EU law requires airlines which are granted operating licences by Member State authorities to be majority owned and controlled by EU nationals in order for them to benefit from the right to operate intra-EU air transport services. Similarly, under bilateral air services agreements, in many cases airlines need to be owned and controlled by nationals of the relevant countries in order to be eligible for flying rights under those agreements.
Currently, for intra-EU flying and flying to third countries which have agreed “EU designation” clauses in place of national ownership and control requirements, the flying rights of all EU carriers are equivalent. However, in the post-Brexit environment, these national ownership requirements could have complex implications for certain airlines. In the case of IAG, for example, separate “nationality structures” are in place to ensure that for each of British Airways, Aer Lingus and Iberia, distinct bodies of British, Irish and Spanish shareholders respectively can be identified and have their voting rights magnified in respect of any issues relating the airlines’ ability to meet “national” ownership and control requirements required by their route licences. Because the majority of services served by these carriers are currently governed by EU designation clauses, this structure is not extensively tested. However, in a post-Brexit world such structures could come under much closer scrutiny, making mergers between UK and EU airlines more challenging.
Post-Brexit, the potential airline ownership options are interesting. The UK could further relax airline ownership nationality restrictions to permit the full merger of UK and non-UK airlines. The UK’s Civil Aviation Authority (CAA) is thought to be more open to such consolidations than its European counterparts, having previously spoken of its desire to “allow capital to flow.” Such a move might result in higher investment in UK airlines from the Gulf, as well as an increased likelihood of a full merger between UK and non-UK airlines, such as Delta and Virgin Atlantic. However, the challenge would remain that non-UK majority ownership could pose problems for such UK airlines where they rely on UK nationality in order to be designated for flying rights under bilateral ASAs governing their international route licences.
Moreover, it remains to be seen whether a post-Brexit UK will trend towards this kind of additional liberalisation, or conversely will begin instigating more protectionist policies. The UK Prime Minister has been critical of the UK Government’s handling of the failed takeover of AstraZeneca by Pfizer, stating that “a proper industrial strategy wouldn’t automatically stop the sale of British firms to foreign ones, but it should be capable of stepping in to defend a sector that is as important as pharmaceuticals is to Britain.” This, along with repeated references to “industrial strategy”, and establishment of a Department for Business, Energy and Industrial Strategy, suggests greater economic liberalisation may not be the UK’s post-Brexit priority.