UK-based airlines told to move headquarters to Europe after Brexit or lose intra-European routes

The EU has warned airlines including easyJet and Ryanair that they will need to relocate their headquarters or sell off shares to European nationals, if they want to continue flying routes within continental Europe after Brexit. Executives at major airlines have been reminded during recent private meetings with EU officials that to continue to operate on routes between European airports, they must have a significant base on EU territory and that a majority of their capital shares must be EU-owned. This will mean they will need to act to restructure, with economic consequences for the UK, including a likely loss of jobs. Theresa May is due to trigger Article 50 next week.  If the EU takes a tough line, it may result in the UK reciprocating with its own rules, which would leave EU-owned airlines facing equivalent choices. Some might establish their own British subsidiaries, as the demand for air travel in the UK is high and there is money to be made. EasyJet flies many routes within Europe (not from UK) and that is part of its business model.  Ryanair is based in Ireland, but has some UK shareholders it will have to replace with Europeans. BA does not fly intra- European flights, and IAG is based in Spain.  IAG is likely to need to disinvest shareholders in order to be majority EU-owned, and allow its other EU-registered carriers to continue to operate across Europe. The overall impacts on the UK will not be known for some time.
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UK-based airlines told to move to Europe after Brexit or lose major routes

Exclusive: Fears for UK jobs as EU officials say airlines will need to move base and majority of shareholders to fly routes within Europe

EU chiefs have warned airlines including easyJet and Ryanair that they will need to relocate their headquarters or sell off shares to European nationals if they want to continue flying routes within continental Europe after Brexit.

The development, coming days before the triggering of article 50, potentially makes it more likely that the carriers will act to restructure, with economic consequences for the UK, including a loss of jobs.

The tough line from the EU may encourage the UK to reciprocate with its own nationality rules, which would leave EU-owned airlines facing equally difficult choices, potentially dampening their investment in the UK in the short term, although some may seek in time to establish their own British subsidiaries.

The ability of companies such as easyJet to operate on routes across the EU has been a major part of their business models, and there may be a renewed willingness among airlines to invest outside the UK to maintain market share.

British Airways does not fly intra-Europe, but its parent company IAG is likely to need to disinvest shareholders in order to be majority EU-owned, and allow its other EU-registered carriers to continue to operate across Europe. An IAG spokesman said: “We will continue to comply with the relevant ownership and control regulations.”

Some airlines have already started to seek alternative headquarters, and to examine how they might ensure that their shareholding is majority-EU owned, possibly through the forced disinvesting of British shareholders.

But others have appeared, until now, to hold out hope that the European commission would be flexible on the rules in the current aviation agreement.

EU officials in the meetings were clear, however, about the rigidity of the rules, amid concerns at a senior EU level that too many in the aviation industry are in denial about the consequences of the UK’s decision to leave the bloc.

Representatives from easyJet, along with the British Airways owner IAG, Ryanair and the Tui Group, whose portfolio of airlines includes Thomson, met the EU’s Brexit taskforce last week. That followed a meeting the previous week between the taskforce and executives from Air France-KLM, Finnair, Lufthansa and SAS, as part of the EU’s efforts to engage with stakeholders.

“It might be that carriers choose to have domestic flights [on the continent] operated by their new European operating licence, which would probably mean a reduction in staff in the UK,” he warned.

Britain is a member of an aviation agreement based on 35 shared pieces of EU legislation, a common regulator in the European Aviation Safety Agency, and a court acting as a referee on the shared rules, the European court of justice (ECJ).

However, asked during a select committee hearing last week whether the UK would continue to be part of the “open-skies” agreement after Brexit, the secretary of state for exiting the EU, David Davis, said: “Not that agreement … One would presume that would not apply to us – doesn’t say anything about whether there would be a successor.”

The industry holds out hope that the UK and the EU will be able to seal an early deal during article 50 negotiations that ensures that damage to the industry is limited.

However a hurdle on progress on a new agreement is Theresa May’s intention to remove the UK from the ECJ’s jurisdiction, which currently has the key role in adjudicating over conflicts between parties to the agreement.

A number of member states may also have interests in standing in the way of Britain’s attempts to strike a new deal. Spanish diplomats, for example, say they will not sign any international aviation agreement that recognises the airport on Gibraltar.

The UK could react to the imposition of EU ownership rules on airlines by developing ownership rules of its own, which could prevent carriers such as the Ireland-based Ryanair from flying UK domestic routes, as it does today.

EasyJet is establishing an EU operating company – on which an announcement is expected within weeks – so that it can obtain an EU air operating certificate. The company insists, however, it will continue to be headquartered in the UK.

It is currently 84%-owned by EU nationals, but this will drop to 49% after Brexit, provided the shares of founder Stelios Haji-Ioannou – who has dual UK and Cypriot nationality – are classed as EU-owned.

The Financial Times has reported that Haji-Ioannou’s shares are now classed as UK-owned to meet the airline’s own restrictions on ownership.

An easyJet spokesman said: “Like other European airlines, easyJet regularly engages with the UK and the EU on a wide range of issues which include the impact of Brexit on aviation. As this was a private meeting, we wouldn’t comment further on what was discussed.”

Ryanair is headquartered in Ireland, and will not have to relocate, but it has been reported that 60% of the Dublin-registered airline’s capital shares are owned by EU nationals. This will be reduced to 40% once UK shareholders are excluded, making it vital to increase its EU ownership to comply with regulations.

A spokesman for the airline said the company would “adapt”. However, the airline’s chief executive officer, Michael O’Leary, has already warned of the huge dangers to the industry of a “cliff-edge” Brexit, and criticised the “mildly lunatic optimism” of the British government.

A Ryanair spokesman said: “While it appears that we are heading for a hard Brexit, there is still significant uncertainty in relation to what exactly this will entail. This uncertainty will continue to represent a challenge for our business for the remainder of financial year 17 and financial year 18.”

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See earlier:

easyJet, IAG and Ryanair woes over the UK Brexit vote and hit to their businesses

Shares in easyJet have lost value since the Brexit vote, and the airline said its profits would be hit by Britain’s decision to leave the EU. There would be continuing economic and consumer uncertainty, partly about the membership of UK airlines in the single European aviation market.  easyJet expected its profits to be £28 million lower than earlier expected,  in the third quarter of 2016, and revenue in the second half of 2016 would be lower. Revenue per seat might be 8.6% down in the third quarter of 2016. easyJet said the weaker £ against the € and the $ would make foreign trips more expensive for Brits, and the low cost airlines would have to cut fares in order to attract them. That means cutting airline profits. Carolyn McCall, easyJet CEO, is urging the European Commission to prioritise British airlines remaining part of the EU aviation area “given its importance to trade and consumers”. (ie. given its importance to airline profits). The value of IAG shares fell on the Brexit result, and they issued a profit warning, as the economic slowdown likely in the UK would reduce air travel demand. Ryanair’s  share priced also fell. It says it will not deploy new aircraft on routes to and from the UK next year, following the Brexit vote, and will instead focus on the European Union. At present, UK passengers are about 40% of Ryanair’s total. They expect the period of “considerable uncertainty” to last for many months.

http://www.airportwatch.org.uk/2016/06/easyjet-iag-and-ryanair-woes-over-the-uk-brexit-vote-and-hit-to-their-businesses/

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In the event of Brexit, easyJet might need to set up a new European operation

If Britain votes to leave the EU, there would be impacts on airlines. The EU agreements that have been in place since the 1990s have fostered a huge expansion of air travel in Europe. Outside the EU, flying rights between two countries, including how many airports a carrier may fly to and how often, are typically negotiated in bilateral treaties. But currently in Europe with its single aviation market, an airline can fly between any EU countries. For example, an Irish Ryanair plane can fly between Britain and Spain, or a Spanish airline can operate flights within France.  EasyJet is particularly worried about a Brexit vote.  EasyJet is the second largest airline in France.  Brexit could mean that the UK is excluded from the common aviation area. One thing EasyJet might have to do, in the event of Brexit, would be to obtain an Air Operator’s Certificate (AOC) in an EU country, which would require it to establish a local holding company. However,  the holding company would have to be 51% owned by local investors and would have to comply with local regulations.  Ryanair and British Airways already have AOCs in Ireland and Spain, while EasyJet does not.  Brexit might have the effect of forcing Ryanair to set up a formal British business by obtaining a UK AOC.  A Brexit vote could affect all pan-European carriers, not just British ones.

http://www.airportwatch.org.uk/2016/06/in-the-event-of-brexit-easyjet-might-need-to-set-up-a-new-european-operation/

 

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Comment from an AirportWatch member:

1. Airlines met EU officials last week.
2. The change with Brexit would only affect UK airlines like EasyJet, flying between places in Europe.  (Not BA, as apparently it does not fly between EU cities and not TUI which is German and based in Germany)
3. EasyJet is already taking steps to set up an EU part of the company.  “EasyJet is establishing an EU operating company – on which an announcement is expected within weeks – so that it can obtain an EU air operating certificate. The company insists, however, it will continue to be headquartered in the UK.”
4. IAG is affected (ie  BA and others) as they are already largely European, but may need to sell off shares in the UK, to have a higher % of their shares owned in Europe. That might affect UK jobs etc.  And IAG is big at Heathrow.  “British Airways does not fly intra-Europe, but its parent company IAG is likely to need to disinvest shareholders in order to be majority EU-owned, and allow its other EU-registered carriers to continue to operate across Europe. ” IAG says : “It is a Spanish registered company with shares traded on the London Stock Exchange and Spanish Stock Exchanges. The corporate head office for IAG is in London”. 
5. Ryanair is already in Europe, but if there is no deal, it may have trouble flying between UK airports.
6. None of this seems to affect the ability of any airline to fly to or from the UK, to or from Europe.
7. The UK is quite likely to put in place its own tough regulations, after Brexit, if the EU makes life difficult for EU airlines. So it is two way.
8. It depends on the ownership of an airline’s parent company.  (eg. BA owner is IAG, so it is IAG that must have the  EU ownership).

Some suggest that International Airlines Group, which owns British Airways, could run into red tape; but IAG’s chief executive, Willie Walsh, insists that the group’s structures, dating from the merger of BA and the Spanish airline Iberia in 2011, are Brexit-proof. https://www.theguardian.com/politics/2017/mar/22/uk-based-airlines-told-to-move-to-europe-after-brexit-or-lose-major-routes?CMP=fb_gu 

“British Airways only operates flights from the UK, however its parent company IAG, may need to sell off UK-held shares in order to allow its other EU-owned airlines to continue complying with regulations,”  http://www.independent.co.uk/news/business/news/ryanair-easyjet-brexit-uk-airlines-move-eu-europe-lose-major-flight-routes-a7643506.html 

IAG is about 46% or so owned by a variety of minority shareholders.  https://en.wikipedia.org/wiki/International_Airlines_Group#Minority_shareholders
(of that Qatar airways has 20% and others have 5 – 6 % or less)
Seems IAG’s new airline, Level, is registered in Spain – perhaps all set for more European work.  https://en.wikipedia.org/wiki/Level_(airline)   As are most parts of IAG if you look at  https://en.wikipedia.org/wiki/International_Airlines_Group
IAG may have to sell the shares of some UK shareholders to Europeans.
Unclear how that affects Heathrow.  IAG has to decide if it is going to be exclusively European. Willie Walsh has thought carefully about how it affects IAG, and how to keep up BA/IAG profits. Whether he will use Dublin and Madrid more, and Heathrow less, due to Brexit is for future speculation.
It seems possible that IAG will have to work differently after Brexit, and it seems unlikely to increase IAG’s enthusiasm to do more from Heathrow.  IAG know how massive the demand is for air travel in the UK, and airlines will find a way to capitalise on that.
Overall the impact of Brexit from this news will be pretty marginal. But it definitely does not look like the sort of good news UK airlines wanted.

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