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What Brexit means for airports

Over the past few weeks, the International Monetary Fund, Bank of England and others have issued warnings about the possible detrimental effects of ‘Brexit’ if the UK votes to leave the EU in next month’s referendum. Questions are reverberating across every sector and industry, and many UK airport investors and operators will be concerned about the issues which they may face if ‘leave’ is the decided course of action.
In this piece we look at some of those issues and, more broadly, the overall impact Brexit might have on UK airports.

The UK’s State Safety Programme, developed jointly by several organisations including the Civil Aviation Authority (CAA), Department for Transport and Ministry of Defence, gives effect to its obligations under the Chicago Convention which established principles and arrangements for developing international civil aviation. The Convention, which came into effect in 1947, provides for the sovereignty of airspace, together with the freedom of states to operate air transport flights, including the carriage of passengers, cargo and mail, across, into and within the airspace of other states.
In 2002, the European Aviation Safety Agency (EASA) was established by the EU. The CAA is designated as the competent UK authority for the purposes of EASA Regulations. EASA requirements extend to UK Overseas Territories, the Channel Islands and Gibraltar. There are 32 EASA member states. If Brexit occurs, then the UK may have to adopt equivalent legislation (currently EASA rules are automatically applicable), but it seems unlikely that there would be any policy change as a result.

Airlines based in the EU can operate between all member states, Switzerland and the EEA countries of Iceland, Norway and Liechtenstein. Airspace use is governed by the Single European Sky (SES) framework. Development of the SES involves reorganising airspace blocks so that they are based on operational requirements, not state boundaries. This has resulted in the number of functional airspace blocks (FAB) being reduced from 67 to 9 (which includes the UK-Ireland FAB). Eurocontrol – a 41-member intergovernmental organisation – facilitates implementation of the SES by providing regulatory and technical support. The UK has belonged to Eurocontrol since December 1960, pre-dating its membership of the EU.
Given that the SES extends beyond the EU, it seems unlikely that Brexit would lead to further reorganisation of the current FAB. Nor would the UK be likely to lose its influence in Eurocontrol since it would remain a member of its Permanent Commission, which consists of ministers from its member states, and its Provisional Council, where representation is at Director General of Civil Aviation level and the EU is also a member.

In the EU, airport slot allocation is controlled by an EU regulation which sets out three categories of airport: co-ordinated airports, where all flights must be allocated a slot in order to take off and land; schedules facilitated airports, where movements are overseen by an independent facilitator which ensures that planned services can be accommodated by voluntary agreements; and other airports with no designation status.
The regulation has significant similarities to the International Air Transport Association (IATA) World Slot Guidelines, although the latter are much more detailed. The IATA Guidelines categorise airports into three levels, broadly mirroring those in the regulation. Both frameworks also have similar rules for how slots are allocated. Membership of IATA is by airlines, rather than states, and its guidelines would apply in the event of Brexit if no legislation equivalent to EU requirements remained – or was put – in place. Both the regulation and the IATA guidelines allow airlines to trade their rights to slots, subject to certain restrictions. Slot-based financing structures have recently been successfully implemented in the UK and offer several attractive features for airline finance. In the event of Brexit a new statutory regulatory framework for slots may be needed to ensure the continuing viability of these financings.

The Open Skies agreement between the EU and US enables European airlines to fly from any point in the EU to any point in the US. It was seen as an important move away from some significant restrictions on operations arising from previous bilateral agreements. Open Skies also sets out a framework of co-operation on regulatory issues such as safety, security and the environment.
Brexit would require renegotiation of Open Skies on a UK/US bilateral basis. This would raise uncertainty about whether, and for how long, the current liberalised framework would continue to operate.
Agreements with other non-EU countries may also need to be re-negotiated. 

Applying to airports that have more than 5 million passengers a year, the Airport Charges Regulations contain EU requirements for airports to consult their airline customers about airport charges, service level agreements and major infrastructure projects.
If these requirements are to remain, the regulations may need to be re-enacted. This would provide the opportunity to change the threshold at which the new regulations apply. An alternative would be to rely on general UK competition law to prevent anti-competitive pricing. However, to provide certainty on the regulatory framework for airport charges, there is likely to be pressure from airlines to implement a similar framework to that currently in place.

Applying to airports with more than 2 million passengers a year, the Groundhandling Regulations introduced competition for many services. For certain services, the number of suppliers can be limited (but there must be at least two, one of which must be independent of the airport or dominant airline at it). Airlines can “self-supply” groundhandling.
As with airport charges, these regulations may need to be re-enacted. This would give the opportunity to remove them altogether and rely on general competition law, if this was considered sufficient.
How could the UK continue to mirror the overall framework of aviation regulation in the EU after Brexit?
The EU’s website explains that the European Common Aviation Area (ECAA) allows “gradual market opening between the EU and its neighbours linked with regulatory convergence through the gradual implementation of aviation rules”. Its members must comply with the accumulated EU legislation, legal acts, and court decisions relevant to EU aviation rules, starting with safety requirements. Progressive regulatory harmonisation is then implemented in stages. Countries such as the western Balkans, Iceland, Norway, Georgia, Israel and Morocco are part of the ECAA.
Given that the UK is already compliant with EU aviation requirements, membership of the ECAA could provide a transition route after Brexit. However, membership would need to be negotiated and is not, therefore, guaranteed.

In this piece we have examined a range of issues that could be impacted by Brexit. While we can conclude that a vote to leave might not impact the airports sector as dramatically as other areas of the economy, even retaining the status quo is likely to mean substantial re-drafting of UK legislation and re-negotiation of international agreements to ensure that UK airports can continue to compete at a global level.