Is UK Airline Sector Bracing Itself To Endure Headwinds From BREXIT Turmoil?

  • Jan 09, 2019 GMT
  • Team Kalkine
Is UK Airline Sector Bracing Itself To Endure Headwinds From BREXIT Turmoil?

The negotiation around Brexit agreement has made enough discussion and progress, though it is still a long way to go. In case of a plausible no-deal scenario, the stringent guidelines might be proving to be a nightmare for the industry players under Aviation space.

The European Union (EU) has laid out its unfaltering no-deal contingency action plan, which states that air traffic between the EU and the United Kingdom will be disrupted post March 29, if the withdrawal agreement is not ratified. To be specific, airline companies must have a majority of EU capital to maintain sustained operations through intra-EU flights or domestic flights within the EU. While EU had already given heads up to the stakeholders at the initiation of Brexit talks, this should have been anticipated.

The announcement is not just a blow for the companies but poses a great future inconvenience for passengers. Currently, Iberia, one of the oldest Spanish airlines in the world, is under extra pressure. The company merged with the British Airways in 2010 and came to be known as International Airlines Group (IAG). In order to maintain continued operations and validity of the license in case of a hard Brexit, Iberia will have to demonstrate that at least 51% of the stakes belong to the company based out in the EU.

However, as soon as the United Kingdom withdraws from the Union, the company will not be able to take this stance as majority of capital is said to lie with UK shareholders. As a counter strategy, IAG has claimed that its registered headquarters are in Madrid, Spain. The meetings are also held in Spain, which also holds the custody of both British and Spanish share records. Although, complicated, it may have a chance in convincing EU. As a last resort, Iberia could enforce some change in the distribution of the shares but that looks a bit impractical as of now.

Meanwhile, it is being realised that the no-deal Brexit would bring quite a disorder to the Spanish air market. This is because, most of the passenger traffic in Spain is managed by Iberia, that is, it accounts for 49% of the total flights operating within Spain. If Iberia is rendered as a UK company, Spain is bound to face huge connectivity issues with no immediate solution.

While Iberia figures a way out of EU’s strict requisites, the low-cost airlines Ryanair and EasyJet are facing similar challenges.

Amidst the commotion, EU has decided to go easy on the stakeholders, and would not instantly block intra-EU flights operated by British airlines.  It would give a buffer of about 12 months to the aviation companies to alter their ownership structure through a strategic course of action. In case of non-compliance, EU will enforce relevant action.

The authorities are hoping for a rather smooth departure of UK from EU, both of which share a liberalised aviation market with low-cost barriers and smooth traffic. Although chances of a difficult Brexit may look slim, companies have started working on alternatives and contingency plans to sail through the upcoming months of uncertainty.

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