Brexit Poses Issues For Airports, Airlines

by Womble Carlyle Sandridge & Rice, LLP
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The United Kingdom’s split from the European Union could leave the nation and United States without a trade agreement to manage the aviation industry. The aviation industry currently operates between the two nations under the Open Skies agreement signed by the U.S. and the EU in 2007. However, the U.K. will no longer be covered under the agreement once it leaves the bloc and, while it is still an EU member, cannot negotiate a new agreement either.

Open Skies agreements are bilateral air service agreements (ASAs) the U.S. government negotiates with other countries to provide rights for airlines to offer international passenger and cargo services. Agreements cover a number of significant matters including rights to fly over and land in territories, regulatory requirements, competition, commercial opportunities, customs and duties, and landing charges.

The situation is creating uncertainty and legal challenges in one of the most important components of international trade. Forty percent of the EU’s air traffic to the U.S. departs from U.K. airports and nearly 48,000 flights left the U.S. bound for the U.K. in 2016 alone. Commercial arrangements in the aviation industry including for airlines, air freight companies, airports and all related businesses depend on the Open Skies agreements as a basis for their contractual arrangements. Some U.S. airlines are already seeking to renegotiate deals with U.K. airports to ensure that break clauses and other mechanisms are inserted to deal with any uncertainty following Brexit, which under Article 50 has a deadline of March 30, 2019. Post-Brexit flight bookings may also need some form of provision to deal with contractual rights to hedge against major changes in the event that the Open Skies agreement is terminated for the U.K.

Michael O’Leary, CEO of Ryanair, Europe’s largest airline, told reporters on Aug. 2 that without some understanding of what a future agreement will look like airlines won’t be able to plan their 2019 flight schedules.

"There is going to be a serious disruption unless the British government can negotiate an agreement by around this time next year,” Ryanair said.

In late July, Airlines for America, the nation’s largest aviation trade group, issued a formal statement calling for the airline industry to be dealt with immediately and separately from Brexit negotiations. On Aug. 1, Reuters reported that British Transport Secretary Chris Grayling met with White House and airline officials to assure them that an agreement would be in place when the U.K. exits the EU. The Federal Aviation Administration’s chief Michael Huerta has also recently explained the seriousness of the U.K.’s situation with regards to aviation safety. Along with the other EU member states, the U.K. is currently part of the European Aviation Safety Agency (EASA), which is responsible for all aspects of civil aviation safety in the EU. Speaking at the UK’s Aviation Club, Huerta pointed out that the U.K. currently benefits from the being part of EASA and that when it leaves the EU it will need to be replaced or there would be the very real possibility of an “interruption of service.”

Faced with uncertainty of legal rights and concerns about ongoing aviation safety regulation, it is important that U.S. airlines as well as U.S. logistics and freight companies monitor the situation and plan for potential disruption. Some comfort can be taken from British Government assurances that open skies agreements and regulations will be in place when the U.K. exits the EU, however, individual commercial agreements should be reviewed to minimize risk of disruption. For instance, U.S. airlines have agreements with U.K. airports for a range of services including landing rights and leases for office outlets. All these agreements may need to be reviewed sooner rather than later so that both parties have contingencies in place to avoid any disruption as much as possible.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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