Contributor - Europe

Cathy Buyck

Delegations from the UK and U.S. finalized a post-Brexit open skies agreement during a new round of talks in Washington D.C. on Wednesday. The new bilateral air services agreement calls for liberal market access with no restrictions on capacity, frequency, or pricing on routes to and from airports in both countries and provides a solution for the thorny issue of traffic rights to the U.S. for UK airlines not majority owned and effectively controlled by UK nationals.

 


The sides expected to reach a deal in May, but ownership and control (O&amp;C) of British airlines became a stumbling block. The U.S. wanted UK airlines to be majority owned by UK interests while London sought to scrap foreign O&amp;C limitations of its airlines to safeguard their traffic rights after the country leaves the bloc and falls out of the scope of the current EU-U.S. open skies. The agreement defines EU airlines as majority owned and effectively controlled by EU or European Economic Area (EEA) interests – the 28 EU countries plus Norway, Iceland, and Lichtenstein. The U.S. places a limit of 25 percent on foreign ownership of its airlines.

 


The legally binding annex 1 of the draft agreement seen by AIN gives so-called grandfather rights to UK registered airlines substantially owned by EEA interests. The feature should allow carriers like British Airways, Virgin Atlantic Airways, and Norwegian Air UK (NUK) to continue flying to the U.S. Oslo-based Norwegian Air Shuttle owns NUK, Richard Branson’s Virgin Group still owns 51 percent of Virgin but he will sell 31 percent to Air France-KLM for £220 million under a deal brokered by Delta Air Lines, which now owns a 49 percent stake in the London-based airline. The situation at BA’s parent IAG remains more opaque and the Anglo-Spanish group must still clarity whether British or EU interests hold the majority of its ownership.

 


In a win for U.S. negotiators and labor, the agreement’s O&amp;C provisions protect against the future entry of EU airlines into the profitable transatlantic market from the UK, Europe’s largest market for traffic to the U.S. The U.S. authorities also will get to review the grandfathered O&amp;C rights when the airlines change their ownership in future.

 


In the accompanying memorandum of consultation (MoC), the UK and the U.S. pointed to “the importance of liberal leasing arrangements” and said they are considering a regime without time limitations on leasing arrangements. The EU and the U.S. only recently settled a long-running dispute on time restrictions of wet-lease agreements, after Brussels amended its laws lifting the time limit – of seven months, renewable once – for countries that signed an open skies agreement with the EU before 2007.

 


The MoC mentions also the immunized joint ventures involving U.S., UK, and EU airlines on transatlantic routes, with the U.S. stating that “notwithstanding the UK’s withdrawal from the EU, the U.S. Department of Transportation’s approach to joint ventures operating with antitrust immunity would not change.” The UK competition authority in October said it would investigate the revenue-sharing partnership of BA, American Airlines, and Finnair with a view of the country’s exit of the EU at the end of March next year. The commitments made by the airlines to gain EU clearance for the JV will expire in 2020.

 


The continuation of the JVs, however, will require not only a U.S.-UK and a U.S.-EU open skies, but also a liberal aviation agreement between the UK and the EU. Talks of a post-Brexit comprehensive air transport agreement between the EU and its soon former member country have not yet started.

 


The draft U.S.-UK bilateral air services agreement will need approval from the respective governments.

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