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.