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 EU’s negotiating stance that “nothing this report in respect of these four areas: 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 relating to the airline industry without freedom (e.g. UK operator: Milan- previously agreed bilateral air consideration of the needs of the Rome) routes 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, 2. Ownership and control. the air transport sector in the EU, which 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 –– 1956 Paris Agreement: this covers between the EU and the UK in relation markets, as the EU has negotiated non-scheduled routes but only for 24 to the business aviation market may various multilateral Air Transport Contracting Parties (including the UK) look like, in order to arm EU and UK Agreements with third countries on and certain restrictions apply negotiators with the background 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 Ability to fly to and within aircraft. Reg 1008 / 2008 requires a Risk of losing “Community EU operators the UK will depend on future Community air carrier to be majority 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 Skies Agreement). 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. Traffi c 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 traffi c management / Single In the main part of the report, we set out 6 European Sky ATM Research what we consider to be the six possible “Brexit models” for aviation, and analyse the impact of each of these models on The Cape Town Convention 7 business aviation, and in particular on the eight topics summarised below. Other relevant EU law 8 11

2. Current UK aviation relationships

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

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

Traditional bilateral Air Services Agreement (ASA) 111

EU internal aviation market (EU Member States) 27

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

EU internal aviation market 1 (Switzerland)

EU internal aviation market (ECAA Agreement) 6 (Albania, Bosnia & Herzegovina, Macedonia, Montenegro, Serbia, Kosovo)

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

Source: UK Department of Transport. Section 2

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

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

13

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

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

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

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

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

Maintain –– Unlikely scenario, –– No foreseeable change –– No foreseeable change –– No foreseeable change statusFigure 1quo 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. –– Flights within the EU: –– Flights within the UK: (e.g. Switzerland) 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: of Brexit – allows for a UK: ECAA Agreement ECAA Agreement covers European –– Viable option; UK gradual grant of market covers 3rd and 4th 3rd and 4th freedoms from Common already applies full access in parallel with freedoms from the the onset. Aviation Area 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 all existing bilateral basis for 3rd and 4th 4th freedoms. Agreements –– 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 standalone agreement negotiated, and with 4th freedoms. / or individual –– Flights within the EU: is unlikely. how many States. Member 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 2 2008”), 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 A n ne x 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. –– “Loss of democratic control”: UK (e.g. Norway) 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 an enhanced qualified majority among 1.1. Commentary full outline of a trade deal to be agreed 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 We do not discuss the impact on maintaining (or, more accurately in such an independent trade policy for the UK. business aviation operations in Europe context, reverting to) the status quo to be As mentioned elsewhere in this report, of maintaining the status quo as clearly agreed and implemented later, possibly the EU’s approach (reiterated in the the current regime would continue to much later, with no deal or a transitional Joint Report of 8 December 2017) is that be applicable post-Brexit. Extensive arrangement in place in the interim period. “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 However, it should be noted that it and (iii) the rules for a transition / major policies set out in the Withdrawal may be the case that the status quo is implementation period, if any. The Agreement will be directly implemented maintained between the EU and the European Council summit in Brussels on into domestic law in the UK by primary UK in respect of the liberalised aviation 22-23 March 2018 will assess what kind of legislation – not by secondary legislation regime now largely formulated in trade deal can be expected. A final treaty under the EU (Withdrawal) Bill. This will Regulation 1008 / 2008 (licensing and on withdrawal and transition (and trade) allow for Parliamentary scrutiny and market access) but that the UK leaves 25

the Customs Union and / or EASA. We accession by further parties and provides 2.2. Ownership and control discuss in detail below the implications a procedure for this in the agreement The EEA Agreement incorporates of the UK leaving the Customs Union itself. Regulation 1008 / 2008 and therefore and / or EASA (please see Model 5: Revert preserves the current ownership and to previously agreed bilateral ASAs (no The implications of this external control rules. Going forwards post-Brexit, “aviation deal”) below). It should be dimension for UK business aircraft if the UK were to join the EEA that would recalled that it is current UK Government operators are discussed further below mean that the UK will be treated as an policy that the UK aims to maintain in Model 5: Revert to previously agreed EU Member State and its nationals as full liberalised market access to the UK bilateral ASAs (no “aviation deal”) below. 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 “Community air carrier”. States (Norway, Iceland and Liechtenstein) The second option for the UK to follow would be to join the European Economic as the UK will no longer be automatically 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 Fourthly, as the UK will no longer be of the EU temporary admission regime, rights. Since all nine freedoms of the an EU Member State it will no longer so the EU temporary admission rules air would apply a UK charter operator be a party to the EU-US Open Skies would need to be analysed in relation would therefore continue to be able to fly Agreement, nor will it be a party to to any UK registered aircraft entering a 7th freedom route (for example Paris the other six agreements that the EU the EU with no intention to effect a full to Rome) as well as 9th freedom routes has reached with other countries to importation for free circulation within (for example Paris to Nice). Conversely, which the UK is a party by virtue of its the EU. (It should be recalled that it is EU non-scheduled commercial operators membership of the EU (Canada, Georgia, open to a “foreign carrier” to effect a full would continue to have the right to Israel, Jordan, Moldova and Morocco). It importation into the EU). Conversely, an continue to fly on 7th freedom routes would be open to the UK to join these EU registered aircraft entering the UK into the UK (e.g. an Italian business agreements as a non-EU State (similarly could do so under the UK’s temporary aircraft operator flying for charter from to Norway which has acceded to the admission regime rather than being Paris to London Luton) or out of the UK, EU-US Open Skies Agreement), with the fully imported into the UK, pursuant to as well as 9th freedom routes within the consent, of course, of the other parties. whatever applicable rules the UK will UK (e.g. a Maltese charter operator flying The US-EU Open Skies contemplates the adopt post-Brexit. We note in this regard from Farnborough to Edinburgh). that, as described in Annex 4 (Customs Section 3

duties / VAT), when the UK leaves the 2.6. Commentary The option of joining the EEA appears to EU it is the UK Government’s intention have already been discounted by the UK The EEA envisages a high level of that the existing rules will be codified Government, as set out in Prime Minister integration between the Member States, in domestic UK legislation without Theresa May’s speech in Florence on 22 as the principal objective of the EEA amendment, but they would be subject to September 2017. In this speech Prime Agreement is to promote the continuous amendment and repeal going forwards. Minister May declared: “One way of and balanced strengthening of trade and approaching this question [of the future economic relations between the Parties, 2.4. EASA UK-EU relationship] is to put forward a with a view to creating a homogeneous stark and unimaginative choice between As a member state of the EEA the UK 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 areas that we have been analysing is: 2.5. External dimension 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 would continue to be entitled to retain 3.6. Commentary provide a model to be adopted by the UK. the status of a “Community air carrier”. It is questionable whether a Swiss- 3.1. Traffic rights style air transport agreement with the 3.3. VAT / Customs duties EU is achievable. Switzerland entered The benefit of this model is that it would Switzerland is not part of the EU into seven agreements each covering allow UK operators to enjoy access to the Customs Union. Following the Swiss a specific sector (including freedom EU internal air transport market without model would entail the UK leaving the of movement of people, which has requiring a high level of integration Customs Union (as noted above this is subsequently been rejected in a Swiss with the EU (though the EU-Switzerland consistent with current UK Government referendum in February 2014), and all Agreement does apply the whole of the policy), with the consequences, described of which are to be terminated if anyone EU aviation acquis to Switzerland, to be above in the EEA context. is breached (the so-called “guillotine interpreted in line with CJEU judgments provision”). It seems relatively likely prior to 1999). 3.4. EASA that a UK-EU air transport agreement However, in the case of Switzerland, Switzerland is within the remit of EASA. would not be negotiated on its own, but 8th and 9th freedoms of the air are not However, Switzerland is a member of as part of a larger package: as is well exchanged (and 5th and 7th freedom EASA’s Management Board without known, the negotiation position of the rights have only been exchanged since voting rights. With the same status it EU is that nothing is to be agreed until 2004). It is not therefore automatically would be necessary for the UK to apply everything is agreed, i.e. aviation will not permitted for a Swiss business aircraft EU safety regulations notwithstanding be the subject of a separate standalone operator to fly on a commercial route a lack of control over the legislative agreement but will be included in the between (for example) Milan and Rome, process. It may be unpalatable for the overall all-encompassing ‘new deal’ UK- nor is it permitted for an EU business UK to suffer such a “loss of democratic EU package. This could ultimately have aircraft operator to fly commercially control”. We understand that it is the similar disadvantages as the EEA model. between (for example) Zurich and UK Government’s intention to secure The impact on the principal areas that Geneva. A similar restriction could full membership in EASA including we have been analysing is: therefore apply post-Brexit to UK voting rights (not provided for in the operators (in respect of any route within EU-Swiss Agreement) so that it has a say an EU Member State) and EU operators (in in the adoption of technical and safety respect of any route within the UK). This regulations, not least as it takes part in would be a considerable restriction for the the manufacture of Airbus aircraft and UK operator in particular. component parts.

Of course 8th and 9th freedom rights could 3.5. External dimension be exchanged on a reciprocal basis in a UK- Assuming that the Swiss-style bilateral EU Swiss-style agreement, but trade-offs in will be between the UK and the EU the other areas would seem likely. UK would need to negotiate and arrange 3.2. Ownership and control its relationships with the EEA States, Switzerland, the EFTA states and the The EU-Switzerland aviation bilateral seven countries with which the UK’s incorporates Regulation 1008 / 2008 current aviation relationship is governed and therefore preserves the current by an EU agreement (USA, Canada, ownership and control rules. Going Georgia, Israel, Jordan, Moldova and forwards post-Brexit, if the UK were to Morocco). As discussed in this report, negotiate a similar bilateral with the EU these are all countries with which the that would therefore mean that (a) a UK UK’s current aviation relationship is operator would continue to be entitled to pursuant to agreements reached by the status of a “Community air carrier”, the EU. The consequences of failing to 29

Model 3 “Swiss style” bilateral

UK operators EU operators Comment

Traffic rights –– Flights to and from the UK: –– Flights to and from the UK: Swiss- –– Good option for securing 1st to Swiss-style bilateral covers style bilateral covers 3rd and 4th 7th freedom rights, but notable 3rd and 4th freedoms. freedoms; lack of “cabotage” rights (i.e. 8th and 9th freedoms). –– Flights within the EU: Swiss- –– Flights within the UK: Swiss-style style bilateral covers 5th and bilateral does not cover 8th or 9th –– Applies aviation acquis 7th freedoms. “cabotage” freedoms interpreted in line with CJEU decisions delivered prior to the –– Flights within an EU Member –– UK unlikely to grant rights for adoption of the agreement. State: Swiss-style bilateral commercial non-scheduled does not cover 8th or 9th flights without reciprocity. freedoms.

Ownership and –– The EU-Switzerland –– The EU-Switzerland Agreement control Agreement incorporates Reg. incorporates Reg. 1008 / 2008 and 1008 / 2008 and preserves refers to Community air carriers. current ownership and control –– Community air carriers treated rules. the same as UK operators. –– UK treated as an EU Member State and its nationals as nationals of EU Member States for the purpose of Reg. 1008 / 2008.

VAT / customs rules –– UK would not be a part of –– UK outside of the EU Customs the EU Customs Union. Union; but part of the free trade area in certain goods –– The EFTA Agreement and services. supplemented by a series of bilateral agreements establishes a free trade area in certain goods and services (i.e. limited access to the single market).

–– 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.

–– UK would have to apply EU safety regulations without the ability to influence their contents and to vote on the proposed measures. Section 3

4. Model 4: Join the European Common to take up charter passengers in Warsaw stages of liberalisation. Aviation Area (ECAA) destined for another point in the EU, such as Athens (as this is a 5th freedom right 4.2. Ownership and control We have seen how, following exit from only granted in Stage 2). the EU, UK carriers will no longer have Full implementation of the Regulation 1008 / 2008 air carrier licensing rules is access to the Single Aviation Market. One From the perspective of operational in suspension until the end of the 2nd way of regaining access would be to join freedom currently enjoyed by UK transitional period (i.e. the end of Stage the ECAA Agreement. operators, an even more severely limiting 3). Unless the UK joins on the basis consequence would be that 7th freedom 4.1. Traffic rights of having achieved Stage 3 the initial rights, e.g. the right to fly from Warsaw impact may therefore be the same as a As described in detail in Annex 2 to Athens without serving a point in the “no deal” scenario, on which see Model (Traffic rights), the ECAA Agreement UK, 8th freedom rights, e.g. the right 5: Revert to previously agreed bilateral contemplates three stages for each to fly from London to Athens and on to ASAs (no “aviation deal”). joining State: Thessaloniki on the same service, as well as 9th freedom rights, for instance 4.3. VAT / Customs duties Stage 1 – immediate access to unlimited a standalone service between Athens 3rd and 4th freedoms; joining state to and Thessaloniki or Rome and Milan, The ECAA Agreement does not form a implement key EU aviation legislation. would be unavailable during the first customs union or contain provisions on transitional stage. Similarly, EU carriers the accession to the EU Customs Union. Stage 2 – 5th freedom access is granted would be prevented from flying on routes The consequences of the UK leaving the once the Commission / Joint Committee such as Rome to London to Edinburgh or Customs Union are discussed in the is satisfied that Stage 1 is complete. London to Edinburgh. “no deal” scenario in Model 5: Revert to previously agreed bilateral ASAs (no Stage 3 – full market access (all nine Following the implementation of the “aviation deal”) below. freedoms) and rights of establishment initial package, i.e. the ‘core’ EU aviation once full aviation acquis is applied. legislation, UK operators would be 4.4. EASA The UK already applies EU aviation granted the right to fly 5th freedom The UK would be interested in securing legislation, so from a practical services, an example of which would full membership in EASA, so that it perspective it should not need to go be the above route London to Warsaw has a say in the adoption of technical through the transitional stages – UK to Athens, but both consecutive and and safety regulations, not least as it operators could continue to enjoy all standalone cabotage (8th and 9th takes part in the manufacture of Airbus nine freedoms of the air within the EU freedoms, respectively) would be aircraft and component parts. This is internal aviation market. unavailable until after the second another feature of the ECAA Agreement transitional period. that is practically only ‘unlocked’ once However, strictly speaking, the UK would the Commission determines that the second Of course, having applied EU aviation not be formally subject to EU law as at transitional stage has come to an end. the moment it decides to join the ECAA acquis in its entirety not long before (by virtue of the fact that following withdrawal from the EU, the UK should 4.5. External dimension exit from the EU, EU legislation will no be able to quickly re-implement the The June 2006 EEA Agreement is with longer apply to the UK). It is thus not relevant legislation (though whether this the EEA States as well as the EU. inconceivable that the EU could use this is a politically feasible option is another technical argument to require the UK matter), in which case there would be This would therefore leave the UK to implement the EU aviation acquis as arguments for UK’s quick procession needing to arrange its relationships with required for progression through each through the transitional stages to the Switzerland and the seven countries stage of liberalisation. fully liberalised Single Aviation Market. with which the UK’s current aviation However, under the ECAA Agreement, relationship is governed by an EU This would effectively mean that, during progression to the next stage of agreement (USA, Canada, Georgia, Israel, the first stage, UK operators would only liberalisation is not automatic, as it is the Jordan, Moldova and Morocco). be able to operate 3rd and 4th freedoms European Commission that determines on routes such as London to Warsaw or whether the relevant requirements have 4.6. Commentary Athens to London. There would be no been met. It is possible that some EU The principle that market access is opportunity during the first stage for UK Member States may oppose the UK’s gradually granted in parallel with operators on the route London to Warsaw joining or delay progression through increasing regulatory convergence 31

may not be too unpalatable for the UK, acceptable for the UK. The overall approximation of laws, not the adoption especially given its starting point that direction of the ECAA (as a staging post of EU legislation, which would allow such aviation regulations apply anyway. for the members to join the EU) is the the UK to retain more policy control. reverse of the direction that the UK has However, the EMAA model currently However, the ECAA Agreement chosen, and seen from that perspective does not envisage the immediate was modelled for countries that are it might be considered anomalous for the exchange of 7th, 8th or 9th freedoms of candidates for EU membership and UK to become an ECAA member. the air, or full membership in EASA. envisages ultimately a high degree of integration with the EU. This, as Alternatively, the UK could enter into The impact on the principal areas that well as the lack of control over the an EMAA-style Agreement with the we have been analysing is: implementation of future EU aviation EU. One of the benefits of this is that legislation, is unlikely to be politically the EMAA Agreement only requires the

Model 4 The UK joins the ECAA

UK operators EU operators Comment

Traffic rights –– Flights to and from the UK: –– Flights to and from the UK: ECAA –– Supported by the industry. ECAA Agreement covers 3rd and Agreement covers 3rd and 4th –– Viable option; UK already 4th freedoms from the onset. freedoms from the onset. applies full EU aviation acquis –– Flights within the EU: intra-EU –– EU carriers able to operate and could potentially be 5th freedom rights available in between the UK and any airport fast-tracked to final stage the 2nd stage and 7th freedom in the EU (including to / from under the ECAA Agreement rights available at the final stage. other EU Member States). (i.e. full access to the Single Aviation Market) – effectively –– Flights within an EU Member –– Flights within UK: ECAA maintaining status quo. State: full market access Agreement covers 8th or 9th (including “cabotage”) and “cabotage” freedoms, but only –– Securing 7th freedom and / right of establishment only at the final stage. or “cabotage” rights will be at the final stage. challenging.

–– UK would have no ability to shape EU legislation that it would be would be required to adopt.

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

Ownership and –– ECAA State Parties have to –– ECAA Agreement refers to control adopt the EU aviation acquis, Community air carriers: Reg. 1008 including Reg. 1008 / 2008. / 2008 continues to apply.

–– Full implementation of the air carrier licensing rules and access to air routes in suspension until the end of the 2nd transitional period.

–– National ownership and control rules apply until full implementation of the ECAA Agreement. Section 3

Model 4 - cont. The UK joins the ECAA

UK operators EU operators Comment

VAT / customs rules –– ECAA States not part of the EU –– UK outside of the EU Customs Customs Union. Union.

–– ECAA Agreement does not contain provisions on customs duties and VAT.

–– In preparation for their accession to the EU, ECAA State Parties align their legislation with the acquis.

EASA –– ECAA State Parties in the 1st –– EU Member States are members transitional period may sit of the EASA Management Board on the Management Board as with full voting rights. non-voting observers.

–– As they progress to the 2nd transitional period, the ECAA Joint Committee determines their precise status and conditions for participation. 33

5. Model 5: Revert to previously agreed and (ii) the 1956 Paris Agreement. the European Commission. At the same bilateral ASAs (no “aviation deal”) time, and on the other hand, the revived Old bilateral agreements which have regime would be relatively inflexible, not 5.1. Introduction not been terminated may be revived, just because of the restrictive nature of If no Withdrawal Agreement is in place but these would usually only provide for most old bilaterals, but also because of by the end of the two year negotiation the exchange of 3rd and 4th freedoms the time-consuming formalities involved period under Article 50 TEU (or any as well as some 5th freedom services. in their subsequent renegotiation. As extension of that period), the EU Treaties However, in the case of 5th freedom a result, what may be implemented as will cease to apply to the UK. This has services this will depend on the survival an interim solution has the danger of been variously described as a “no deal” (or replacement) of the other applicable becoming a more permanent one, and an scenario or a “hard Brexit” – or indeed, agreement. For instance, in case of the unsatisfactory one at that. more pejoratively, as “falling over the revival of the UK-Italy bilateral, UK and cliff-edge”. Unless the negotiation period EU operators should be able to fly London By way of example, we have reviewed is extended the UK will therefore leave to Rome and Rome to London routes in four old bilaterals between the UK and the EU on 29 March 2019. both directions. However, for a UK carrier the following European States: to be able to fly London to Rome to It is possible that a deal could be agreed Athens, both the UK-Italy and UK-Greece 1. Germany: the Agreement for Air for aviation (possibly with other special bilateral air services agreements would Services between and beyond sectors also) but not overall. However, need to have survived and contain 5th their Respective Territories (with the Council’s negotiation guidelines freedom rights. Exchange of Notes) of 1955 and the contemplate a single overall package: subsequent Exchanges of Notes of “Negotiations under Article 50 TEU will 7th freedom services (such as services 1962 and 1990 do not expressly apply be conducted in transparency and as a by UK operators from Rome to Athens) to non-scheduled air services; Article single package. In accordance with the as well as 8th freedom rights (such as 1 defines an air service as “any principle that nothing is agreed until a flight by a UK carrier from Palermo scheduled air service performed by everything is agreed, individual items to Paris with no UK connection) or 9th aircraft for the public transport of cannot be settled separately.”3 These freedom rights (such as a flight by a UK passengers, mail or cargo” and the guidelines define the framework for carrier from Rome to Milan or by an EU Agreement does not at any point negotiations under Article 50 TEU and set operator from Cardiff to Edinburgh) are refer to non-scheduled or charter out the overall positions and principles not permitted under these old bilateral traffic; agreements. The agreements would need that the Union will pursue throughout 2. Italy: the Agreement for Air to be analysed on a case-by-case basis the negotiation. Services between and beyond to see what traffic rights are granted, their Respective Territories (with It should also be noted that, unlike many and to see if any distinction is made Schedules and Exchange of Notes) other sectors, World Trade Organisation between scheduled and non-scheduled of 1976 does not expressly apply to (WTO) rules will not apply as WTO rules commercial traffic. non-scheduled services, with the do not cover the aviation sector. On the one hand the revival of bilateral exception of Article 6 which provides 5.2. Traffic Rights air services agreements that have an exemption from customs duties, survived would be a relatively simple inspection fees and any other duty In the event of the UK leaving the measure that could be implemented or tax on the aircraft, their regular EU without putting in place some fairly quickly, avoiding a gap during equipment, spare parts, supplies arrangement for a new aviation which there would be no legal framework of fuel and lubricants and aircraft regulatory regime, UK commercial for the operation of air services between stores (including food, beverages and business aircraft operators would cease the UK and the EU. This is particularly tobacco) whether used in the course to have access to the liberalised intra-EU important, given that the UK may be of scheduled or non-scheduled and EU-US air transport markets. prevented from negotiating new air operations. It should be noted that that Italy is not a State Party to the The regime going forwards would by transport agreements with the EU prior 1956 Paris Agreement; necessity therefore be based on (i) old to actually leaving the EU, and individual bilaterals, to the extent that they can be EU Member States would similarly be 3. France: revived (i.e. to the extent that they have prevented from negotiating with the UK a. The Agreement relating to Air not been superseded by later agreements) even post-Brexit if mandate is given to

3 European Council (Art. 50) guidelines following the United Kingdom’s notification under Article 50 TEU, 29 April 2017 Section 3

Transport between British and the entry into force of the 1956 States when engaged in international French Territories (with Annex Paris Agreement, to which both flights for remuneration or hire between and Exchange of Notes) of 1946 the UK and Switzerland are party. the territories of the Contracting States. and the subsequent Exchanges According to Bin Cheng (1962)4, the only of Notes of 1951, 1953, 1961, 1969, The UK is a 1956 Agreement Contracting two UK bilaterals in existence in 1962 1977, and 1990 applies to scheduled State. The Agreement can therefore be that related to international air transport (“regular”) services only; of assistance to UK operators, but its other than scheduled international air applicability depends on the rules set b. The Exchange of Notes services were the two agreements with out above, its effect will therefore be constituting an Agreement France and with Switzerland, discussed patchwork and confusing and its results regarding Non-Scheduled above. Both were denounced and superseded will be anomalous. For example, by the Commercial Air Services of 1950 by the 1956 Paris Agreement. Agreement a business aircraft flight of applied to commercial flights a registered aircraft conducted by a UK In the absence of any suitable bilateral which were not covered by the operator from Madrid to Paris would agreement there will be three fallback original 1946 Agreement, i.e. be permitted if the aircraft has been positions discussed in detail in Annex 2 non-scheduled commercial air chartered by a company for the carriage (Traffic rights): services, but it was denounced by of its staff, but not if the company has the UK on 10 February 1960, most i. Article 5 of the Chicago Convention chartered the aircraft to fly its customers likely due to the entry into force of (unless the operator only flies the route the 1956 Paris Agreement. ii. The 1956 Paris Agreement once per month or the aircraft has less 4. Switzerland: iii. Third Country Operator rules than six seats.) It is submitted that this would be a very difficult regulatory a. The Agreement (with Annex The 1956 Paris Agreement operates regime for UK charter operators to and Exchange of Notes) for Air independently of the EU legal framework operate within. Services between and beyond and liberalises traffic rights for the their Respective Territories of 1950 following categories of flights: (1) As discussed in Annex 2 (Traffic rights), and the subsequent Exchanges humanitarian or emergency flights; (2) third country operators wishing to of Notes of 1957, 1959, 1979, 1983, taxi flights “of occasional character” not carry out commercial flights, whether 1986, 1990, 1992 and 1993 does not available to the general public, performed scheduled or non-scheduled, to, from cover non-scheduled operations; using aircraft with seating capacity or within the UK, must obtain: (1) an it defines “air service” in line of no more than 6 seats; (3) charters EU safety authorisation, and (2) a UK with Article 96 of the Chicago of the entire aircraft by an individual, operating permit, before they are allowed Convention, that is as “any firm, corporation or institution for the to perform such flights. In the absence scheduled air service performed carriage of their staff or merchandise of an agreement to the contrary, UK by aircraft for the public transport without resale of space; (4) isolated air carriers will become third country of passengers, mail or cargo”. flights, on a condition that the operator operators for the purpose of the EU rules, and vice versa, Community air b. The Exchange of Notes constituting (or group of operators) of such a flight carriers wishing to operate to the UK an Agreement for Air Services performs no more than one flight per will be viewed as third country operators between and beyond their month between the same two traffic under English law. With regard to the Respective Territories of 1952, centres; (5) all-freight flights (subject to safety element of this, EU rules expressly similarly to the French Agreement further conditions); and (6) passenger state that any third country operator described above, applied to flights between regions which have no which intends to perform commercial commercial flights not covered by reasonably direct connection provided air transport (CAT) operations, the original 1950 UK – Switzerland by scheduled air services (subject to transporting passengers, cargo or mail Agreement, i.e. non-scheduled further conditions). The Agreement is, for remuneration or hire, into, within or commercial air services, but, however, limited in scope; in particular, out of the territories to which the Basic just like in the case of the French it only applies to civil aircraft registered Regulation applies must first comply bilateral arrangements, it was in a Member State of the European Civil with the requirements of Part-TCO and denounced by the UK on 10 Aviation Conference (ECAC) and operated hold an authorisation issued by EASA February 1960, most likely due to by a national of one of the Contracting

4 The law of international air transport. Volume 47 of Library of world affairs, London Institute of World Affairs. Author, Bin Cheng. Edition, 3. Publisher, Stevens, 1962 35

under Part-ART. The obtaining of an It is not inevitable of course that the UK Customs Union. As described below in operating permit for ‘ad hoc chartering’ would adopt an ownership and control Annex 4 (Customs duties / VAT), the UK is governed in the UK by Article 250 of test that would be equivalent to the test could form its own separate customs the Air Navigation Order 2016, and will set out in Regulation 1008 / 2008. It is zone and an aircraft imported through be governed in the other EU Member possible that the UK could adopt a more the Isle of Man / UK would not (without States by their local regulations. Certain liberal regime, allowing UK business any further agreement between the UK of these may provide that permission aircraft operators to be owned and and the EU) have “free circulation” status may only be granted for a flight where controlled by non-UK shareholders. The within the EU. Conversely, an aircraft a local carrier or locally registered UK CAA’s CEO Andrew Haines stated in imported into the EU for “free circulation” aircraft cannot provide the service. It is a speech on 5 September 2017: “We think in the EU would not have that status submitted that, if UK operators have to ownership and control requirements upon entry into the UK. A UK registered obtain a foreign carrier permit to fly on could be much more liberal. But we aircraft would have ‘third country’ status an ad hoc charter to a particular country, wouldn’t advise these are sacrificed if they for the purposes of the EU temporary and if EU operators have to obtain a were the price to be paid for on-going, full admission regime, so therefore the foreign carrier permit from the UK CAA participation of the European market.” EU temporary admission rules would every time they fly to the UK, then the need to be analysed in relation to any system will become overloaded and A UK operator could establish a new UK registered aircraft entering the EU administratively cumbersome. operator in a continuing EU Member relying on the temporary admission State in order to avail itself of access rules. Conversely, an EU registered 5.3. Ownership and Control to the Single Aviation Market (in the aircraft entering the UK could do so airline sector, this is what easyJet Following the UK’s exit from the EU, under the UK’s temporary admission has done in establishing an AOC / without an agreement in place to the regime rather than being fully imported operating licence holder in Austria). contrary, a UK business aircraft operator into the UK. We note in this regard that, However, this requires the operator to will not be entitled to become or remain as described in Annex 4 (Customs duties (1) obtain a new AOC / operating licence a “Community air carrier” under / VAT), when the UK leaves the EU it is from the continuing Member State, Regulation 1008 / 2008 as its principal the UK Government’s intention that the and so establish a principal place of place of business will be in the UK (and existing rules will be codified in domestic business there (either itself or through a therefore outside the EU) and its AOC will UK legislation without amendment, but subsidiary), i.e. its head office / registered have been issued by an authority (the they would be subject to amendment and office where its main financial function UK CAA) which is not in a Member State. repeal going forwards. and operational control (including That operator could endeavour to set up a continued airworthiness management) 5.5. EASA principal place of business in the EU, and are exercised and (2) restructure its obtain an AOC from the relevant Member The technical and safety regulatory ownership and control (as necessary) State, but would still not be entitled to environment could be disadvantageous, to comply with Regulation 1008 / 2008 be issued an EU operating licence if it as the UK may no longer be a member either at topco or subsidiary level. This is not majority owned and effectively of EASA and thus would not have a may not be straightforward. A business controlled by Member States and / or say in the decision-making process. aircraft operator that is quoted on a nationals of Member States (which for Nevertheless, the UK operators flying to public exchange may need to consider these purposes includes EEA States and the EU would need to continue to meet amending its Articles of Association to Switzerland). In the case of a UK business EASA requirements. Operators as well provide for forced divestiture of shares aircraft operator which is owned and as air navigation service providers would if shares are purchased by individuals controlled by EU nationals at present, similarly be affected by uncertainty or entities whose nationals may lead the its continuing status in the UK would surrounding the UK’s participation in operator to be non-compliant with the depend on UK rules going forwards. the Single European Sky project and rules going forwards (this is a common in particular the provision of air traffic provision in the Articles of Association of Conversely, it follows that an EU business services as well as cost-saving measures quoted airlines). aircraft operator which is majority such as free route airspace, within the owned and effectively controlled by UK 5.4. VAT / Customs duties functional airspace block. nationals could be in danger of losing its status as a “Community air carrier” The EEA is not a customs union and the The UK CAA has been very clear that the under Regulation 1008 / 2008. EEA EFTA States are not part of the EU strong preference is for the UK to remain Section 3

full members of EASA. For example, in Transatlantic services would be a speech on 5 September 2017 its CEO, particularly affected, as the revival Andrew Haines, stated: “we at the CAA of the Bermuda II Agreement would are very explicit that we want to remain mark the regress of air services to the full members of EASA. I have to say in very restrictive environment of the my eight years in the aviation sector, I early 1980s. The EU-US Open Skies don’t think I have ever come across an Agreement is set to replace the Bermuda issue that has such broad consensus in II Agreement once it enters into force. the sector. It’s almost universal. It makes However, at present, the EU-US Open no sense to recreate a national regulator. Skies Agreement is being applied At best, you replicate the vast majority of provisionally, as it has not yet entered European regulation, and you’d have to into force. During this time, the Bermuda do it over an extended period of time.” II Agreement remains suspended. Absent any specific solution, if the Open Skies The potential disadvantages of not Agreement does not enter into force prior belonging to EASA are discussed in detail to the UK leaving the EU, the suspension in Annex 5 (European Aviation Safety would no longer have effect, arguably Agency). resulting in the reinstatement of the Bermuda II Agreement. 5.6. External dimension

Following its exit from the EU, absent any The options for the UK to avoid reversion other arrangement or agreement, the UK to Bermuda II would be to: will cease to benefit from third country 1. Accede to the EU-US Open Skies aviation arrangements concluded by the Agreement as a separate party by EU on its behalf. a negotiated accession agreement These are extensively discussed in this (similar to Norway). report, namely: 2. Negotiate a new bilateral agreement with the US. –– The EEA Agreement (Norway, Iceland, Liechtenstein) If the EU-US Open Skies Agreement –– The EU-Switzerland Agreement became inapplicable to the UK then the likely and most serious impacts would be: –– The ECAA Agreement (Albania, Bosnia & Herzegovina, Macedonia, 1. A UK operator would lose the Montenegro, Serbia, Kosovo) automatic right to fly commercially from another EU Member State to –– The EU-US Open Skies Agreement 2007 the US e.g. Paris to New York. –– The EU-Canada Air Transport 2. An EU operator would lose the Agreement 2009 automatic right to fly commercially –– Agreements with Georgia, Israel, from the UK to the US e.g. London to Jordan, Moldova and Morocco New York.

In summary, the impact on the principal Old bilateral agreements which have areas that we have been analysing is: not been terminated may be revived in respect of each of these countries. 37

Model 5

“No aviation deal” scenario

UK operators EU operators Comment

Traffic rights –– Flights to and from the UK: –– Flights to and from the UK: –– Depends on whether previous existing bilateral agreements existing bilateral agreements bilateral agreements have been likely provide sufficient basis likely provide sufficient basis for suspended or revoked. for 3rd and 4th freedoms. 3rd and 4th freedoms. –– Stable framework providing –– Flights within the EU: existing –– Flights within the UK: existing legal certainty for the bilateral agreements unlikely bilateral agreements do not continuation of air services to exchange 5th and 7th cover 8th or 9th freedoms – UK may not provide a framework freedoms. unlikely to grant “cabotage” rights for non-scheduled commercial for commercial non-scheduled operations. –– Flights within the EU: existing flights without reciprocity. bilateral agreements do –– Most existing bilateral not exchange 8th and 9th –– Article 5 of the Chicago agreements are likely to contain freedoms. Convention and the 1956 Paris restrictions on designation, Agreement will be of relevance. routes, capacity, frequency and –– Article 5 of the Chicago pricing – a significant step back Convention and the 1956 from current liberalised regime. Paris Agreement will be of relevance. –– UK-US Bermuda II Agreement is particularly restrictive, providing for single 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.

Ownership –– Almost all bilaterals impose –– EU operators are Community air and control “national” ownership and carriers under Reg. 1008 / 2008; control requirements. –– Previously agreed bilaterals do –– UK would have to adopt its own not usually refer to Community rules on ownership and control. air carriers, instead designating carriers from a particular State; –– UK commercial non-scheduled Horizontal Agreements may apply. operators would have to comply with nationality and –– EU operators owned by UK ownership requirements nationals based in EU Member under the relevant bilaterals, States other than the UK may which could pose a challenge need to relocate / undergo a to non-UK majority owned restructuring on a corporate and and controlled air carriers. / or operational level to comply with the EU ownership and –– Scheduled UK operators control rules. would no longer benefit from EU designation under bilateral agreements of other EU Member States; to what extent this would affect non- scheduled operators would need to be analysed on a case- by-case basis. Section 3

Model 5 cont.

“No aviation deal” scenario

UK operators EU operators Comment

VAT / customs rules –– Bilateral air service –– Bilateral air service agreements agreements may contain may contain separate provisions separate provisions on on customs duties (see for customs duties (see for example Article 9 of the original example Article 9 of the 1977 Bermuda II Agreement). original 1977 Bermuda II Agreement).

EASA –– Bilaterals do not usually –– EU Member States are members contain provisions on of the EASA Management Board EASA membership. with full voting rights.

–– UK would have to renegotiate its participation in EASA.

–– Possible cooperation on the basis of a Working Arrangement, separate from the bilateral. 39

6. Model 6: Negotiate new ASAs with be able to negotiate with the UK, but 7. Other arrangements EU and / or individual Member States which they could do in the absence, of a 7.1. Transitional arrangement mandate they could. As a result, it would The UK could ensure continued access be advisable (not just for the UK, but also The UK Government’s current position to the EU internal aviation market for other Member States) to try to ensure, appears to be to attempt to secure a by entering into a comprehensive air if possible, that any mandate given to the transitional arrangement for the first transport agreement with the EU, Commission is limited in time or subject two years after Brexit in March 2019 similar to one of the EU Open Skies to a successful outcome by a certain whereunder the current rules will Agreements such as the EU-US Open date. continue to apply. Following the Joint Skies Agreement, or by concluding Report of the EU and UK negotiators liberal air transport agreements with A separate issue is whether the UK would on 8 December 2017 this approach individual Member States. In the former be able to negotiate a new agreement appears to also have broadly found scenario, by being treated as a strategic prior to the formal exit from the EU. favour at EU level, though the UK partner of the EU, rather than a member Arguably, it would be preferable for prefers to refer to the transition period of the internal market in one form or the UK to get involved in complex as an implementation period in order another, the UK would avoid the need to negotiations prior to exit from the EU, so to emphasise that the period is an adopt undesirable EU legislation, while that the new legal framework can take implementation phase, not years of de ensuring that its operators enjoy benefits effect immediately upon exit, leaving no facto EU membership. The EU is clear of market access. However, no current transitional period of uncertainty. The that during any transition the UK will comprehensive air transport agreement difficulty, however, is that the current have to accept the jurisdiction of the envisages full 7th freedom traffic rights negotiating position of the Council as set CEJU, apply all new EU rules and pay or 8th or 9th freedom traffic rights out in its instructions to the Commission into the EU, but will lose its seat at the (consecutive and standalone ‘cabotage’ does not envisage the entering into of table on all EU decision-making bodies. respectively), and it is not clear whether separate sectoral agreements: nothing is The UK will very likely push to be free to this may be achievable in the negotiation agreed until everything has been agreed. negotiate, and possibly even sign, trade of a standalone air transport agreement. Also, as discussed above in the context deals with third party countries during of maintaining the status quo, Article 50 Agreements with individual EU Member the transition period. Any such deals only requires a withdrawal agreement States may prove to be easier to negotiate could not come into force legally until to be entered into, it does not require and could avoid trade-offs involved in after the UK has left the EU. the future trading relationship between wider Brexit negotiations with the EU, the UK and the EU to be determined We do not believe that a transitional however, Member States are equally (except as a “framework” to be taken into arrangement should be referred to as a likely to bargain for the exchange of account). possible model or option, on its own at 7th and 9th freedom rights, which are any rate, as it seems that any transitional not normally exchanged in bilateral air We query how much a new bilateral arrangement only makes sense if there services agreements. The negotiation of would necessarily assist business is an agreed solution to transition to, and 5th freedom rights can be problematic aviation, as business aviation is often hence it is only a temporary bridge to as it requires buy-in from multiple ignored in bilateral air transport that solution. countries: for example, the right to agreements, leaving the position being conduct a commercial flight on a route that permission for each particular That said, a transitional arrangement London to Rome to Athens requires flight is normally required (as to third could be a more practical way of permission not just from the UK and Italy country operations see Annex 2 (Traffic ensuring continued market access and but also from Greece. rights). Hence, from a business aviation avoiding significant disruptions caused perspective what may be more beneficial by the UK’s exit from the EU until a long- It is highly likely that the European would be an agreement specifically for term solution is agreed than relying on Commission would be granted a the sector (which might be easier to the much more uncertain principles of mandate under Regulation 847 / 2004 to achieve than a full bilateral). comity and reciprocity. negotiate on behalf of the EU, precluding separate (and potentially more beneficial) We do not discuss further the impact on We do not discuss further the impact agreements with individual Member business aviation operations of a new Air on business aviation operations of a States. During the period of such a Service Agreement as the impact would transition agreement as such since mandate it would be exclusive, so that clearly depend on the negotiated terms. its presumed effect would be that of individual Member States would not maintaining the status quo pending Section 3

a full agreement, though this is by no The principle has also been used in 7.3. Separate agreement for business means certain and ultimately it will the past to bridge the gap between an aviation depend on the terms of the transition agreement on the matter that ceased to Another alternative would be a special agreement. have effect and a new legal framework deal for business aviation. While special yet to be put in place. For instance, deals for small sectors may seem 7.2. Comity and reciprocity when France denounced its bilateral air highly unlikely, because of the current services agreement with the US in 1992, The legal principle of “comity and negotiation positions as discussed air services continued on the basis of reciprocity” might allow the existing above, it may be that such a solution is comity and reciprocity for several years regime to continue to apply pending not impossible. It would be much less before a new agreement was negotiated. agreement on a permanent arrangement controversial and less far-reaching than or solution. Thus, in theory the principle could be a wider deal, which could well encounter opposition, and if an argument could be The principle of comity and reciprocity relied on both to preserve the current air made that EU businesses and operators has deep roots in the theory of public transport relations between the UK and would benefit just as much as UK interests, international law, but it has never the EU, and also between the UK and the it could possibly attract some support. been precisely defined. As a legal US, as the UK would no longer be a party construct it exists as a symbiosis of its to the EU-US Open Skies Agreement two constitutive elements, comity and following withdrawal from the EU. reciprocity, each of which has a distinct The obvious advantage of continuing role in regulating the relationship relations on the basis of comity and between two parties. reciprocity is that this mechanism would In its decision in Hilton v Guyot (159 US be easy to implement, providing some 113, 163-164 (1895)), the US Supreme certainty and leaving no gap during Court noted that comity is neither a which there would be no regulation. matter of absolute obligation, nor of However, the principle does not give mere courtesy or good will; rather, it long-term comfort and certainty in the is the recognition of one nation of the legal framework, as much is dependent legislative, executive or judicial acts of on the reaction of the other side and its another nation, having due regard both policies, which may change with changes to international duty and convenience, in the political environment. Further, the and to the rights of persons under the mechanism has been applied in the field protection of its laws. of bilateral relations between two states, but is largely untested with multiple Reciprocity is the element of the states, which will be relevant in relation principle that creates a relationship to aviation (e.g. the tripartite relationship based on comity, as states are prepared between the UK, the EU and the US). to recognise the authority of other states within what is naturally a sovereign Furthermore, whilst this principle has field on the basis that their partners been used to preserve a certain state are willing to do the same. It is thus of affairs, it is questionable whether unsurprising that due to its nature, the it is suitable to sustain a complex and principle of comity and reciprocity has ever evolving air transport market. been applied to matters such as mutual Indeed, in the case of the above France- recognition of regulatory findings or US example, only the status quo as at judgments in civil cases. Interestingly, denunciation of the former agreement it has also been applied to air transport was preserved; new designations were to provide a basis for the agreement of not allowed. Additional problems with additional frequencies in some bilateral this mechanism include uncertainty over agreements, where formal agreement the resolution of any disputes that may or revision of the bilateral would be arise or even its general adaptability to cumbersome. changing market circumstances. 41 Annex 1 43

Annex 1

Business aviation: Key types of aircraft operations Annex 1

This section provides, by way of background, an overview of the current legal and regulatory regime applicable to business aircraft operations.

There are many types of business aircraft the complexity of aircraft involved: approach procedures, noise abatement, operations and an equally wide range of routes and areas of operation, carriage of definitions by which these are classified i. Commercial air transport (Part-CAT, special categories of passengers, stowage for legal and regulatory purposes. As Annex IV to the Regulation). of baggage and cargo, meteorological shall be seen below, practical examples ii. Non-commercial operations with conditions, aircraft performance and of business aircraft operations may complex aircraft (Part-NCC, Annex operating limitations, aircraft loading, involve elements of more than one VI to the Regulation). mass and balance rules, management of regime, falling into more than one aeronautical databases etc. category. For the purposes of this report, iii. Non-commercial operations we concentrate on commercial and non- with aircraft other than complex As from 25 August 2016 non-commercial commercial air services, this distinction (Part-NCO, Annex VII to the air transport operators need to comply being relevant to the exchange of traffic Regulation). with a new, comprehensive, but slightly less demanding set of requirements rights, and commercial and non- iv. Specialised operations (Part-SPO, issued by EASA. The applicable rules commercial operations, the classification on Annex VIII to the Regulation). which operator safety regulation is based. vary depending on whether the aircraft Business aircraft operations generally operated are “complex”, in which The International Business Aviation fall into either commercial air transport case Part-NCC applies, or “other than Council defines business aviation as or non-commercial operations with complex”, in which Part-NCO applies. “the sector of aviation which concerns complex aircraft. the operation or use of aircraft by Part-NCC concerns operators of “complex The CAA has published a very helpful companies for the carriage of passengers motor powered aircraft”, which are guidance as to what constitutes non- or goods as an aid to the conduct of their defined as having any of the following commercial flights: see Summary of the business, flown for purposes generally features: a maximum certified take-off Meaning of Commercial Air Transport, considered not for public hire and piloted mass exceeding 5,700kg, maximum Public Transport & Aerial Work5. by individuals having, at the minimum, certified passenger seating configuration of more than 19 seats, a minimum a valid commercial pilot license with an In addition to an operating licence, crew of at least two pilots, have one or instrument rating”. Commercial business certifying their financial viability, more turbojet engines or two or more aviation operations involve corporate operators transporting passengers, turbo-prop engines. The vast majority transport and the chartering of the whole cargo or mail for remuneration (or other of business aircraft will meet these aircraft, flown by employed professional valuable consideration) also require an requirements. Part-NCC applies to EU pilots. Non-commercial operations AOC demonstrating compliance with operators of such aircraft (regardless involve corporate transport not involving stringent safety standards. These include of whether the aircraft is registered in the chartering of the aircraft, where organisational, as well as operational or outside the EU) and to EU registered the aircraft is flown by either employed and technical requirements contained aircraft operated by foreign operators. professional pilots or the owner. in Commission Regulation 965 / 2012. The latter are contained in Part-CAT, an Regulation 965 / 2012 on air operations Part-NCC rules are designed to be slightly annex to the Regulation which covers was developed by the European Aviation less burdensome than regulations a wide range of issues, including the Safety Agency to address the technical relating to commercial air transport. authority of the commander and crew and organisational requirements Operators falling under Part-NCC rules responsibilities, the documents and necessary to ensure safe aircraft are not required to obtain an AOC prior manuals that need to be carried on operations. It expands on the rules of to the start of operations. Instead, they board, the carriage of dangerous goods, ICAO Annex 6 (Operation of Aircraft) just need to submit a “declaration” to instruments and equipment, aircraft and recognises four principal types of the competent national authority by tracking systems, use of air traffic operations, based on commerciality and completing a form providing details services and aerodromes, departure and

5 UK Civil Aviation Authority, May 2010. // http://webarchive.nationalarchives.gov.uk/20100709114627/http://www.caa.co.uk/docs/1428/SummaryOfCATPTAWANO2009May2010.pdf (date last accessed: 20 November 2017). 45

of the operation and confirming that schedule and that the certificate of relatively undemanding standards set, the operation as detailed will comply airworthiness remains valid. the same cannot be said for Part-NCC with the applicable regulations. The rules, which have established detailed national aviation authority is required Part-NCO applies to aeroplanes which and comprehensive rules. Most affected to verify both these elements, i.e. that do not fall within the above definition are small aircraft management firms the declaration contains the required of complex aircraft. These include the and in-house aircraft management information and that the operator majority of general aviation aircraft, departments of organisations that continues to comply with the rules, but few business aircraft. The principal manage business aircraft for that but it need not conduct an immediate examples of the latter would be the organisation, for whom compliance with inspection. The competent authority Pilatus PC-12 and Cessna 208 Caravan. Part-NCC may be costly. will inform the operator of any non- Having been designed to cater for compliance detected and give it a general aviation, with proportionality in When the UK leaves the EU, Part-NCC timeframe within which to rectify the mind, Part-NCO contains little over and of Regulation 965 / 2012 will continue situation. Non-compliance that has a above national rules; the purpose was to apply to UK management companies serious impact on flight safety may lead predominantly to harmonise regulation operating EU-registered aircraft. To what to a limitation or complete restriction of of this area across the EU. extent UK operators of UK-registered the operator’s activities. aircraft would be affected will largely Part-NCO applies only to aircraft with depend on the UK’s membership in Operators of “other than complex a certificate of airworthiness issued by or relationship with EASA, discussed motor powered aircraft” need to comply EASA. In terms of the technical side, below: if EU law is transposed without with the organisational requirements much of what is covered is normally amendment into UK law and the UK (Part-ORO) of Regulation 965 / 2012: included in either the aircraft’s remains a member of EASA then Part- they need to have an “accountable flight manual or the pilot’s operating NCC would continue to apply in the UK. manager” that has overall responsibility handbook. Relevant operators are for the safety of operations; a safety required to ensure that aircraft are management system; trained and equipped with first aid kits, as well as competent personnel in charge of an emergency locator transmitter (or ensuring compliance with regulatory alternatively, on aircraft with six seats requirements; documentation, including or fewer, a personal locator) which an operations manual, a minimum are activated in the event of a crash equipment list for each aircraft and or accident requiring survivors to be a records system; and a compliance rescued. Part-NCO allows for cost- monitoring system. In addition, relevant sharing between the pilot and up to operators must ensure that their flight five passengers (who are not carried on and cabin crew (required for aircraft board for remuneration). Part-NCO also with more than 19 passenger seats) are addresses the carriage of dangerous appropriately licensed and regularly goods (which include aircraft spare trained. These and other activities, parts, aircraft oil, fuel, de-icing fluid, such as flight planning and ground batteries etc.) and oxygen systems handling may be subcontracted to other required for flight above 10,000 ft. EASA entities, but responsibility for meeting rules also make it an EU requirement the relevant requirements rests with to maintain a journey log detailing the operator concerned. Similarly, the aircraft nationality, itinerary, flight operator is responsible in ensuring time and nature of flight, as well as any the continuing airworthiness of the observations or incidents. aircraft, i.e. ensuring that the aircraft is While the impact of Part-NCO rules airworthy, that all emergency and safety was not significant, due to both the equipment fitted is correctly installed fact that these were already common and serviceable, that maintenance is in many EU Member States and the performed per an approved maintenance Annex 2 47

Annex 2

Traffic rights Annex 2

1. Nine freedoms of the air –– 7th freedom of the air - the right of transporting traffic between the This section will discuss, by way of territory of the granting State and any background, the types of traffic rights third State with no requirement to available to commercial business aircraft include on such operation any point operators. in the territory of the home State, i.e International civil aviation is governed the service need not connect to or be by the provisions of the Chicago an extension of any service to / from Convention which established the the home State of the carrier (the right International Civil Aviation Organisation to operate from the granting State to / (ICAO). ICAO distinguishes the following from third State) nine “freedoms of the air”. –– 8th freedom of the air - the right of transporting “cabotage” traffic –– 1st freedom of the air - the right to between two points in the territory of fly over the granting State without the granting State on a service which landing (the right of overflight) originates or terminates in the home –– 2nd freedom of the air - the right to country the carrier or (in connection land in the territory of the granting with the so-called 7th freedom of State for non-traffic purposes (the the air) outside the territory of the right to make a technical stop) granting State (“consecutive cabotage”)

–– 3rd freedom of the air - the right to –– 9th freedom of the air - the right of put down, in the territory of the transporting traffic entirely within granting State, traffic coming from the the territory of the granting State home State of the carrier (the right to set (“standalone cabotage”)6 down traffic) Only the first five freedoms of the –– 4th freedom of the air - the right to take air have been officially recognised;7 on, in the territory of the granting State, consequently, all freedoms beyond the traffic destined for the home State of the 5th freedom (i.e. 6th-9th freedoms) are carrier (the right to pick up traffic) characterised by ICAO as the ‘so called’ freedoms of the air. –– 5th freedom of the air - the right to put down and to take on, in the territory of Please see Figure 3 for a graphic the granting State, traffic coming from representation of the nine freedoms or destined to a third State (the right to of the air. carry traffic to / from other States)

–– 6th freedom of the air - the right of transporting, via the home State of the carrier, traffic moving between two other States (the right to carry traffic via home State).

6 ICAO Manual on the Regulation of International Air Transport (Doc 9626, Part 4).

7 This is a reference to the International Air Transit Agreement of 1944 (the “Two Freedoms Agreement” or “IASTA”) and the International Air Transport Agreement of 1944 (the “Five Freedoms Agreement”; not in force). 49 Figure 3 Nine freedoms of the air

A 1. Overfl y Home State B

2. Technical stop Home State A B

3. Set down traffi c Home State A B

4. Pick up traffi c Home State A B

5. Carry traffi c to / from third State Home State A B

6. Carry traffi c via home State A Home State B

7. Operate from second State to / from third State Home State A B

8. Carry traffi c between two points in a foreign State Home State A

9. Operate only in a foreign State Home State A

Source: ICAO Manual on the Regulation of International Air Transport (Doc 9626, Part 4). Annex 2

2. Chicago Convention States b. It is performed by aircraft for the transport of passengers, mail or Both commercial and non-commercial cargo for remuneration, in such a The Convention defines a “stop for non-scheduled international air manner that each flight is open to non-traffic purposes” as a “landing services benefit from a special legal use by members of the public. for any purpose other than taking on regime established by Article 5 of the or discharging passengers, cargo or Chicago Convention on the “right of c. It is operated, so as to serve traffic mail”. It includes stops for refuelling, non-scheduled flight”. between the same two or more maintenance purposes or convenience points, either of operation of the flight, and may Under paragraph 1 of that provision, involve temporary offloading of any civil aircraft has a right to fly into, i. According to a published transit passengers, cargo or mail transit non-stop across the territory of a timetable. carried for remuneration or hire.12 Contracting State or make stops for non- ii. With flights so regular or More importantly, however, ICAO has traffic purposes without the necessity frequent that they constitute a interpreted it to also encompass non- of obtaining prior permission from the recognizably systematic series. commercial non-scheduled operations, State into or over whose territory the (emphasis added). such as purely private flights, taking on flight is to be performed, provided that or discharging passengers, cargo or mail the aircraft is registered in a Contracting A single flight does not constitute a in the Contracting State. This would State,8 and is “not engaged in a scheduled scheduled international air service, seem to imply that under Article 5 of the international air service”. which, by definition, consists of a series of flights. The Notes on the Application Chicago Convention, a non-scheduled The actual text of the provision does not of the Definition10 emphasise further operator is allowed to set down traffic refer to a “non-scheduled air service” that the main elements a), b), and c) without the necessity of obtaining prior and the term is not defined elsewhere are cumulative in nature, so that “if, permission from the Contracting State in the Convention. Consequently, in for a series of flights, any one of the provided no persons, cargo or mail are determining whether an aircraft is “not characteristics (…) is missing, the series carried for remuneration or hire. engaged in a scheduled international cannot be classified as a scheduled Non-scheduled air operators do not have service”, and therefore entitled to the international air service”11, and will be a complete and unfettered freedom to right under Article 5, it is helpful to refer classified as non-scheduled air service “make flights into, or in transit non- to the definition of the term “scheduled instead. Non-commercial or “non- stop across [the] territory and to make international air service” adopted by the revenue” operations or operations which stops for non-traffic purposes”. The ICAO Council in 1952, keeping in mind are not open to the public are classified, non-scheduled flights may only be that it was meant as a flexible guidance by definition, as non-scheduled. performed subject to the terms of the for the interpretation and application of Chicago Convention and the right of Article 5 rather than a rigid litmus test. The right established by Article 5 (1) covers the State flown over to require landing. In that regard, the ICAO Council has the following three types of flights: The Contracting State may also require defined a “scheduled international air 1. Entry into and flight over a advance notice of intended arrival for service” as follows: Contracting State’s territory traffic control, public health and other “A scheduled international air service without a stop. similar purposes. There is a further caveat with regard to flights over is a series of flights that possesses all 2. Entry into and flight over a regions that are “inaccessible or without the following characteristics: Contracting State’s territory with a adequate air navigation facilities”. Such stop for non-traffic purposes. a. It passes through the airspace operations may be required to follow over the territory of more than 3. Entry into a State’s territory and prescribed routes or obtain special one State. final stop for non-traffic purposes. permission.

8 As of the date of this report, there were 191 Contracting State Parties to the Chicago Convention. For an up to date list of all the States, see: https://www. icao.int/secretariat/legal/lists/current%20lists%20of%20parties/allitems.aspx.

9 See ICAO, Policy and Guidance Material on the Economic Regulation of International Air Transport, (Doc 9587, Part 1).

10 See above.

11 See above.

12 Article 96(d) of the Chicago Convention. 51

an intergovernmental organisation established in 1955 by ICAO and the In case of commercial flights (i.e. for Council of Europe to promote the remuneration or hire), non-scheduled “continued development of a safe, operators wishing to set down or pick efficient and sustainable European air up passengers, cargo or mail will have transport system”. ECAC is currently to comply with laws, regulations, composed of 44 Member States, but conditions and limitations imposed only 24 of them are parties to the Paris by the State where the embarkation or Agreement. A number of EU Member disembarkation takes place. The phrase States, such as Bulgaria, Italy and Poland “for remuneration or hire” is defined to have not ratified it. Please see the map in encompass “any kind of remuneration, Figure 4, which shows the Contracting whether monetary or other, which the States to the Paris Agreement in blue and operator receives from someone else for other ECAC Member States in red. the act of transportation”. Consequently, the right to operate non-scheduled air Figure 4 - ECAC and the Paris Agreement services that have a commercial element will always be subject to the national laws and regulations of the granting State.

As a result of the provisions contained in Article 5 of the Chicago Convention, the operation of international non-scheduled services has generally been subject to the rules adopted by individual States, with a ECAC Member States which are few bilateral and multilateral agreements party to the Paris creating a more harmonised framework Agreement 1956 for commercial non-scheduled air transport on a regional basis.

3. ECAC member states ECAC Member States which are The 1956 Multilateral Agreement on not party to the Commercial Rights of Non-scheduled Paris Agreement 1956 Air Services in Europe (the “Paris Agreement”, which entered into force on 21 August 1957, is an example of a regional agreement liberalising commercial rights of non-scheduled air services on intra-European routes. It was developed under the auspices of ICAO and the European Civil Aviation Conference (ECAC),

13 Based on the ICAO’s Analysis of the Rights Conferred by Article 5 of the Chicago Convention, see ICAO, Policy and Guidance Material on the Economic Regulation of International Air Transport, (Doc 9587, Part 1).

14 The relevant provisions of the Chicago Convention seem to be: Article 4 (misuse of civil aviation), Article 8 (pilotless aircraft), Article 10 (landing at customs airport), Article 11 (applicability of air regulations), Article 12 (rules of the air), Article 13 (entry and clearance regulations), Article 16 (search of aircraft), Article 18 (dual registration), Article 20 (display of marks), Chapter V (conditions to be fulfilled with respect to aircraft), Chapter VI (International Standards and Recommended Practices).

15 ECAC is currently composed of 44 Member States: Albania, Armenia, Austria, Azerbaijan, Belgium, Bosnia and Herzegovina, Bulgaria, Croatia, Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Georgia, Germany, Greece, Hungary, Iceland, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, Moldova, Monaco, Montenegro, Netherlands, Norway, Poland, Portugal, Romania, San Marino, Serbia, Slovakia, Slovenia, Spain, Sweden, Switzerland, The Former Yugoslav Republic of Macedonia, Turkey, Ukraine, United Kingdom; see online: https://www.ecac-ceac.org/. Annex 2

The Paris Agreement applies to any The Paris Agreement identifies two may not require information other than: civil aircraft registered in a Member further categories of operations, namely (1) the name of the operating company. State of the ECAC and operated by a (1) all-freight flights, and (2) passenger (2) the aircraft type and registration. national of one of the Contracting States flights between regions which have no (3) date and estimated time of arrival when engaged in international flights reasonably direct connection provided and departure, (4) the itinerary, (5) the for remuneration or hire between the by scheduled air services. These purpose of the flight, and (6) the number territories of the Contracting States,16 two types of activities are allowed of passengers and amount of freight to on other than scheduled international to benefit from the same liberalised be embarked or disembarked. air services.17 It provides for a more framework as the other categories of liberalised regime for the operation of flights, but are potentially subject to Due to the liberalisation of the rules commercial non-scheduled air services further requirements, limitations or on the operation of air services in the between the Contracting States “without even a prohibition in case where any EU, for scheduled and non-scheduled the imposition of the regulations, contracting State believes that they operations alike, and the conclusion of conditions or limitations”, provided are “harmful to the interests of its a number of multilateral air services that the flight in question falls within scheduled air services”. In particular, agreements ensuring the exchange of one of the specific categories listed in any Contracting State may ask for commercial rights between the EU and Article 2 of the Agreement. The provision information concerning the nature and its neighbouring countries, the regime identifies several classes of flights that extent of such operations, as well as for non-scheduled services established enjoy freedom of operation, meaning determine which regions may be served by the Paris Agreement has gradually they are not required to obtain any (including specific airports). These two become obsolete. prior permission for intra-European categories of non-scheduled commercial In the context of Brexit, however, flights, although for the purposes of air services were particularly singled especially in a situation where the traffic control, prior notification may be out to ensure that they did not compete UK fails to strike a deal with the EU, required. These include: with the established scheduled services it is possible that the non-scheduled which are generally subject to much commercial air services operators will –– Humanitarian or emergency flights more restrictive regimes under bilateral have to rely on the legal framework air services agreements. –– Taxi flights “of occasional character” established by the Paris Agreement in not available to the general public, With regard to all other types of non- 1956. In comparison to the arrangements performed using aircraft with seating scheduled commercial air services, the under the currently applicable EU capacity of no more than six seats, Paris Agreement provides that where regime, which will be discussed below, provided that the destination is chosen such flights are required to comply with the benefits conferred by the Paris by the hirer “regulations, conditions or limitations” Agreement are much more limited, both –– Charters of the entire aircraft by laid down by each Contracting State, in terms of their scope and geographical an individual, firm, corporation or all of the rules must be prescribed reach. institution for the carriage of their in public regulations setting out the 4. EU Member States staff or merchandise without resale required information (including the of space request for prior permission, if one is 4.1. Liberalisation required), timelines for submission of –– Isolated flights, provided that the The liberalisation of the air transport the information,18 and details of the operator (or group of operators) of such market in the EU was achieved gradually relevant aviation authority to which a flight performs no more than one through the adoption of three “packages” such information must be furnished. flight per month between the same of regulations between 1987 and 1992. Where flights are not allowed without two traffic centres The process led to the creation of prior permission, the Contracting State the “Single Aviation Market”, a fully

16 Please note that pursuant to Article 11, the Paris Agreement applies to all the metropolitan territories of the Contracting states, with the exception of outlying islands in the Atlantic Ocean and islands with semi-independent status.

17 Paris Agreement, Article 1.

18 In case of a single flight or a series of no more than four flights, the time by which the information has to be submitted must not exceed two full business days; for series of more than four flights longer period may be prescribed, see Article 3(a) of the Paris Agreement. 53

integrated market in air transport mail and / or cargo,20 an undertaking21 Regulation 1008 / 2008 is designated services, providing community air established in the EU must hold an as a “Community air carrier”. If an carriers19 with access to all intra- appropriate operating licence issued by air transport undertaking meets the EU routes without any commercial the competent licensing authority of an common requirements for an operating restrictions on fares, frequencies or EU Member State.22 Only two categories licence (AOC, financial fitness, EU capacities and without the need to of air services are exempted from the ownership / control etc.) then a licence obtain a permit or authorisation (with need to hold an operating licence: (1) must be granted. This has enabled a the exception of some specific routes flights performed by non-power-driven common EU area for ownership and subject to public service obligations and / or ultralight power-driven aircraft; control of air transport undertakings which may be imposed only in relation and (2) local flights that do not involve including business aircraft operators, to scheduled operations). carriage between different airports or providing freedom for cross-border other authorised landing points. establishment and takeovers. On the 4.2. Air carrier licensing other hand, the Regulation has restricted The grant and maintenance of an The current rules on the operation investment from non-EEA / Swiss operating licence in the UK is subject of scheduled and non-scheduled nationals in the EU aviation industry to a number of conditions set out in commercial air services within the including business aviation. Regulation 1008 / 2008. An undertaking EU are set out in Regulation 1008 / established in the UK wishing to operate 4.3. Access to the single aviation market 2008 which consolidated and revised commercial non-scheduled flights must: the regulations contained in the third Regulation 1008 / 2008 deals with access aviation “package”. Regulation 1008 –– Have its principal place of business in to the EU market for the provision of / 2008 is directly applicable in all EU the UK air transport services. In accordance Member States. In the context of Brexit, with the principle of freedom of access it is interesting to note that Article 15(4) –– Hold a valid AOC issued by the UK enshrined in the third “aviation” of Regulation 1008 / 2008 expressly CAA package, Regulation 2008 / 1008 provides states that its provisions prevail over any –– Have one or more aircraft at its that “Community air carriers shall be restrictions on the freedom of access to disposal through ownership or a entitled to operate intra-Community intra-EU routes contained in bilateral dry lease air services”. The Regulation further agreements between the EU Member prescribes that EU Member States may States. –– Operate air services as a main not impose any permit or authorisation occupation requirements with respect to the Regulation 1008 / 2008 applies without –– Be more than 50 per cent owned and operation of intra-Community air distinction to scheduled and non- effectively controlled by EU nationals services by a Community air carrier scheduled air services, and includes or Member States, or both (also or require the carrier to provide any air taxis and general aviation. Non- including EEA or Swiss nationals) documents or information which commercial or gratuitous carriage the carrier has already supplied to –– Satisfy financial fitness conditions falls outside of its scope. the competent licensing authority. Consequently, any holder of an operating The key elements of Reg 1008 / 2008 are –– Comply with the insurance licence from an EU Member State is in the areas of (i) licensing and (ii) market requirements under the relevant EU law allowed to operate commercial non- access. scheduled air transport services (i.e. for An air carrier with a valid operating In order to operate commercial (i.e. for remuneration or hire) between any two licence granted by a competent remuneration or hire) non-scheduled air points in the EU. licensing authority in accordance with services for the carriage of passengers,

19 A “Community air carrier” is an air carrier with a valid operating licence granted by a competent licensing authority of an EU Member State in accordance with Regulation (EC) No 1008 / 2008.

20 Regulation 1008 / 2008 defines “air service” as “a flight or a series of flights carrying passengers, cargo and / or mail for remuneration and / or hire” (emphasis added).

21 “Undertaking” as “any natural or legal person, whether profit-making or not, or any official body whether having its own legal personality or not”, see Article 2(3).

22 Article 3(1) of Regulation 1008 / 2008. Annex 2

In the 2014 International Jet Management to the three EEA EFTA States, providing either scheduled or non-scheduled case (C-628 / 11), the Court of Justice of for the four freedoms of movement of commercial air services enjoy all nine the European Union (CJEU) considered persons, goods, services and capital freedoms of the air, including cabotage, whether an EU Member State across 31 European States. In the context within the whole area of the EEA. (Germany) could require International of Brexit, it is important to note that the Jet Management, an air carrier with EEA membership is automatic for any 6. Switzerland an operating licence issued by another European State which is a Member State of Switzerland is one of the four EFTA EU Member State (Austria), to obtain the EU, and otherwise it is only open, upon Member States, but does not participate authorisation to enter German airspace appropriate application, to Switzerland in the European Economic Area. Instead, in respect of the provision of commercial or another European State that joins the the international relations between non-scheduled inward flights to Germany European Free Trade Association (EFTA).24 the EU Member States and Switzerland from a third country, such as Russia or The United Kingdom was a founding are currently governed by seven inter- Turkey, where German air carriers did member of EFTA upon its establishment linked sectoral agreements, including not need such an authorisation. The CJEU in 1960, but left in 1973 to join what is now an agreement on the free movement of that this was prohibited on the basis of the known as the EU. persons. Each of the bilaterals contains general principle of non-discrimination the so-called “guillotine clause”, which Unlike the Member States of the EU, the on grounds of nationality. When the UK states that upon termination of one of three EEA EFTA States are not formally leaves the EU, and there is no agreement the agreements, the other six fall away involved in the EU legislative process. otherwise, the principle established in simultaneously.27 the International Jet Management case Instead, when a new EU act has been will no longer apply. As a result, UK adopted, the three EFTA EEA States One of the agreements, the 1999 business aircraft operators may, subject evaluate whether the act is EEA-relevant, Agreement between the European to any applicable multilateral or bilateral meaning whether it concerns a subject Community and the Swiss Confederation agreements, be required to obtain matter that is within the scope of the EEA on Air Transport (the “EU-Switzerland permission in order to fly between an EU Agreement, and should be made part of Agreement”),28 which entered into Member State and a third country, and, their internal legal order. If they conclude force on 1 June 2002, is devoted to the conversely, the UK may impose such that it is, the act will be incorporated into regulation of civil aviation. It implements a requirement on air carriers from the one of the Annexes or Protocols of the EEA the EU aviation ‘acquis communautaire’ in remaining 27 EU Member States. Agreement through a Joint Committee Switzerland, making a proviso that the Decision, a type of international regulations and directives which are a part 5. European Economic Area agreement adopted in accordance with the of the acquis must be interpreted in line procedure set out in the EEA Agreement. The European Economic Area (EEA) was with the decisions of the CJEU given prior to 1999.29 Any CJEU decisions made after established on 1 January 1994 by the Civil aviation is one of the modes of that date are not binding on Switzerland. Agreement on the European Economic transport covered in Annex XIII to the 23 Area (the “EEA Agreement”) and includes 25 EEA Agreement. The Joint Committee The EU-Switzerland Agreement foresees all 28 EU Member States as well as Decision of 19 July 2011 incorporated gradual release of traffic rights between Norway, Iceland and Liechtenstein (“three Regulation 1008 / 2008 into the EEA the parties, establishing reciprocal access EEA EFTA States”). The EEA Agreement 26 Agreement. As a result, both EEA EFTA to the air transport market, subject to the extends the European Single Aviation and Community air carriers operating provisions of Regulation 1008 / 2008.30 In Market, with some minor exceptions,

23 The Agreement on the European Economic Area, (Official Journal L 001, 03/01/1994 P. 0003 - 0036) (the EEA“ Agreement”).

24 Article 128 of the EEA Agreement.

25 The EEA Agreement, Annex XIII (Transport), Chapter VI (Civil Aviation).

26 Decision of the EEA Joint Committee No 90/2011 of 19 July 2011 amending Annex XIII (Transport) to the EEA Agreement, OJ L262, 6.10.2011, p. 20. See the EEA Agreement, Annex XIII (Transport), Point 64a and Article 7 of the EEA Agreement.

27 See for example Article 36(4) of the Agreement between the European Community and the Swiss Confederation on Air Transport.

28 Agreement between the European Community and the Swiss Confederation on Air Transport, OJ L 114, 30.4.2002.

29 Article 1(2) of the EU-Swiss Air Transport Agreement.

30 See Article 15, Chapter 3 of the EU-Swiss Air Transport Agreement; see also Decision No 1/2010 of the Joint Community/Switzerland Air Transport Committee set up under the Agreement between the European Community and the Swiss Confederation on Air Transport of 7 April 2010 replacing the Annex to the Agreement between the European Community and the Swiss Confederation on Air Transport (OJ L 106, 28.4.2010). 55

the first phase, starting with the entry key pillar of the EU’s external aviation Georgia, specifically define air transport into force of the agreement, both the policy. This envisages gradual market as encompassing both scheduled and Community and Swiss air carriers may liberalisation through the exchange non-scheduled air transport. The ECAA enjoy 3rd and 4th freedom traffic rights. of traffic rights between the EU and Agreement does not contain such a Since 2004, two years after the entry its neighbours linked with regulatory definition. However it also does not make into force of the agreement, Swiss air convergence by way of implementation a distinction between scheduled and non- carriers have a further right to operate of EU aviation rules, starting with safety scheduled services, or specifically exclude 5th and 7th freedom flights between requirements. The development of the the latter from its scope. Commentators points in different EU Member States. Common Aviation Area has been taken thus come to the conclusion that the The important distinction between the forward using two concepts: the Single ECAA Agreement applies to both types of market access enjoyed by the EEA EFTA Aviation Market concept, as set out in carriage.35 and Swiss air carriers is that under the EU- the Multilateral Agreement Establishing Switzerland Agreement there is currently the European Common Aviation Area The ECAA Agreement envisages two no right to operate cabotage flights (i.e. 8th 2006 (the “ECAA Agreement”);34 and of transitional phases. The first transitional and 9th freedom).31 Consequently, while regulatory harmonisation, as set out in Euro- period lasts from the entry into force of a Community air carrier operating a non- Mediterranean Aviation Agreements (the the Agreement until the core elements of scheduled commercial air service does “EMAA Agreements”). The ECAA Agreement the legal framework are adopted by the not need to submit a separate application has been provisionally applied and came ECAA country concerned. These include or notification for flights between the EU properly into force on 1 December 2017. full membership in EASA, application of and Switzerland, it will be required to the ECAC Manual on European Aviation obtain a permit for cabotage flights within As regards the first concept, the goal of the Security and Facilitation; ratification Switzerland. ECAA Agreement was to bring the south- of the Montreal Convention 1999 and east European countries, many of which implementation of principal EU aviation The relationship between Switzerland and were candidates or potential candidates for legislation listed in an annex to the ECAA the EEA EFTA States is governed by the accession to the EU, into the then existing Agreement. During this period ECAA Convention Establishing the European Free EU internal air transport market. As such, carriers enjoy unrestricted 3rd and 4th Trade Association (the “EFTA Convention”), it contains the same principles that apply freedom rights. which entered into force on 1 June 2002. to the EU internal air transport market, 32 The EFTA Convention incorporates such as free market access, freedom of The second transitional period then lasts some elements of the EU aviation acquis establishment, common rules in the fields until all EU aviation legislation listed in and takes account of the EU-Switzerland of safety, security, air traffic management, the relevant annex to the Agreement is Agreement.33 Through the inclusion of competition, environmental protection implemented, including all safety and Regulation 1008 / 2008 into the EFTA etc., but envisages the progressive security legislation. During this phase all Convention, a common regime has been liberalisation of air transport relations EU carriers will enjoy 5th freedom rights extended to Switzerland and the EEA EFTA with non-EU ECAA partners and the between the ECAA partners which have States for their respective air carriers. gradual adoption by the latter of EU acquis. reached this transitional period and the ECAA partners concerned will similarly 7. European Common Aviation Area Common Aviation Area Agreements have intra-EU 5th freedom rights. based on the ECAA Agreement, such The creation of a Common Aviation as those entered into with Moldova and After the end of the second transitional Area with neighbouring countries is a

31 Please note that five years after the entry into force of the EU-Switzerland Agreement, i.e. from 2007 onwards, the parties have an option to negotiate a possible extension of the scope of the agreement to include cabotage flights within Switzerland and EU Member States; see Article 15(3) of the EU- Switzerland Agreement.

32 The Convention Establishing the European Free Trade Association (the “EFTA Convention”) replaced the Convention Establishing the European Free Trade Association signed in Stockholm on 4 January 1960 which established the European Free Trade Association (EFTA).

33 Annex Q to the EFTA Convention; See also Decision of the [EFTA] Council No 1 of 2012 (adopted at the 2nd meeting on 22 March 2012), Amendment to the Appendix to Annex Q to the Convention, Air Transport.

34 Multilateral Agreement between the European Community and its Member States, the Republic of Albania, Bosnia and Herzegovina, the Republic of Bulgaria, the Republic of Croatia, the former Yugoslav Republic of Macedonia, the Republic of Iceland, the Republic of Montenegro, the Kingdom of Norway, Romania, the Republic of Serbia and the United Nations Interim Administration Mission in Kosovo on the establishment of a European Common Aviation Area. OJ L 285, 16.10.2006, p. 3–46.

35 See Peter Bombay, Máté Gergely, ‘The 2006 ECAA Agreement: Centrepiece of the European Community’s Aviation Policy Towards its Neighbours’ (2008) 33 Air and Space Law, Issue 3, pp. 214–232 Annex 2

period, both EU carriers and ECAA increasing frequencies of services or delay partners will enjoy full market access such increase. This mechanism allows for including cabotage and the right of potentially unlimited 3rd and 4th freedom establishment. services five years following signature of the EMAA, however, 5th freedom As far as the second concept is concerned, rights are only exchanged once the Joint EMAA Agreements take the form of Committee decides that the relevant comprehensive air transport agreements neighbouring country has completed the providing for a high level of regulatory approximation of its laws with EU aviation harmonisation combined with gradual legislation as required under the EMAA. market opening and increased investment opportunities for carriers of both sides. Please see Figure 5 below for Member Similarly to the Common Aviation Area States of the Common Aviation Area. Figure 5 – Common Aviation Area Agreements with Moldova and Georgia, EMAA Agreements specifically include both scheduled and non-scheduled air EU Member States transport in the definition of air transport. Non-EU Parties to the ECAA Agreement The first such agreement was concluded Non-EU Parties to 36 with Morocco in 2000. Similar the EMAA Agreements agreements have since been entered into Third country CAA with Jordan and Israel, and negotiations Agreements with the EU are on-going with Lebanon, Tunisia, Ukraine and Azerbaijan.

EMAA Agreements provide for lesser market liberalisation than the ECAA Agreement: 3rd, 4th and 5th freedom rights are exchanged in stages, but the agreement does not provide for the exchange of 7th freedom or cabotage. Similarly to the ECAA Agreement, progressive liberalisation happens in two stages, but unlike the ECAA Agreement, frequency of services is not unlimited from the outset, but rather is increased gradually.

Thus, in the first phase, lasting two years following the signature, frequencies of 3rd and 4th freedom services are progressively increased. The Joint Committee then meets to consider whether approximation of laws is proceeding as intended so as to decide by consensus whether to continue

36 Euro-Mediterranean Agreement establishing an association between the European Communities and their Member States, of the one part, and the Kingdom of Morocco, of the other part. OJ L 070, 18.3.2000. 57

8. EU-US Open Skies Agreement Ownership and control rules restrict EU representation in arbitration procedures persons from holding more than 25% of etc. It is worth bearing in mind, however, Despite the small charter segment of voting shares and / or 49.9% of the total that the accession of Norway and Iceland the US market, the US Department of shares of a US carrier. US ownership was the natural result of the countries’ Transport views charter operations as of EU carriers is also restricted so that membership in the EEA, whereas any an important part of the air transport EU airlines are majority owned and UK accession post-Brexit could be environment. In defining the US Open effectively controlled by EU nationals. conditioned on close cooperation with Skies policy, it argued that the least the EU in other areas. restrictive charter regulations of the two The Agreement also contains detailed governments should apply, regardless of provisions on safety and security, 9. UK air service agreements the origin of the flight. regulatory cooperation to include air The UK has entered into over 150 traffic management, and environmental Liberal charter arrangements were then bilateral air services agreements, which protection, as well as the establishment established in the EU-US Air Transport focus on the exchange of traffic rights of a Joint Committee as the body in Agreement 200737 as amended by its in respect of scheduled air services. charge of overseeing the implementation 2010 Protocol (also known as the “EU-US They may or may not contain a clause of the agreement and a forum for Open Skies Agreement”). Although referring to charter or non-scheduled cooperation between the parties. the Agreement does not specifically services more broadly, but do not differentiate non-scheduled services The EU-US Open Skies Agreement is expressly exclude charter services from scheduled services, it treats open to accession by third countries from their scope. The impact of Brexit both equally. The Memorandum of (Article 18(5)) and both Norway and on non-scheduled traffic under these Consultations affirms that the definition Iceland acceded to the Agreement agreements would need to be analysed of air transportation includes all forms via this route in 2011. Accession on a case-by-case basis. of charter services. took place through the conclusion of The structure and contents of early two agreements: the Four-Party Air The EU-US Open Skies Agreement bilateral agreements are based on Transport Agreement between the EU, liberalised transatlantic air transport: the restrictive 1946 UK-US agreement US, Iceland and Norway,38 extending the the Parties exchanged the first five (the “Bermuda I Agreement”) which scope of the 2007 EU-US Air Transport freedoms (as well as limited 7th freedom exchanged transit rights, as well as the Agreement, as amended by the 2010 with respect to cargo operations), but 3rd, 4th and 5th freedoms on specified Protocol, to all four parties, so that did not grant carriers of the other side routes, indicated in an Annex to the Iceland and Norway would have all cabotage rights, i.e. the right for carriers Agreement. of the rights and obligations of the EU of one party to operate flights between Member States (Article 2 of the Four- two points in the territory of the other With the development of aviation and Party Agreement); and the Ancillary party. Importantly, routes are generally a growing free-market climate, the Agreement,39 which ensures Norway open, which permits the inclusion of UK began to renegotiate some of its and Iceland’s representation in the any points in the parties’ territories, as restrictive bilateral agreements. The Joint Committee by the Commission for well as behind, intermediate and beyond new, liberal model agreements allowed all areas that are not in the exclusive points. The only limitation on this is that free entry of new carriers, open route competence of Member States and for passenger services operated by EU access by designated carriers to any deals with other items to account for carriers, the service must serve a point point in either country, no capacity the expansion of membership, such as in a Member State of the EU. controls and a more liberal fare-setting exchange of information, participation mechanism. Agreements of this type in second-stage negotiations,

37Air Transport Agreement. OJ L 134, 25.5.2007, p. 4–41.

38 See Decision of the Council and of the Representatives of the Governments of the Member States of the European Union, meeting within the Council of 16 June 2011 on the signing, on behalf of the Union, and provisional application of the Air Transport Agreement between the United States of America, of the first part, the European Union and its Member States, of the second part, Iceland, of the third part, and the Kingdom of Norway, of the fourth part; and on the signing, on behalf of the Union, and provisional application of the Ancillary Agreement between the European Union and its Member States, of the first part, Iceland, of the second part, and the Kingdom of Norway, of the third part, on the application of the Air Transport Agreement between the United States of America, of the first part, the European Union and its Member States, of the second part, Iceland, of the third part, and the Kingdom of Norway, of the fourth part. OJ L 283, 29.10.2011, p. 1–3; Air Transport Agreement. OJ L 283, 29.10.2011, p. 3-16.

39Ancillary Agreement between the European Union and its Member States, of the first part, Iceland, of the second part, and the Kingdom of Norway, of the third part, on the application of the Air Transport Agreement between the United States of America, of the first part, the European Union and its Member States, of the second part, Iceland, of the third part, and the Kingdom of Norway, of the fourth part. OJ L 283, 29.10.2011, p. 16–24. Annex 2

were entered into with the Netherlands, perform commercial air transport (CAT) At least 30 days before the intended Germany, Luxembourg, France, Belgium, operations, transporting passengers, commencement of CAT operations, a Switzerland and Ireland. cargo or mail for remuneration or hire, third country operator must apply to into, within or out of the territories to EASA for an authorisation in line with An example of a recently renegotiated which the Basic Regulation applies40 Part-TCO. There is a narrowly defined UK bilateral agreement is the UK-Turkey must first comply with the requirements exception for certain specific types of Air Services Agreement 2000, which of Part-TCO41 and hold an authorisation non-scheduled commercial flights which replaced the restrictive 1946 Agreement. issued by EASA under Part-ART.42 Non- do not need to obtain prior authorisation, In respect of non-scheduled services, the commercial operations are not subject to but are instead only subject to prior one- parties agreed to adopt a liberal charter these requirements. off notification requirement, provided policy, and expressed willingness in that they apply for an authorisation principle to approve applications for 11.1. Part-TCO within 10 working days after the date of such flights. Applications need to be First, the third country operator must notification of the first flight to EASA. submitted at least three working days comply with the relevant rules under These flights are: (1) air ambulance in advance of the proposed flight and Part-TCO, namely: (1) the standards flights, and (2) a non-scheduled flight decisions should be made within one contained in the relevant Annexes or a series of flights “to overcome an working day; urgent applications may be to the Chicago Convention and / or unforeseen, immediate and urgent submitted and considered within shorter mitigating measures where the State operational need”. There are further time limits. of operator or registry has notified conditions regarding the notification of such flights, namely that the notification 10. Third country operators differences to the ICAO standards; (2) the relevant requirements of Part- may not be filed more than once every 24 Third country operators wishing to TCO; and (3) the applicable EU rules months and the flight in question must carry out commercial flights, whether of the air. The aircraft performing be performed within six weeks from the scheduled or non-scheduled, to, from the flight must also: (a) be operated date of the notification or until EASA has or within the UK, must obtain: (1) an in accordance with its AOC and the made a decision on the application in EU safety authorisation, and (2) a UK relevant operations specifications, as accordance with Part-ART. operating permit before they are allowed well as the authorisation issued under 11.2. Part-ART to perform such flights. The discussion Part-ART, as well as the scope and below is particularly important in the privileges contained in the attached Part ART lays down the administrative context of Brexit because, in the absence specifications; (b) have a certificate procedures to be followed by EASA of an agreement to the contrary, UK of airworthiness of the aircraft (CofA) and the EU Member States concerning air carriers will become third country issued or validated by either the State of the issuance, maintenance, change, operators for the purpose of the EU rules, registry or, alternatively, the State of the limitation, suspension or revocation and vice versa, Community air carriers operator where there is an Article 83bis of authorisations and monitoring of wishing to operate to the UK will be Transfer Agreement.43 In addition, the third country operators.45 With regard viewed as third country operators under operator must be able to provide, upon to the latter, EASA assesses continued the English law. EASA’s request, any information relevant compliance of third country operators for verifying compliance with Part-TCO with their authorisation and the relevant 11. EU safety authorisation and must, without undue delay, report to Part-TCO conditions. The EU rules expressly state that any EASA any Annex 13 accident involving third country operator who intends to aircraft under its AOC. 44

40 Part TCO applies to the following territories: 28 EU Member States, 4 EFTA States and Gibraltar, Åland Islands, Azores, Madeira, Canary Islands, Guadeloupe, French Guiana, Martinique, Réunion, Saint-Martin, Mayotte.

41 Annex 1 of Regulation 452/2014 laying down technical requirements and administrative procedures related to air operations of third country operators.

42 Annex 2 of Regulation 452/2014.

43 Under Article 83bis of the Chicago Convention the State of registry may transfer the responsibility for the issue of certificates of airworthiness to the State of the operator.

44 TCO.200, Regulation 452/2014

45 Part ART, Annex 2 to Regulation 452/2014. 59

12. Foreign carrier permit

In addition to the EU safety authorisation, a third country operator must also obtain a UK operating permit. As a general rule, under Article 250 of the UK Air Navigation Order 2016 ( “ANO” ),46 aircraft registered in a State other than the UK must not take on board or discharge any passengers or cargo in the UK where valuable consideration is given or promised for the carriage of such persons or cargo.

This rule is, however, subject to several exceptions. As discussed above, Community and EEA EFTA air carriers are allowed to operate air services within the EEA pursuant to the traffic rights conferred by Regulation 1008 / 2008. Similarly, the prohibition does not apply to aircraft operators who obtained their AOC pursuant to Article 94 of the Air Navigation (Overseas Territories) Order 2013.47

Third country operators which do not fall within the scope of either of the two exceptions have to apply to the UK CAA for a Foreign Carrier Permit. This requirement applies to all types of flights, both scheduled and non- scheduled. Operators of the latter types of air services wishing to perform either short-term or one-off charter flights, also known as “ad hoc charters”, have to apply for a Charter Operating Permit. It is important to note that neither private flights, nor overflights of the UK using aircraft registered in a State other than the UK, require additional TCO approval.

46 Article 250 of the Air Navigation Order 2016, which came into force on 25 August, 2016.

47 See Article 94 of the Air Navigation (Overseas Territories) Order 2013. The 2013 Order applies to the following territories: Anguilla, Bermuda, British Indian Ocean Territory, Cayman Islands, Falkland Islands, Montserrat, Pitcairn, Henderson, Ducie and Oeno Islands, St. Helena, Ascension and Tristan da Cunha, South Georgia and the South Sandwich Islands, Sovereign Base Areas of Akrotiri and Dhekelia, Turks and Caicos Islands, and Virgin Islands; see Schedule 6 of the Air Navigation (Overseas Territories) Order 2013. Annex 3 61

Annex 3

Ownership and control Annex 3

1. EU operating licence must (1) own more than 50% of the Conversely, it follows that an EU business undertaking and (2) effectively control aircraft operator which is majority In order to be a “Community air carrier” it, whether directly or indirectly through owned and effectively controlled by and benefit from full access to the one or more intermediate undertakings. UK nationals could lose its status as liberalised internal air transport market (For these purposes “Member States” a “’Community air carrier’” under as well as (for a scheduled airline) from includes an EEA State and Switzerland Regulation 1008 / 2008. the wide network of bilaterals through pursuant to the EEA Agreement and the EU designation, an operator must hold EU-Switzerland Agreement respectively, 2. External dimension an EU operating licence. to which Regulation 1008 / 2008 applies). Ownership and control rules are not just The operating licence is issued by the a licensing requirement; they also have While the European Commission does licensing authority of the EEA Member an external dimension. While Regulation not pre-approve licence applications, State or Switzerland where the air 1008 / 2008 allows for the relaxation of so need not be notified, it supervises carrier’s “principal place of business” is ownership and control rules through compliance with Regulation 1008 / 2008. located. This is defined as the operator’s agreements with third countries, and For those purposes it is entitled to obtain head office or registered office within Open Skies Agreements encourage such all necessary information from national which the principal financial functions market liberalisation, no air services licencing authorities and ask them and operational control, including agreement in force currently provides to review compliance. The European continued airworthiness management, for this. Commission can require them to take are exercised. the appropriate corrective measures The EU-US Air Transport Agreement Regulation 1008 / 2008 does not or to suspend or revoke the operating 2007 contains an ownership and control differentiate between scheduled and licence in case of non-compliance. clause that restates Article 4(f) of non-scheduled air services and applies Regulation 1008 / 2008, and the Protocol Following the UK’s exit from the EU, equally to both, as confirmed by the of 2010 allows (on a reciprocal basis) without an agreement in place to CJEU International Jet Management case. majority ownership of Community the contrary, a UK business aircraft In June 2017, the European Commission air carriers by US nationals, provided operator will not be entitled to become a published interpretative guidelines on legislative changes are made. These did “Community air carrier”, as its principal ownership and control under Regulation not ensue and do not seem to be on the place of business will be in the UK (and 1008 / 2008),48 which provide insight into agenda. therefore outside the EU) and its AOC the European Commission’s assessment will have been issued by a country (the criteria and past practice in deciding The aforementioned UK-Turkey bilateral UK) which is not a Member State. That cases, as well as best practices developed agreement provides that a Contracting operator could endeavour to set up a by national aviation authorities. Certain State may revoke an operating principal place of business in the EU, national aviation authorities (including authorisation, condition or suspend the and obtain an AOC from the relevant the UK CAA) have issued their own exercise of traffic rights where it is not Member State, but would still not be guidelines. satisfied that substantial ownership entitled to be issued an EU operating and effective control of the operator are In order to be granted an operating licence if it is not majority owned and vested in the designating Contracting licence, an operator must satisfy a effectively controlled by Member States Party (Article 5(1)(a)). The EU Model number of financial and non-financial and / or nationals of Member States. In Horizontal Agreement requires the conditions under Regulation 1008 / the case of a UK business aircraft operator third country, the bilateral agreement 2008, including ownership and control which is owned and effectively controlled with which is amended by the relevant requirements. In accordance with Article by EU nationals at present, its continuing Horizontal Agreement, to grant 4(f) of the Regulation, Member States status in the UK would depend on the UK authorisation to operators established and / or nationals of Member States rules going forwards post-Brexit. in the EU and holding an AOC from the

48 Commission Notice of 8.6.2017 Interpretative guidelines on Regulation (EC)1008 / 2008 - Rules on Ownership and Control of EU air carriers. C(2017) 3711 final. 63

competent national aviation authority, and which are owned and effectively controlled by EU Member States, Norway or Switzerland.

The extent to which this would apply to a non-scheduled carrier as opposed to a scheduled carrier would require an analysis of the relevant bilateral agreements on a case-by-case basis. The ownership and control restrictions in bilaterals appear primarily to apply to carriers which require designation under the bilateral by a Contracting Party i.e. scheduled airlines where there is a restriction on the number of airlines which can be designated by each state to fly those routes. This would not necessarily apply to non-scheduled traffic.

The EU-US Open Skies Agreement contains ownership and control provisions which apply to the authorisation of carriers of the other party and to the investment into the carriers of the other side. In both cases, the Agreement does not specifically distinguish between scheduled and non-scheduled carriers (and its other provisions seem to suggest that it generally applies to both types of operations), although arguably ownership and control provisions as applied to designation have more relevance to scheduled carriers, whereas, applied to mutual investments, they may be equally relevant to both scheduled and non-scheduled carriers. Annex 4 65

Annex 4

Customs duties / VAT Annex 4

1. The EU Customs Union considering the import of an aircraft in engines and parts for such an aircraft). the EU – that of customs clearance into However, the zero-rated treatment Member States of the European Union the EU allowing the aircraft to be in “free provided for in the EU VAT Directive is (Monaco, and some territories of the UK circulation” within the EU and the VAT tested by reference to the airline rather which are not part of the EU (Akrotiri status of the aircraft, that is to say that than the aircraft, applying to supplies and Dhekelia, Bailiwick of Guernsey, any VAT due on the aircraft is paid or of aircraft and parts that are “used by Bailiwick of Jersey, and the Isle of Man) properly accounted for. airlines operating for reward chiefly on are all members of the EU Customs international routes”. This test has now Union. Some territories within the EU Any aircraft that operates in business been implemented in the UK by section do not participate in the Customs Union or commercially within or between EU 21 of the Finance (No.3) Act 2010. (e.g. Gibraltar). countries should normally be customs cleared and in what is referred to as 3.1. Supply The Customs Union is a principal “free circulation” (unless a “temporary component of the EEC, established in The rules apply to the “supply” of an importation” exemption applies – 1958, and now succeeded by the EU. aircraft or aircraft equipment, i.e.: please see further below on temporary No customs duties are levied on goods importation). travelling within the Customs Union –– Sale, import or acquisition and unlike a free trade area members 2.2. Sale –– Charter, including hire or lease of the Customs Union impose a Common The supply of a qualifying aircraft is External Tariff on all goods entering The main applicable tax in relation to the zero-rated. Supplies of other aircraft are the Union. sale of an aircraft in the EU is VAT. standard-rated (at the rate of 20% in the A precondition of the Customs Union 3. VAT UK since 4 January 2011). is that the European Commission There is a high degree of harmonisation The relevance to the business aviation negotiates for and on behalf of the Union of VAT rules across the EU. These VAT sector is therefore: (i) the VAT applicable as a whole in international trade deals rules are normally set by EU Directives on the importation of an aircraft into such as the World Trade Organisation, which are not directly applicable and the EU for free circulation, (ii) the VAT rather than each Member State which are therefore implemented in the applicable on the sale of a business negotiating individually. UK through domestic legislation. aircraft whilst physically located in Prime Minister Theresa May reiterated On 1 January 2011, the UK’s VAT rules in the EU, and (iii) the VAT applicable on in her Florence speech of 22 September relation to the supply of aircraft, aircraft the leasing or chartering of a business 2017 that following Brexit “we [the engines and parts changed substantially. aircraft. UK] will no longer be members of its This followed a ruling by the European 3.2. “Qualifying aircraft” test [the EU’s] Single Market or its Customs Commission that the UK’s previous Union” (emphasis added). HM Treasury rules did not correctly implement the As mentioned above, a “qualifying has recently confirmed that “as the provisions of the EU VAT Directive.49 aircraft” is any aircraft which is used UK leaves the EU, it will also leave the by an airline operating chiefly on Customs Union”. The UK rules previously provided that international routes. Following the any supply of an aircraft with a take-off decision of the CJEU in the 2005 Cimber 2. Tax weight exceeding 8,000 kg and which Air case (C-382 / 02), the test is whether 2.1. Import was neither designed nor adapted for the airline itself operates chiefly on recreation and pleasure should be international routes and not what There are two tax concepts in play when zero-rated (and the rule applied also to

49 Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax. 67

route any particular aircraft is used for. of the EU VAT Directive also apply in the end user will be of a qualifying Analysing each component of the test in the event that the (beneficial) owner aircraft, then the supplier may “look more detail: of the aircraft uses the aircraft for his through” the transaction (or series of own business and private needs, and transactions) and treat its own supply a. Airline contributes as such to the costs of the as zero-rated. An airline is defined as “an undertaking aircraft (own-use)? In the A Oy case For practical purposes HMRC intend to which provides services for the carriage the CJEU decided that the own use permit, “in very narrow circumstances”, by air of passengers or cargo”. An airline of the aircraft - when operated by an suppliers to “look through” the supply to will need to operate at least one aircraft airline in the meaning of the EU VAT an immediate customer that is not an which it may own, lease or hire. Directive - does not jeopardise the ‘airline’ and on to the ultimate consumer exemption, provided that the aircraft of the supply. The critical point is that On 19 July 2012, the CJEU issued a is not solely or exclusively used by the the ultimate consumer of the supply decision in the A Oy case (C-33 / 11) owner of the aircraft. which confirmed that an international of either goods or services must be an charter operator (i.e. business aircraft c. An international route ‘airline’ operating qualifying aircraft operator) can be an ‘airline operating An international route is any route and that the entities in the supply chain for reward chiefly on international that is not a domestic route within UK are fully taxable for the purposes of routes’ in accordance with the EU VAT airspace. A non-UK airline that mainly the transaction so that no input tax Directive – in other words, it does not flies between airports within its own restriction would occur anywhere in matter if the routes flown are non- territory should therefore be regarded the chain were the zero-rating not to be scheduled. It is irrelevant whether the nonetheless as international for these permitted. international air transport is made on purposes. In the A Oy case, the CJEU confirmed scheduled flights or on non-scheduled d. Chiefly that the exemption under Article 148 flights, including charter flights “Chiefly” means that the non-UK of the EU VAT Directive also applies operated for companies or private domestic flights of an airline must to the supply of an aircraft to a party persons. exceed its domestic flight operations. which is not an ‘airline’ and which in b. Operating for reward This test can be based on the value of turn supplies the aircraft for the use of The airline must be providing either turnover attributable to international an ‘airline operating for reward chiefly passenger or freight transportation (or routes compared to that attributable to on international routes’. The CJEU both) on scheduled or unscheduled domestic routes, the relative number determined that the exemption applied flights (or a mixture of both) and of passengers carried, mileage or “any to all sales of aircraft purchased ‘for the receiving consideration for that supply. other method that produces a fair and purpose’ of supplying them to airlines This must be a business operation reasonable result”.50 operating chiefly on international routes. in nature for VAT purposes. There By this teleological approach, the CJEU e. Special purpose companies is a significant body of case law in applies the “look-through” principle, Most aircraft are, of course, owned relation to the requirements for a whereby the evaluation of whether or by special purpose companies. If taxpayer to be operating a business not VAT is applicable on the sale of an at the time of the supply to such for VAT purposes. However, there is aircraft on the basis of the use made of an “intermediary” (as the Her no requirement for an airline to be it by the final user is decisive. This part Majesty’s Revenue and Customs operating for profit. of the CJEU judgment was therefore in (HMRC) Guidelines refer to them) it line with what is already implemented in Does the exemption under Article 148 is known that the ultimate supply to

50 HMRC Notice 744C, December 2010. Annex 4

many jurisdictions, including the UK. Alternatively, an aircraft that is not EU registered and is in commercial use may 4. Business aircraft - summary 5. Customs duties remain in the EU only so long as required In general terms, the UK VAT position in The EU’s basic customs legislation is for carrying out transport obligations. relation to business aircraft is therefore contained in the Customs Code51 and the Private use of an aircraft includes any as follows: Code’s implementing provisions.52 These use that is other than commercial. are directly applicable in all Member Commercial use is defined in the Code Aircraft chartered out States. as the transport of persons or of goods for remuneration, or in the framework of Potentially zero-rated, provided the In the case of an aircraft that is imported an economic activity of an enterprise. use is a genuine business use and not by an EU established entity and where a disguised private use. The general the aircraft is placed on a civilian 7. The Isle of Man consensus is that there will need to be aircraft register, the import can meet the It is common for business aircraft to some degree of serious marketing to conditions needed under EU customs be imported for free circulation in third parties and records kept of genuine rules for the application of a customs the EU through the Isle of Man. The charters. Following analogies from the duty relief (end use relief), that allows Isle of Man is a self-governing Crown yachts market, the “business” might be customs duty to be completely removed dependency in the Irish Sea. The deemed abusive if it sustained significant at import. Otherwise customs duty Crown dependencies are the Isle of ongoing losses or the chartering to third would be charged at 2.7% of the aircraft’s Man, and the Bailiwicks of Jersey and parties “would not, alone, be of sufficient current value. Where end use relief could Guernsey. They are independently continuity and substance to comprise an not be applied, this duty charge would be administered jurisdictions, and do economic activity”. The 1996 CJEU case irrecoverable. not form part of either the UK or the of Enkler (C-230 / 94) provides guidance British overseas territories. They are on this. 6. Temporary admission (also known self-governing possessions of the Crown as temporary importation) Private use (defined uniquely in each jurisdiction). The European Union Customs Code Internationally, the dependencies are 20% VAT is likely to apply. provides a mechanism to permit considered “territories for which the UK an aircraft that is not domiciled or is responsible”, rather than sovereign Businesses owning aircraft for the registered in the EU to be temporarily states. They are not part of the European transport of staff imported into the EU without customs Union, but they are within the EU’s documentation or payment of customs A business owning an aircraft used Customs Area. The Isle of Man Customs duties or VAT. for the transport of its staff will not & Excise Division has had responsibility for Isle of Man taxes transferred to it by normally be considered to be an “airline”. This ‘temporary admission’ regime UK HMRC. When the UK leaves the EU However if the aircraft is operated by exists to accommodate the occasional Customs Union, it follows that the Isle of an associated company, separate from entry of foreign-registered aircraft into Man will also leave. the main business, and otherwise an EU Member State. The requirements the conditions set out in the rest of its of the regime are, however, not always 8. Brexit Guidance are satisfied, HMRC have easily applied. Under the Code, an It is UK Government policy to leave the stated that they will normally accept aircraft that is not EU registered and is EU Customs Union as part of Brexit, that such an associate company is an in private use may enter the EU for up to not least so that the UK is not subject to airline. six months without liability for VAT or the Common External Tariff and is free import duty tax.

51 Regulation (EU) No 952/2013 of the European Parliament and of the Council of 9 October 2013 laying down the Union Customs Code.

52 Commission Implementing Regulation (EU) 2015/2447 of 24 November 2015 laying down detailed rules for implementing certain provisions of Regulation (EU) No 952/2013 of the European Parliament and of the Council laying down the Union Customs Code. 69

to negotiate trade deals with non-EU the aircraft is neither designed nor 9. Supply of aircraft parts countries. adapted for recreation and pleasure – One particular concern is how any there is no suggestion that moves are revised rules would be applied by The European Union (Withdrawal) Bill afoot to re-adopt this test, we merely the significant number of UK (and will, when passed by Parliament, convert mention it as an example of what the EU) businesses engaged in the repair, the body of existing law into domestic UK Government could decide when maintenance and modification of law. The UK will then need new primary no longer directly subject to the EU aircraft and the supply of spare parts. legislation, irrespective of any agreement VAT Directive). made between the UK and the EU, to VAT create a standalone customs regime, and iii. An importation of a business aircraft through the UK / Isle of Man would to amend the VAT and excise regimes so As mentioned above, the supply of not therefore automatically provide that they function effectively after the aircraft parts is zero-rated if the “free circulation” in the remainder of UK has left the EU. purchaser of the parts is a ‘qualifying the European Union – without a form airline’ (or if the “look-through” principle The rules in relation to VAT / Customs of agreement being in place between applies and the end user is a ‘qualifying duty described above will therefore the UK and the EU to allow for this. airline’). continue to apply in the UK (and in iv. The temporary admission rules The Isle of Man) post-Brexit, at least applicable in the European Union will Normally the responsibility for during an interim period pending any in principle apply to UK registered determining the liability to VAT in amendment. However, these rules business aircraft – as these will no relation to a supply rests with the would apply to a standalone separate UK longer be EU registered aircraft; supplier. In order to zero-rate aircraft customs zone. provided, of course, that the other equipment supplies, the supplier would therefore need to know at the time of The most likely scenario in respect of criteria for the application of the supply that the aircraft will be a VAT / Customs duty is therefore a “hard temporary admission rules are met. qualifying aircraft. This may not always Brexit” which will have the following This is quite a complicated area and be straightforward, as the supplier may consequences with regard to the matters legal advice would need to be sought be engaged to make supplies to multiple discussed above: in relation to any specific case. Again, this would only be the case if there customers at relatively short notice and i. The interpretation of and was no agreement in place between may not always be aware at the time of development of these rules would no the UK and the EU providing for an the supply of the identity of the end user longer be subject to the jurisdiction of alternative arrangement. in the supply chain. To discharge that the Court of Justice of the European responsibility the supplier may have to v. Dependent on the factual scenario Union. The applicability of pre-Brexit ensure that some form of documentary and the usage of the aircraft, the CJEU judgments would be a matter for evidence of the airline’s qualifying status importer of a business aircraft with the UK legislature / courts. is retained. strong connections to both the UK and ii. Going forwards, it would be open to the EU may going forwards need to HMRC recognise that, in the case of the UK to amend the rules or adopt consider an importation into the UK aircraft, this requires knowledge about new rules (e.g. reverting to the “old” and a separate importation into the EU. the status of the customer and the use to test that the supply of an aircraft which the aircraft is to be put. In cases will be zero-rated if the aircraft’s of doubt, HMRC recommends obtaining take-off weight exceeds 8,000 kg and evidence of entitlement to zero-rating, Annex 4

for example by way of a declaration The 1980 World Trade Organisation (Note 744C, Paragraph 12.2 suggests the plurilateral information agreement on format of this). In its Guidelines, HMRC trade in civil aircraft eliminates import set a high standard for this evidence, duties on civil aircraft. This agreement giving the example of a declaration by has 32 signatories (Albania; Austria; the customer of its entitlement to zero- Belgium; Bulgaria; Canada; Chinese rating together with an undertaking Taipei; Denmark; Egypt; Estonia; to notify the supplier of any changes European Union; France; Georgia; to that entitlement before the time of Germany; Greece; Ireland; Italy; Japan; the supply and to pay any VAT properly Latvia; Lithuania; Luxembourg; Macao, due. However, HMRC state that the China; Malta; Montenegro; Netherlands; documentary evidence could take other Norway; Portugal; Romania; Spain; forms, and it is expected that it will only Sweden; Switzerland; UK; United States). be necessary to retain such evidence in Most WTO agreements are multilateral cases where there is some doubt that since they are signed by all WTO the customer qualifies. If the airline in members. The agreement on trade in question is based overseas and operates civil aircraft is one of two plurilateral only a small proportion of its flights agreements (with the agreement on within the UK, it may be abundantly government procurement) signed by a clear that the supply qualifies for zero- smaller number of WTO members. It rating and so it may not be necessary eliminates import duties on all aircraft, to retain any evidence. In addition, other than military aircraft, as well as HMRC have noted that, in “normal on civil aircraft engines and their parts circumstances”, where a supplier is and components, all components and engaged by an airline to make multiple sub-assemblies of civil aircraft, and supplies, they would only expect the flight simulators and their parts. supplier to obtain one declaration from that airline each year to cover all of the Although the EU was a signatory airline’s aircraft. to the above agreement, so were individual countries including the The applicability of this post-Brexit will UK. So, providing the UK continues to depend of course on the regime going abide by its terms, then the agreement forwards. should continue to apply and there will be no need for the agreement to be Tariffs renegotiated.

A further concern that has been raised That said, some aero parts (and in the context of the Customs Union materials) may not be caught by is whether leaving the Customs Union the WTO agreement. This is being could result in the imposition of tariffs investigated by the governments in relation to the export of aircraft parts concerned. In addition, the WTO from the UK to the EU (or vice versa). agreement will not assist with any non-tariff barriers. 71 Annex 5 73

Annex 5

European Aviation Safety Agency Annex 5

The principal body responsible for has one seat on EASA’s Management Management Board. If it was to regulating aviation safety in the UK Board. Following Brexit, and, in the participate in EASA on the same basis as is the Civil Aviation Authority (CAA). event that there is no agreement to the four EFTA States, it would still have However, the European Aviation Safety the contrary, the UK will cease to be a to apply the same EU safety regulations, Agency (EASA) plays an increasingly member of EASA. It is important to note, but would lose the ability to shape their important role in developing and however, that EU membership is not a content. promoting common Europe-wide prerequisite for a state’s involvement standards in the fields of civil aviation with EASA and the current framework The ECAA State Parties who are in safety and environmental protection. expressly provides for the participation the first transitional period are also of non-EU countries. allowed to sit on the Management Board EASA was established in 2002 as an but only as non-voting observers. As independent agency of the EU, with its Article 66 of the Basic Regulation they progress to the end of the second own legal personality, distinct from the foresees various models of participation transitional period, their status and Community Institutions.53 EASA became by “European third countries”, i.e. non- conditions for their participation in fully functional in 2008; in accordance EU States, as long as they are Chicago EASA will be determined by the ECAA with Regulation (EC) No 216 / 2008 (the Convention Contracting States and Joint Committee. In addition, regardless “Basic Regulation”)54 EASA’s main have entered into an agreement with of whether the UK participates as a functions include: the EU which mandates the adoption member of the Management Board and application of the relevant EU or merely as an observer, it would –– Drafting implementing rules and aviation safety regulations.56 In each also, inevitably, need to agree to make guidance material related to aviation case, the extent and nature of the State’s financial contributions to the EU budget safety involvement is subject to the provisions in line with the provisions of the Basic –– Providing technical, scientific and of the relevant agreement. Regulation. administrative support to the The four EFTA States (Norway, Iceland, EASA also cooperates with the Commission and EU Member States Lichtenstein and Switzerland) have been aeronautical authorities of third –– Conducting standardisation granted participation under Article 66 of countries in the framework of bilateral inspections and training the Basic Regulation and are members Working Arrangements57, creating of the Management Board without technical working relationships and –– Airworthiness and environmental voting rights which are afforded to cooperation in aviation safety matters. certification of aircraft, engines and parts the EU Member States and European Examples of such third countries –– Certification and approval of aircraft Commission only. Without the right to include Turkey and the EMAA States, design organisations vote on the proposed aviation safety such as Morocco and Israel. This type measures, EFTA Member States do not of arrangement, however, is even less –– Certification of flight crew, air have the ability to directly influence the desirable to the UK post-Brexit than the operations, air traffic management legislative process or formulate future other two models discussed above. and air navigation services, air traffic EU policy. Currently, as an EU Member controllers and aerodromes State, the UK has a say in any proposals In the alternative, the UK could seek to –– Authorisation of third country for the new safety rules and regulations establish its own legal framework for operators55 at the European Commission level, and the regulation of aviation safety outside of EASA, although this course of action The membership of EASA is composed of is able to affect their implementation entails several major complications the 28 EU Member States, each of which using its voting rights on the EASA and is highly unlikely to happen. The

53 Article 28 of Regulation 216/2008.

54 Regulation (EC) No 216/2008 of the European Parliament and of the Council of 20 February 2008 on common rules in the field of civil aviation and establishing a European Aviation Safety Agency, and repealing Council Directive 91/670/EEC, Regulation (EC) No 1592/2002 and Directive 2004/36/EC (“Basic Regulation”).

55 See Basic Regulation; see online: https://www.easa.europa.eu/the-agency/the-agency; also online: https://www.easa.europa.eu/the-agency/faqs/about-easa

56 Article 66 of the Basic Regulation.

57 Article 27 of the Basic Regulation. 75

more likely scenario is that the UK will establish and develop a safety and the scope of that authorisation if they try to remain an active member of certification system that is considered saw fit. Further, the EASA would have EASA, regardless of its exit from the EU. internationally to be equivalent standing the power to amend, limit, suspend Currently two-thirds of all rule-making to EASA, the FAA’s internal process or revoke the authorisation if the UK input to EASA comes from the UK and for recognition of any foreign agency operators failed to fulfil the relevant France and 60 UK CAA safety experts is lengthy. Almost all aircraft leases obligations imposed on them at EU level. are involved with EASA58. and financings refer to either FAA No doubt this will be unlikely given or EASA standards of certification / that UK airlines are likely to set high The recent COMBAR Working Paper on recognition. UK operators would need standards of safety, but it is by no means the Implications of Brexit notes that if to find an acceptable solution to these unforeseeable that the EU / EASA might the UK made a decision not to participate requirements during any transition in future adopt a set of regulations with in EASA and instead introduced its own between certification systems. which the UK disagrees and on which it independent rules and structures for air has had no say, which would place UK safety regulation, it would likely face the Fourth, although the CAA already operators in a difficult position.”59 following difficulties: produces detailed guidance on air safety (often drawn from the relevant Recent reportage in the UK suggests that “The first is that it would be extremely EU Regulations), it would be a daunting the UK Government will tell the EU that expensive for the UK to build up the task to have to consider and analyse the it wishes to stay in EASA after Brexit, certification infrastructure required substantial body of EU rules referred to even under the indirect jurisdiction of to operate independently of EASA, and above and decide which to adopt and the CJEU, via the mechanism of Article that process may take a very significant which to reject (although the baseline 66. In a future scenario where the UK is amount of time to complete (as much as ICAO standards would provide a useful an associate member, a domestic dispute a decade). In the meantime, there would starting point). over the application of safety regulation be a significant impact on the ability would be under the jurisdiction of UK of aircraft to demonstrate effective Fifth, there would be great difficulty courts; however, under Article 50 of maintenance and airworthiness records in dealing with design and aircraft the Basic Regulation, the CJEU is the (which can encounter great difficulties modification approvals (including ultimate arbiter of EASA rulings. The when not EASA or FAA compliant). modification of parts), as even minor UK Government appears willing to changes would cease to be subject to accept this on the basis that the relevant Second, the EASA certificate regime along EASA approval, and therefore would “red line” is that there be no “direct with the US FAA certification regime need to be assessed in accordance with jurisdiction” by the CJEU after Brexit. are the two leading industry standard whatever domestic system was installed regimes adopted internationally. It is an in its place. open question whether the UK CAA will have the resources to develop a system Further, as soon as the UK diverges that is considered internationally to be from the EU / EASA on safety standards, equivalent in standing to EASA. it will almost certainly become more difficult for UK airlines to operate into Third, UK operated aircraft may only and within the EU. They would need to land in the US if they are certified by a obtain authorisation from the Member safety agency recognised by the FAA. States, which would be an unwanted EASA is recognised by the FAA but administrative burden, and the Member the CAA is not. Even if the CAA could States would have the power to limit

Source

58 Airlines UK

59 Commercial Bar Association (COMBAR), Working Paper on the implications of Brexit, Aviation Industry (23 February 2017), at 18 et seq Annex 5

Licensing may result in the competent authority is set out in Commission Regulation limiting, suspending or revoking the 1321 / 2014 and in particular in Part-66 Flight crew licensing licence. (Annex III to the Regulation). Part-66 addresses the knowledge and practical The requirements for the issue of EASA Prior to the adoption of EASA rules on experience requirements, as well as flight crew licences, associated ratings flight crew licencing, the various types requirements as to ratings, type and and certificates, and the conditions of of flight crew licences were issued task training. An aircraft maintenance their validity and use are contained by the UK CAA and other national licence authorises the holder to in Commission Regulation No. 1178 aviation authorities in Europe based on perform inspections, modifications, / 2011, and more specifically Part- certain harmonised rules, known as repairs and overhauls of aircraft and FCL (Annex I to the Regulation). The the Joint Airworthiness Requirements any equipment installed and issue detailed provisions of Part-FCL set out (JARs). These were developed by certificates of release to service following the requirements as to theoretical the Joint Aviation Authorities (JAA), completion of such works. knowledge and practical skills required an associated body of ECAC. Over a for the issue of a range of licence types, number of years since their formation The privileges granted to the licence from light aircraft pilot licences (LAPL) in 1990, a substantial number of JARs holder are extensive, as the certificate and private pilot licences (PPL), to were developed. Although these were of release to service is a very important commercial pilot licences (CPL) and air not initially mandatory, some of these document in continuing airworthiness transport pilot licences (ATPL). Part-FCL became part of EU law by being annexed management. It is issued by the also contains requirements for the award to Council Regulation 3922 / 91 on the maintenance engineer at the completion of ratings, such as aircraft class ratings harmonisation of technical requirements of all required aircraft maintenance, (e.g. single engine or multi engine rating), and administrative procedures in the which may include items, the repair of additional ratings (e.g. instrument, night, field of civil aviation, while others, such which was not originally planned, but or mountain rating), as well as type as flight crew licensing requirements, turned out to be necessary following ratings required for specific models of were incorporated into national law. the inspection and repair of other items. complex business aviation aircraft. As Until the certificate of release is signed fleets of most business aircraft operators As a result, many experienced the aircraft must remain grounded consist principally of multi-engine jet commercial pilots in the UK will have as it is not deemed safe for flight. The aircraft, pilots employed normally need been granted UK / JAR licences. In order certificate of release to service contains to hold either a CPL or ATPL with any for holders of such licences to continue the basic details of the maintenance applicable ratings, such as multi engine to be able to fly EASA certified aircraft, carried out, the completion date, the (ME) and instrument rating (IR), as well such licences will need to be converted identity and details of the maintenance as a type rating for the specific business to the corresponding EASA licence type organisation and the engineer issuing jet aircraft flown. by 8 April 2018. If the licences are not the certificate, as well as any limitation converted by this date, they will remain to operations or general airworthiness. Part-FCL requires the licence holder valid, but any privileges to fly EASA By issuing the certificate, the to carry the licence and valid medical certified aircraft will be lost. Brexit maintenance engineer confirms that the certificate, as well as a personal negotiations are unlikely to impact aircraft continues to be airworthy. When identification with their photo when this conversion process, as this EASA an aircraft is grounded in a country flying. The pilot must also keep a reliable requirement will continue to apply to where the operator does not have a base record of flights flown and have it the UK until the UK leaves the EU. Due or access to a maintenance provider available for inspection upon request to the severe limitations of retaining qualified to perform base maintenance by the local civil aviation authority. A national licences and the likely delays on that aircraft type, the national business aircraft pilot who has attained in processing later applications due to aviation authority of the State of Registry the age of 60 years may only operate demand, it would seem advisable for of the aircraft could be requested to aircraft engaged in commercial air commercial pilots affected to convert issue a permit to fly. This would then transport as a member of a multi-pilot their licences well in advance of the 8 allow the operator to fly the aircraft out crew and continue to do so for the April 2018 deadline. of that location for further maintenance. next five years. Upon attaining the The permit to fly will only be granted age of 65 years, the pilot licence holder Maintenance engineer licensing if the aircraft is capable of performing may no longer act as a pilot engaged a safe flight under conditions defined in commercial air transport. Failure The regulatory framework governing the by the State of Registry (or EASA if the to meet the requirements of Part-FCL grant and conditions of validity and use of EASA maintenance engineer licences conditions relate to safety of the design). 77

Part-66 licences are further categorised Impact of Brexit EU Member States, all of which were based on the complexity of permitted previously based on the Joint Aviation maintenance activities and whether they The UK’s exit from the EU is unlikely to Requirements, there would seem to are to be performed without taking the have an impact on the current process be no necessity for comprehensive aircraft out of service (line maintenance) of converting UK / JAR flight crew validation procedures with regard to or with (base maintenance). A category licences to EASA licences. Following licences issued by the other side. While A licence allows the holder to perform Brexit, licences converted to EASA a solution may eventually depend on the minor scheduled line maintenance and licences and newly issued EASA licences UK’s relationship with or membership simple defect rectification. Category should remain valid, as they are valid in EASA, if the matter is dealt with B1 / B2 / B3 licences allow holders to indefinitely and need not be renewed separately, it would seem preferable perform activities on aircraft structures, every five years like UK / JAR licences. for both the industry and individuals powerplant, mechanical and electrical However, the UK CAA would no longer affected that a mechanism of mutual systems and avionics requiring simple be able to issue new EASA licences recognition be put in place (whether this tests to prove their serviceability or under Part-FCL as EU law would no is politically achievable, however, may minor scheduled line maintenance longer apply to the UK and it would no depend on cooperation in other areas). and simple defect rectification in the longer be a member of EASA. Newly case of a B3 licence. A full inspection licenced pilots in the UK would instead Since EASA maintenance engineer and repair done at the base station be issued national licences which would licences principally apply to aircraft requires a category C licence. A licence be subject to validation procedures in with a maximum take-off mass above in a more restricted category can be EASA Member States. Conversely, EASA 5,700kgs, while national licences cover extended to a more advanced category licences of EU pilots would also no longer aircraft below this weight, the UK’s exit by demonstrating the knowledge and meet UK requirements, and the UK may from the EU will likely only affect the experience required for the more wish to implement its own validation former. As in the case of flight crew advanced category. Regardless of procedures before allowing EU pilots to licences, much will depend on whether the category, a Part-66 maintenance operate UK certified aircraft. the UK continues to be a member of engineer licence requires renewal every EASA. If this does not turn out to be The process of validation requires five years by the issuing authority. the case, the UK would no longer be evidencing that the holder of the Failure to comply with the conditions of able to issue Part-66 maintenance equivalent third country licence meets the licence may lead to its suspension or engineer licences or renew previously the criteria for the issuance of an EASA revocation by the issuing civil aviation issued licences, with the effect that licence. This involves demonstrating authority. maintenance engineers affected would that all relevant requirements of likely be required to validate their In addition to EASA Part-66 licences, Part-FCL have been met, except that licences in EASA Member States. The the UK CAA also issues maintenance requirements of course duration, same would likely apply to EU licence engineer licences under British Civil number of lessons and specific training holders in the UK, as the UK CAA may Airworthiness Requirements (BCAR), hours may be reduced. The competent require them to validate their licences Section L, which primarily apply to national aviation authority will then against UK’s national regulations. Again, aeroplanes and helicopters with a determine conversion requirements, it seems more logical if an arrangement maximum take-off mass below 5,700kgs. which can be reduced on the basis of providing for the mutual recognition Examples of business aviation aircraft a recommendation from an approved of relevant qualifications would be which would fall into this category training organisation. While the put in place, as both UK and EASA include very light aircraft such as the validation provisions of Commission maintenance engineer licensing rules Cessna Citation Mustang, Embraer Regulation No 1178 / 2011 took effect are likely to be very much aligned, not Phenom 100, Eclipse EA500 and on 8 April 2012, Member States could least due to the fact that they were both HondaJet, as well as some medium-sized validate non-EU licences without based on the JAR-66 rules. turboprop aircraft such as the Cessna reference to the provisions of Part-FCL 208 Caravan and the Pilatus PC-12. until 8 April 2015. The rules governing the grant, use and Given that the UK has been a member validity of BCAR maintenance engineer of EASA and applied its regulatory licences are similar to the EASA rules framework, including Part-FCL, and (being based on their predecessor, JAR-66). bearing in mind the proximity of

national rules of the UK and other Annex 6 79

Annex 6

Air traffic management / Single European Sky ATM Research project Annex 6

6.1. Single European Sky not just traffic between the isles, but 6.2. EUROCONTROL also 80% of North Atlantic traffic. The Single European Sky is a The UK is a member of the European The reorganisation of airspace in this multifaceted project aimed at Organisation for the Safety of Air Functional Airspace Block alone has led modernising airspace and air traffic Navigation (“EUROCONTROL”), an to savings of over EUR€20m in the first 15 management in Europe so as to international intergovernmental years of operations. streamline routes, reduce delays and organisation created in 1961 and minimise costs. In terms of the legal NATS, the UK’s air navigation service tasked with running safe, efficient framework, the project has been provider, is committed to modernising and environmentally-friendly air developed in several stages, beginning UK airspace regardless of the UK’s exit traffic operations throughout Europe. with the adoption of a package of four from the EU and expects to continue EUROCONTROL handles the collection Regulations in 2004, which focused on participating in various Single European of air navigation charges on behalf increasing airspace capacity. For this Sky initiatives. One of these, which is a of Member States, provides air traffic purpose, the Regulations envisaged significant cost-cutting measure, is the control services for the Netherlands, the division of airspace based not on introduction of “free route airspace”, Belgium, Luxembourg and northern national boundaries, but operational allowing an operator to plan its flight Germany, and manages the air traffic needs of users though the creation of routing from an airspace segment entry management network through its Functional Airspace Blocks (“FAB”). point to an exit point as it wishes, subject Central Flow Management Unit. In its only to airspace availability, and the initial stages, the Single European Sky Slow progress with the formation of FABs avoidance of restricted airspace. NATS initiative was developed mostly within led the European Commission to propose currently participates in the Borealis EUROCONTROL, but the project has amendments, designed to facilitate Alliance, seeking to establish a single since been advanced by EASA, which the creation of FABs and increase free route airspace region across several has assumed most of EUROCONTROL’s supervision thereof, eventually leading FABs by 2021. The UK’s participation in regulatory powers in the field of air to the adoption of the comprehensive this project is of benefit not just to UK navigation, with EUROCONTROL Regulation 1070 / 2009, which marked operators, but to the EU as well, given continuing to provide operational and the beginning of the second stage of the the coverage of most Atlantic traffic. technological support. project. Attention shifted to increasing performance, increasing the role of EASA At least as far as FABs are concerned, The UK’s membership in EUROCONTROL and further development of the technical the Regulations do not condition will most likely be unaffected by Brexit, backbone of the project, the Single involvement on EU membership, and in but this also means that the UK may European Sky Air Traffic Management fact encourages the participation of as need to continue to implement EU law Research programme (“SESAR”). many European countries as possible governing EUROCONTROL’s activities, to ensure maximum geographical such as its management of airspace Given the aero-political nature of coverage, as this increases the overall design and flow management covered FABs, their legal framework is complex 63 efficiency and cost savings produced by under Regulation 677 / 2011 . and consists of agreements on the the SES project. Naturally, NATS would intergovernmental, regulatory and have to continue to meet the current operational levels. In 2008, the UK-Irish regulatory targets within the block and block was put in operation as the first failure to do so may impact its access to of nine FABs to be established. Given EU funding for the SESAR programme. the UK’s position, the block handles

60 Regulation 549/2004 of 10 March 2004 laying down the framework for the creation of the single European sky, OJ L96, 31.3.2004, p. 1-9; Regulation 550/2004 of 10 March 2004 on the provision of air navigation services in the single European sky, OJ L96, 31.3.2004, p. 10-19; Regulation 551/2004 of 10 March 2004 on the organisation and use of the airspace in the single European sky, OJ L96, 31.3.2004, p. 20-25; Regulation 552/2004 of 10 March 2004 on the interoperability of the European Air Traffic Management network, OJ L96, 31.3.2004, p. 26-42.

61 Regulation (EC) No 1070/2009 of the European Parliament and of the Council of 21 October 2009 amending Regulations (EC) No 549/2004, (EC) No 550/2004, (EC) No 551/2004 and (EC) No 552/2004 in order to improve the performance and sustainability of the European aviation system. OJ L 300, 14.11.2009, p. 34–50.

62 Brexit Fallout for Single Sky Remains Unclear, Air Traffic Management, http://www.airtrafficmanagement.net/2016/06/brexit-fallout-for-single-sky-remains-unclear/ (accessed: 25/10/2017).

63 Commission Regulation (EU) No 677/2011 of 7 July 2011 laying down detailed rules for the implementation of air traffic management (ATM) network functions and amending Regulation (EU) No 691/2010. OJ L 185, 15.7.2011, p. 1–29. 81 Annex 7 83

Annex 7

The Cape Town Convention Annex 7

The Cape Town Convention64 (“CTC”) Moreover, certain declarations to the preserving this area to the competence has been ratified by both the EU (insofar Aircraft Protocol were not made by the of Member States, and accordingly, the as it relates to EU competences) and UK at the time of accession in view of UK has amended its domestic insolvency the UK, where it has been designated the declarations already made by the rules to adopt Alternative A. Where as an EU treaty, and implemented via EU. While it would not be necessary there is an area of the treaty that is an the International Interests in Aircraft to do so in order to retain the status EU competence, the UK was unable to Equipment (Cape Town Convention) of Contracting State, the UK may make a declaration covering the same Regulations 2015 (“the CTC Regulations”), wish to consider whether to make area, and accordingly the UK has not pursuant to section 2(2) of the European such declarations, or to clarify the opted-in to certain aspects of the CTC Communities Act 1972 (and which interpretation of certain provisions regime, where it is already bound by therefore also operate to implement which were included in the sphere of the relevant EU rules. The most salient EU Council Decision 2009 / 370 / EC competence of the EU. areas in which the UK did not make a concerning the European Community’s declaration concern the CTC’s choice of accession to the CTC). The CTC / By the system of declarations, many law rules and jurisdiction provisions. For Aircraft Protocol entered into force in the of the features of the Convention example, Protocol Article VIII (where a UK on 1 November 2015. are determined by whether the contracting state has opted in by making individual contracting state has issued the relevant declarations) permits the UNIDROIT has confirmed that the UK a declaration, enabling it to “opt in” parties to choose the law that governs will remain a Contracting State under or “opt out” of a particular feature of their contractual relationship. The UK the Cape Town Convention / Aircraft the system. For example, the CTC’s did not make a declaration, nor do the Protocol after Brexit following Depositary insolvency regime (commonly known as CTC Regulations cover this, in light of practice and that no further action will “Alternative A”) which offers protection the EU’s competence over this area via be necessary to this end. to creditors by requiring a state to the Rome I Regulation. Likewise, the specify a “waiting period” by which the EU issued a declaration opting out of Such a confirmation does not preclude debtor or its insolvency officer must Protocol Article XXI (the jurisdiction that legislative or other regulatory cure the relevant default and agree to provisions), indicating that Member actions may be needed, as a matter of perform all future obligations or hand States would be bound by the Brussels domestic law, to ensure the effectiveness the aircraft object to the creditor, is Regulation. of the CTC Regulations implementing the only available if the state has made a Convention and the Protocol within the UK. specific declaration adopting the regime. Given that the CTC Regulations were The EU declined to make a declaration, made pursuant to section 2(2) of the

64 Much of this Section 10 derives from Aviation Working Group / Unidroit materials and the COMBAR Working Paper on Brexit of 23 February 2017. 85

European Communities Act 1972, which consultation and ratification of the CTC it is assumed will be repealed, it will are relatively recent. be necessary for new legislation to implement the CTC and any additional In the case of jurisdiction and choice declarations which the UK might make of law, the UK government will need (as the EU’s declarations will no longer to review its position in light of the apply to the UK). The new legislation approach taken more generally. The should be an Act of Parliament given that law applicable to contractual and non- it is introducing substantive law agreed contractual obligations is determined to by the UK under an international with the assistance of the Rome I treaty. Much of the treaty has been Regulation (593 / 2008) and the Rome II addressed under the CTC Regulations Regulation (864 / 2007) and jurisdiction which transpose some of the CTC is governed by the Brussels Ia Regulation articles and include the full text of the (1215 / 2012). The applicability of these CTC as an appendix. Accordingly, little (or measures of equivalent effect) going additional drafting may be necessary for forwards is a significant issue for the a new Act to safeguard the continued UK given that international companies effects of the CTC system, which is choose English law more often than any considered to be desirable by the aviation other law as the governing law of their industry. However, the Government will contractual relationships and choose to need to have particular regard to the settle their disputes more often before areas highlighted above, where it did not English courts than before other courts. make a declaration because of shared or From the CTC perspective, it may be full EU competence in that area. In the necessary to adopt declarations in case of insolvency, the UK government’s respect of the relevant provisions of the consultation provided detailed CTC to ensure that the benefits continue. consideration of the reasons for opting for “Alternative A”, rather than domestic insolvency laws: there appears to be little reason why a different approach should be taken now, given that the Annex 8 87

Annex 8

Other relevant EU law Annex 8

The EU (Withdrawal) Bill, also known as the Repeal Bill or the Great Repeal Bill, is a bill of the Parliament of the UK that proposes to transpose directly-applicable EU law into the law of the UK, as part of the country’s exit from the EU. To implement this, the proposed bill will repeal the European Communities Act 1972 which first brought the UK into what became the EU, incorporate all EU law into the UK statute books, and give ministers the power to adapt and remove laws that are no longer relevant. The Bill will be debated by both houses of Parliament in 2018.

In aviation, and with an impact on business aviation, the following legislation will therefore continue to apply post-Brexit, until repealed or amended. In addition, until repeal or amendment the results may be anomalous dependent on the wording of the particular legislation: 89

UK legislation Subject Comment

–– Regulation (EC) No 216 / 2008 –– EASA Basic Regulation. –– See Annex 6 on EASA. (consolidated).

–– Regulation (EU) No 965 / 2012 –– Air Operations Regulation. (as amended).

–– Regulation (EU) No 1178 / 2011. –– Aircrew Regulation.

–– Regulation (EU) No 748 / 2012. –– Initial Airworthiness: airworthiness and environmental certification of aircraft and related products, parts and appliances, and certification of design and production organisations.

–– Regulation (EU) No 1321 / 2014. –– Continuing airworthiness: aircraft and aeronautical products, parts and appliances, and approval of organisations and personnel involved in these tasks.

–– Regulation (EU) No 923 / 2012. –– Standardised rules of the air. –– This largely incorporates standard ICAO Rules set out in Annex 2 of the Chicago Convention – there seems little point in the UK maintaining different rules.

–– Regulation (EC) No 261 / 2004. –– Flight Compensation Regulation. –– Implemented in the UK by the Civil Aviation (Denied Boarding, Compensation and Assistance) Regulations 2005.

–– Regulation 261 does apply to business aircraft charter services.

–– Regulation (EC) No 785 / 2004. –– Minimum insurance requirements. –– Implemented in the UK by the Civil Aviation (Insurance) Regulations 2005.

–– Regulation (EU) No 996 / 2010. –– Air accident investigation. –– Implemented in the UK by the Civil Aviation (Investigation of Air Accidents and Incidents) Regulations, 1996.

–– Directive 2008 / 101 / EC. –– EU Emissions Trading Scheme (EU ETS). –– Implemented in the UK by the Greenhouse Gas Emissions Trading Scheme Regulations 2012.

–– The “stop the clock” derogation is applicable until 2023: this provides that the EU ETS only applies to intra-EEA flights.

–– Will flights to / from the UK count as “intra- EEA” following March 2019?

–– There is also much discussion as to the interrelationship of the EU ETS and CORSIA (which the UK as an ICAO member state is committed to implementing). Annex 9 91

Annex 9

Conclusion – Summary table Annex 9

Summary table

Access to routes Possible Ownership and European Aviation Customs duties / VAT Impact on other models control rules Safety Agency Impact on UK operators EU operators Maintain No foreseeable change from the arrangements applicable as of Brexit date (30 March 2019). status quo

Join the –– The EEA Agreement –– EEA EFTA States –– Member of EASA’s –– Continued access –– Continued access European incorporates Reg. are not part of the Management Board to the liberalised to the UK and its Economic 1008 / 2008 and EU Customs Union without voting Single Aviation internal market Area preserves current and EEA is not a rights. Market based on based on Reg. 1008 / ownership and customs union. Reg. 1008 / 2008 2008 (all 9 freedoms –– “Loss of democratic (e.g. Norway) control rules. (all 9 freedoms available). –– EEA Agreement control”: UK available). –– Norway, Iceland establishes a applying EU –– EU non-scheduled and Liechtenstein free trade area: safety regulations –– UK non-scheduled commercial treated as EU no tariffs on notwithstanding commercial operators treated Member States and trade between lack of control operators treated the same as UK their nationals as the Contracting over the legislative like Community operators. nationals of EU Parties (except for process. operators with full Member States for agricultural and access. the purpose of Reg. fishery products). 1008 / 2008. –– Ability to negotiate free trade deals with non-EU countries.

–– Complicated “rules of origin” apply.

Negotiate –– The EU-Switzerland –– Switzerland is –– Member of EASA’s –– Flights to and from –– Flights to and from a UK-EU Agreement not part of the EU Management Board the UK: Swiss-style the UK: Swiss-style bilateral incorporates Reg. Customs Union. without voting bilateral covers 3rd bilateral covers 3rd aviation 1008 / 2008 and rights. and 4th freedoms. and 4th freedoms. –– The EFTA agreement preserves current Agreement –– UK would have to –– Flights within the –– Flights within the ownership and supplemented by apply EU safety EU: Swiss-style UK: Swiss-style (e.g. control rules. Switzerland) a series of bilateral regulations without bilateral covers 5th bilateral does not –– Switzerland agreements the ability to and 7th freedoms. cover 8th or 9th treated as an EU establishes a influence their “cabotage” freedoms –– Flights within an Member State and free trade area in contents and to vote – UK unlikely to EU Member State: its nationals as certain goods and on the proposed grant rights for Swiss-style bilateral nationals of EU services (i.e. limited measures. commercial non- does not cover 8th Member States for access to the Single scheduled flights or 9th “cabotage” the purpose of Reg. Market). without reciprocity. freedoms. 1008 / 2008. 93 Summary table

Access to routes Possible Ownership and European Aviation Customs duties / VAT Impact on other models control rules Safety Agency Impact on UK operators EU operators Join the –– ECAA State Parties –– ECAA States not –– ECAA State –– Flights to and –– Flights to and European have to adopt the part of the EU Parties in the from the UK: from the UK: Common EU aviation acquis, Customs Union. 1st transitional ECAA Agreement ECAA Agreement Aviation Area including Reg. 1008 / period may sit on covers 3rd and 4th covers 3rd and 4th –– ECAA Agreement 2008. the Management freedoms from the freedoms from the does not contain (e.g. Serbia) Board as non-voting onset. onset. –– Full implementation provisions on customs observers. of the air carrier duties and VAT. –– Flights within the –– EU carriers able to licensing rules and –– As they progress to EU: intra-EU 5th operate between the –– In preparation for access to air routes the 2nd transitional freedom rights UK and any airport their accession to in suspension until period, the ECAA available in the in the EU (including the EU, ECAA State the end of the 2nd Joint Committee 2nd stage and 7th to / from other EU Parties align their transitional period. determines their freedom rights Member States). legislation with the precise status available at the final –– National ownership acquis. –– Flights within UK: and conditions for stage. and control rules ECAA Agreement participation. apply until full –– Flights within covers 8th or 9th implementation an EU Member “cabotage” freedoms, of the ECAA State: full market but only at the final Agreement. access (including stage. “cabotage”) and right of establishment only at the final stage.

Revert to / –– Almost all bilaterals –– Bilateral Air Service –– Bilaterals do not –– Flights to and from –– Flights to and from renegotiate impose “national” Agreements may usually contain the UK: existing the UK: existing bilateral ownership and control contain separate provisions on EASA bilateral agreements bilateral agreements Air Service requirements. provisions on membership. likely provide likely provide Agreements customs duties (see sufficient basis sufficient basis –– UK would have to –– UK would have for example Article for 3rd and 4th for 3rd and 4th adopt its own rules to renegotiate its 9 of the original UK- freedoms. freedoms. on ownership and participation in US 1977 Bermuda II control. EASA. –– Flights within the –– Flights within Agreement). EU: existing bilateral the UK: existing –– UK commercial non- –– Possible cooperation agreements unlikely bilateral agreements scheduled operators on the basis to exchange 5th and do not cover 8th or would have to comply of a Working 7th freedoms. 9th freedoms – UK with nationality Arrangement, unlikely to grant and ownership separate from the –– Flights within the “cabotage” rights for requirements under bilateral. EU: existing bilateral commercial non- the relevant bilaterals, agreements do not scheduled flights which could pose a exchange 8th and without reciprocity. challenge to non-UK 9th freedoms. 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. Annex 9

Summary table

Access to routes Possible Ownership and European Aviation Customs duties / VAT Impact on other models control rules Safety Agency Impact on UK operators EU operators Negotiate –– Almost all bilaterals –– It is highly unlikely –– UK would have –– Flights to and –– Flights to and completely impose “national” that the new to renegotiate its from the UK: from the UK: new ownership bilateral will participation in exchange of 3rd existing bilateral bilateral(s) and control cover customs EASA. and 4th freedoms is agreements likely with the requirements. duties and VAT in standard practice. provide sufficient –– Bilaterals do not EU and / or a comprehensive basis for 3rd and –– UK would have to usually contain –– Flights within individual manner. 4th freedoms. adopt its own rules provisions on EASA the EU: exchange Member on ownership and –– Bilaterals usually membership. of 5th and 7th –– Flights within States control. contain a clause freedoms could the UK: existing –– Possible cooperation exempting aircraft be possible under bilateral –– UK commercial on the basis their regular a comprehensive agreements do non-scheduled of a Working equipment, spare agreement such as not cover 8th or operators would Arrangement, parts, supplies of the EU-US Open 9th freedoms – UK have to comply with separate from the fuel and lubricants Skies Agreement. unlikely to grant new nationality new bilateral. and aircraft stores “cabotage” rights for and ownership –– Flights within from customs commercial non- requirements, the EU: existing duties, inspection scheduled flights which could pose bilateral fees and any other without reciprocity. a challenge to non- agreements do not duty or tax. UK majority owned exchange 8th and and effectively 9th freedoms. controlled air carriers. 95 www.ebaa.org

EBAA counts over 650 Members from across the industry and represents a fl eet of over 1000 aircraft.

The Association is a founding Member of the International Business Aviation Council (IBAC), through which Members’ interests are represented at the International Civil Aviation Organization (ICAO).

EBAA deals with challenging issues such as the Single European Sky, environmental issues including Emission Trading, the European Aviation Safety Agency (EASA) rulemaking process including Fees and Charges, Security and Access to Airports and Airspace.

National Associations that are Full Members of EBAA include: BBGA (British and General Aviation Association), EBAA France, SBAA (Swiss Business Aviation Association), GBAA (German Business Aviation Association), IBAA (Italian Business Aviation Association), MBAA (Malta Business Aviation Association) and RUBAA (Russian United Business Aviation Association).

EBAA’s mission is to enable responsible, sustainable growth for business aviation, enhancing connectivity and creating opportunities.

www.clydeco.com

Clyde & Co is a leading, sector-focused global law fi rm with more than 390 partners, 1,500 lawyers and 3,600 overall staff in 50 offi ces and associated offi ces worldwide. Our core global sectors position the fi rm at the heart of global trade and commerce: insurance, energy, trade and commodities, transport and infrastructure. We are one of the fastest growing Global 100 law fi rms in the world over the last fi ve years, with an average growth rate of 16% per year.

For further information about our aviation legal team, visit our website or contact Mark Bisset at [email protected]

Clyde & Co LLP is a limited liability partnership registered in England and Wales. Authorised and regulated by the Solicitors Regulation Authority.

© Clyde & Co LLP 2018

J410639 January 2018