Concerns mounting over impact of Brexit on open skies accords

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Concerns mounting over impact of Brexit on open skies accords
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With Brexit just 19 months away, concerns are mounting on both sides of the Atlantic over whether a deal can be reached in time to preserve the liberal open skies policies that currently govern commercial flights between the U.S., the U.K. and the European Union (EU).

"We want to make sure that when March of 2019 comes that there is no disruption for travelers flying to London and points beyond," said Sean Kennedy, a senior vice president for the trade group Airlines for America (A4A).

In recent months, Kennedy has been delivering that message around Europe.

Brexit is scheduled to take place on March 29, 2019. But airlines will need to know their transit rights at least six months before that time in order to produce flight schedules and put tickets on sale.

Under current agreements, airlines from all 28 members of the EU can fly freely in and out of the U.K. and within the EU's continental member states. Separately, the U.S.-EU open-skies agreement allows U.S. carriers to fly without restriction from the U.S. to any EU country and to provide service between EU destinations.

But ahead of Brexit, the U.K. will have to negotiate its own air services agreements with both the U.S. and the EU.

The more complicated of those deals is expected to be the U.K.-EU one, especially considering the number of airlines it impacts as well as the ramifications Brexit could have on airlines as a result of ownership laws that require a carrier to be majority-owned by nationals of its home country.

Depending on how the Brexit negotiation plays out, the latter issue could impact a variety of airlines and airline groups, among them the low-cost carrier Ryanair, which is Ireland-based but majority-owned by U.K. and U.S. interests; Virgin Atlantic, which entered into a July agreement that will result in its being 80%-owned by non-U.K.-based carriers Delta and Air France; and IAG, which owns British Airways on the one hand and EU airlines Iberia, Aer Lingus and Vueling on the other.

For U.K. airlines that have built their networks based on the unfettered access to Europe that is a right of EU membership, Brexit also poses a potential operational challenge. In July, the British low-cost carrier EasyJet, for example, opened an Austrian subsidiary in order to ensure that it will be able to continue to fly within the so-called Europe 27 (the 27 continental members of the EU) no matter what happens in Brexit negotiations.

So far, Brexit negotiators have yet to begin discussing aviation issues. That topic and most others are secondary to the more immediate issues of the breakup that are being discussed in Brussels right now, including the outline of the Ireland/Northern Ireland border and how much the U.K. will have to pay the EU for backing out of certain long-term commitments.

Already, said aviation analyst Barry Humphreys, a former chairman of the British Air Transport Association, it appears likely that an interim Brexit agreement will have to be reached to extend discussions beyond March 2019.

But the looming deadline has nevertheless elicited strong words of concern from Ryanair CEO Michael O'Leary, who early this month told the BBC that he could see a scenario in which air service between the U.K. and the EU is suspended for a couple months in the summer of 2019.

"The continental Europeans see aviation as a way of putting pressure on the British people," O'Leary said in the interview.

IAG CEO Willie Walsh has been more sanguine, telling the EU Transport Committee in July that he is confident the U.K. and EU markets will remain connected.

"But we need certainty, and we need that certainty sooner rather than later," Walsh said.

Humphreys said that the competing interests of Europe's largest airlines would make the negotiations more difficult. Carriers with an especially large U.K. footprint, such as British Airways, Ryanair and EasyJet, would want the new aviation agreement to be as liberal as possible. But major EU players such as Lufthansa and Air France could benefit from a more hard-line Brexit deal.

"It would not be surprising if they favor a more restrictive approach," Humphreys said.

John Strickland, owner of the London-based airline industry analyst firm JLS Consulting, agreed, saying that some in the industry are already reporting evidence of carriers lobbying to limit the ability of U.K. airlines to compete on equal terms in the EU.

Air France, Strickland said, could especially benefit from such a scenario since its U.K. route network is relatively limited. But even for Air France, things are far from straightforward. Netherlands-based KLM, its airline group partner, gets close to 20% of its traffic on U.K. routes, Strickland said.

Also complicating Air France's position vis-a-vis the U.K. is its plan to purchase 31% of Virgin Atlantic.

How the EU-U.K. aviation agreement shakes out will have a major impact on the U.S. transatlantic carriers Delta, United and American, because about half of their passengers through London Heathrow connect to flights to continental Europe, said A4A's Kennedy. But the trade group is also lobbying to make sure a new U.S.-U.K. Open Skies agreement is completed ahead of Brexit.

"We feel confident that those efforts will bear fruit," Kennedy said.

The DOT did not respond to an email request for an update on the status of its negotiations with the U.K., but Kennedy said discussions are underway. At an A4A-hosted event in Washington a few weeks ago, British transport secretary Chris Grayling arrived having just met with DOT secretary Elaine Chao.

"He emphasized how important this issue is for him and how strongly he wants to minimize disruption of travel," Kennedy said.

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