of or all of the EU acquis as it applies to aviation. There is a close correlation in these relationships between the level of liberalisation in the agreement and the extent to which the third country agrees to implement the acquis.

EU Canada Air Transport Agreement 63. EU and Canada Transport Agreement was signed in 200961. The agreement aims to promote competition within the aviation marketplace with minimum government interference and regulation. The EU-Canada agreement grants EU and Canadian carriers the right to fly between any point in Canada and any point in the EU, as well as points beyond, on services originating in the EU or Canada.

64. The agreement emphasises the need for parties to work collaboratively. This is particularly emphasised on areas such as security and safety. Parties are encouraged to exercise mutual recognition of security arrangements and reciprocal acceptance of safety certificates and licences. Where there are reasonable grounds, and/or a contracting party departs from the agreement, parties can act to suspend, limit or revoke the arrangements.

Sector views [This information was provided by the Government to the Committee, but the Committee has decided not to publish this section]

61 Canada EU Transport Agreement: https://ec.europa.eu/transport/sites/transport/files/modes/air/international_aviation/country_index/doc/canada_fin al_text_agreement.pdf 17