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Abu Dhabi, UAEWednesday 20 June 2018

Aviation CEOs divided on Brexit fallout

EU industry chief executives split over impact of U.K. departure from bloc

Ryanair CEO Michael O'Leary believes a stalemate in the Brexit negotiations points to serious disruptions for airlines. REUTERS/Yves Herman
Ryanair CEO Michael O'Leary believes a stalemate in the Brexit negotiations points to serious disruptions for airlines. REUTERS/Yves Herman

At an aviation summit in Brussels this past week, Europe’s main airlines put on a display of unity over the challenges ahead. But the industry’s chief executive officers were divided when it came to the biggest issue of all: Brexit.

The U.K.’s scheduled departure from the European Union in March 2019 has provoked widely varying reactions from carriers in the 28-nation bloc. At one extreme are dire flight-cancellation warnings by Ryanair Holdings Plc CEO Michael O’Leary and at the other is nonchalance by his counterpart at British Airways owner IAG SA, fellow Irishman Willie Walsh.

The airline industry differs from others such as energy and chemicals where, from London to Lisbon, companies uniformly say that the U.K.’s departure is a major headache. The dissonance suggests some carriers sense the possibility of a Brexit accord that would prevent hassles for tens of millions air travelers while ushering Britain, home of Europe’s busiest airport, out of the European single aviation market.

“It’s about jockeying for position in the market and potentially gaining an advantage over competitors as the future relationship between the U.K. and the EU is worked out,” said Michael Tscherny, who advises companies on European policies including aviation at GPlus Europe in Brussels. “On the basic question of whether flights will stop the day after Brexit, nobody has an interest in planes not flying between the U.K. and the rest of Europe.”

No industry in the Brexit process has a more direct link to citizens than aviation, which carries 1 billion travelers a year within the EU. The U.K. plays an outsized role, accounting for a quarter of the total, making it the third-biggest aviation market behind the U.S. and China.

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This economic reality confronts the Brexit negotiators, who must untwine the U.K. from decades of European aviation rules that have expanded traffic and ownership rights and streamlined certification and safety procedures. Letting this regulatory framework lapse in the U.K. without a substitute arrangement would end EU flight rights for Britain and vice versa the day after Brexit.

“I am determined to avoid that particularly absurd consequence of Brexit,” EU President Donald Tusk said in Luxembourg on March 7, when the U.K.’s partners in the bloc produced a blueprint for future economic ties with Britain. “To do so, we must start discussions on this issue as soon as possible.”

Back in Brussels the day before, Mr O’Leary of Ryanair said a stalemate in the Brexit negotiations points to serious disruptions for airlines. He cited two particular challenges: keeping planes flying between the U.K. and the EU and preventing the bloc’s 49 percent limit on foreign ownership of carriers from affecting operators in Europe including IAG, which also owns Aer Lingus in Ireland and Spain-based Iberia and Vueling.

“We see no progress toward a solution that will address either the flight rights or the ownership rules,” Mr O’Leary, a staunch opponent of Brexit, said in an interview. “The first industry over the cliff will be flights. And I think maybe that’s the way you bring about the crisis that gets everybody in Britain to say ‘well, maybe let’s look at this again.”’

He spoke during a CEO conference organized by Airlines for Europe, the main EU industry lobby group, which campaigns on issues like aviation taxes and air-traffic control but has no position on Brexit.

The opening lineup of chief executives at the event -- also on stage were Carsten Spohr of Deutsche Lufthansa AG, Jean-Marc Janaillac of Air France-KLM Group and Johan Lundgren of EasyJet Plc -- presented a common front on such matters as airport fees (too high) and security checks on travelers (too burdensome) while steering clear of the elephant in the room that is Brexit.

They were less coy about that uncertainty when approached afterward.

“There’s a common interest,” IAG’s Mr Walsh said. “I am completely relaxed. I am confident that we’ll be able to comply with whatever regulations are put in place.”

Mr Janaillac said letting U.K.-based carriers fly in the EU after Brexit must be conditional on subjecting them to the same range of European aviation legislation applied to operators based in the bloc.

“Seems fair, same rights means same obligations: the rules toward consumers, the rules toward safety,” he said. “We must have a level playing field."

The European Commission, the Brexit negotiator for the U.K.’s 27 EU partners, says Britain faces three options for long-term aviation relations with the bloc and, based on the British government’s red lines, the most likely result would offer no more access than the U.S. has.

Lufthansa’s Spohr said the industry is at the mercy of politicians on both sides of the English Channel.

“Brexit is a very complicated topic,” he said. “Aviation is a central negotiating element for the countries concerned.”