Not cleared from scrutiny; further information requested; drawn to the attention of the Transport Committee
Proposal for a Regulation of the European Parliament and of the Council on common rules ensuring basic air connectivity with regard to the withdrawal of the United Kingdom of Great Britain and Northern Ireland from the Union
Article 100(2) TFEU; ordinary legislative procedure; QMV
(40306), 15788/18, COM(18) 893
5.1 is a unilateral Union measure that would apply in the event of a ‘no-deal’ Brexit (where the EU and UK have not concluded a Withdrawal Agreement under Article 50 TEU). The proposal would provide for the continuation of basic air services between the EU and UK for a limited period of time (up until an air transport agreement with the UK enters into force or 30 March 2020, whichever is sooner). It is not indented to replicate current arrangements or to maintain the status quo (as prevails whilst the UK is an EU Member State). As a Union initiative for the EU-27, the intended effect of the proposal—to ensure basic EU/UK air connectivity in the event of a no-deal Brexit—would be dependent upon UK reciprocity and the Government making similar domestic provision (whether by legislation or administrative methods).
5.2The proposal forms part of the Commission’s no-deal Brexit preparations as outlined in its Communication of 13 November 2018 ‘Preparing for the withdrawal of the United Kingdom from the European Union on 30 March 2019: a Contingency Action Plan’. Other measures outlined in this action plan—such as those on aviation safety, railway safety and connectivity, and Erasmus—are subject to separate scrutiny.
5.3In terms of its rationale, the proposal is viewed by the Commission as necessary as—in the event of a no-deal Brexit—Regulation (EC) No 1008/2008 (on common rules for the operation of air services) would no longer apply to the UK. As a consequence, no legal basis would exist for the provision of air services between Member States and the UK by respective air carriers. This would mean that certain carriers, by reason of holding an operating licence issued by a UK authority or their principle place of business being located in the UK or being majority owned or effectively controlled by the UK or UK nationals, would cease to meet the conditions laid down in Regulation (EC) No 1008/2008 to qualify as Union carriers.
5.4The absence of a framework for EU/UK air services would result in serious disruption for businesses and passengers and, furthermore, considerable economic harm for service providers and those dependent upon air transport (whether directly or further along supply and operating chains).
5.5Since publication at the end of December 2018, the Commission’s proposal has been subject to intense trilogue negotiations and, as a consequence, a number of material changes have been made to the substance of the draft Regulation. At the time of writing, a provisional agreement on the proposal has been reached between the Romanian Presidency and the European Parliament. Where relevant, this is considered below.
5.6With regard to the main effects of the proposal, the Union would grant first, second, third and fourth freedom air traffic rights to UK air carriers. By way of explanation: first freedom rights provide the right to fly over a country without landing; second freedom rights the right to refuel or undertake maintenance in a foreign country without embarking or disembarking passengers or cargo; third freedom rights the right to fly from one’s own country to another; and fourth freedom rights the right to fly from another country to one’s own. In spite the Union’s offer of first and second freedom rights, these are provided for at international level by the of 1944 (also known as the ‘Chicago Convention’). The latter two rights (third and fourth), are included in all basic air services agreements.
5.7As a ‘barebones’ offer, this is, perhaps, to be expected, however, the omission of fifth, six and, especially, seventh freedom rights has led to disquiet amongst industry groups. This is because in the event of a no-deal Brexit (and providing that the Union’s proposal was adopted and reciprocated by the UK), it would not be possible to fly between two third countries (non-Member States) and stop in the EU or for UK-based airlines to fly between two Member States (cross trade) or within one Member State (cabotage). In order to provide equivalent sixth and seventh freedom rights, some airlines—such as easyJet—have chosen to seek operating licences in the EU-27.
5.8The proposal would also freeze the capacity that UK air carriers could offer in the Union at pre-Brexit levels. Both the International Air Transport Association and Airport Council International Europe (ACI Europe) have warned that freezing capacity would have a major negative effect on growth. They estimate that if the same approach was adopted by the UK (vis-à-vis the EU), it would result in the loss of 93,000 new flights and nearly 20 million passengers. Officials at the Department for Transport (DfT) have informed Committee staff that they understand the Presidency/European Parliament compromise text does not cap direct passenger flights between the UK and EU.
5.9Also worthy of note is that the proposal does not provide for the use of operational flexibility devices, for example, cooperative marketing agreements, leasing of aircraft, change of gauge or co-terminalisation. Of these devices, the loss of cooperative marketing arrangements—such as code sharing—has the potential to cause the most disruption for UK- and EU-based air service providers. This was recognised by the European Parliament’s Transport and Tourism Committee when it considered the Commission’s proposal in January 2019 and, as such, the Committee recommended its inclusion. The provisional agreement reached between the Romanian Presidency and the European Parliament is said to allow for code sharing under certain conditions.
5.10As the proposal would cover a non-Member State, it lays down ‘level playing field’ rules to ensure that the UK continues to provide sufficiently high standards in the area of air transport as regards fair competition (including the regulation of cartels), abuse of dominant position and mergers, the prohibition of unjustified subsidies, the protection of workers, the protection of the environment, and safety and security. By way of enforcement, Article 5 of the draft Regulation charges the Commission with monitoring the conditions of competition between the EU and UK and empowers it to adopt implementing acts to give effect to any corrective action deemed necessary.
5.11It remains unclear, however, what exactly constitutes ‘competition law’ for the purposes of the proposal. The definition provided for in Article 2(6) of the draft Regulation references a number of general principles—such as abuse of dominant position—but does not specify any particular legislation or code. Given its specificity, it is surprising that Regulation (EC) No 868/2004—on protecting EU airlines competing against third country carriers—is not cited.
5.12Explicit provision is made in the proposal to prevent Member States from negotiating or entering into any bilateral air service agreements (ASAs) with the UK on matters falling under the scope of the Regulation. Article 3 is also clear that Member States must not otherwise grant UK carriers—in connection with air transport—any rights other than those provided for by the Regulation. From a UK perspective, a question arises as the status of existing bilateral ASAs with Member States and, by extension, whether these may be revised by Member States under the proposal.
5.13On the first point, in response to an informal request for further information, officials at the DfT informed Committee staff that, in the past, the UK has concluded 25 ASAs with EU Member States. All of these aside from that agreed with Spain—and terminated in 2004—are considered to be extant and, therefore, would have effect once EU law ceases to apply to the UK. We were informed, however, that all of these agreements would require “significant adjustments to make them workable and fit for purpose”.
5.14This view is supported by correspondence—supplementary to her —from Under Secretary of State at the Department for Transport, Baroness Sugg. The Minister states that in the event that the Commission’s proposal is not adopted—or until such a time as it takes effect—the Government will seek temporary bilateral ASAs with Member States. This response implies that new ASAs with Member States would be sought and that those currently in existence would not be revised.
5.15In an apparent response to concerns regarding competence (as ASAs are usually mixed agreements), the compromise text reached between the Romania Presidency and the European Parliament is said to clarify that Member States are able to negotiate bilateral agreements or arrangements with the UK after the Regulation expires.
5.16On the last major issue the proposal covers (ownership rights), the Commission originally suggested that in order to fall within the scope of the Regulation, UK carriers would have to continue to abide by EU ownership rules. This would mean that in order to provide services in the EU, UK carriers would either have to be majority owned or controlled by EU-based entities (as of 29 March 2019 (EU exit day), UK shareholders will cease to count as EU investors). easyJet and Ryanair have both stated that they are considering changing their shareholding structures to ensure that they remain EU-owned for the purposes of Union rules. On the other hand, International Airlines Group (IAG) has previously argued that its cross-shareholding structure of British Airlines and Iberia is compliant with EU law and thus would not require amendment.
5.17Given the dynamics of this issue (in that it has potential ramifications for operators considered to be based in the EU-27 such as Iberia), the Presidency/European Parliament compromise text would give carriers holding an operator’s licence issued by a Member State—and considered in breach of EU ownership rules—six months from the date of application of the Regulation to ensure compliance.
5.18Under Secretary of State at the Department for Transport (Baroness Sugg), wrote to the Committee on the proposal under scrutiny by way of Explanatory Memorandum on 14 January 2019. The Minister expresses the Government’s desire to see a viable Regulation that is adopted in good time. On the substance of the proposal, the Minister alludes to many of the issues covered in this Report. She mentions, in particular, industry concerns regarding proposed capacity limits, the suggested exclusion—or restriction of—code sharing, and Union plans for the filing and approval of operational authorisations. The Minister does not, however, address whether the Government would reciprocate the rights—and meet the obligations—stemming from the Commission’s proposal and, if it would, how these would be given effect to domestically.
5.19As discussed above, the Minister also wrote to the Committee on 21 February 2019. In her letter, the Minister provides an update on the progress of negotiations and outlines a rough timeline for the adoption of the proposal. At Coreper on 15 February the Presidency obtained a mandate to open discussions with the European Parliament. The subsequent provisional agreement reached between the Romanian Presidency and the European Parliament is yet to be formally communicated in full. The Minister expects the proposal to be put to the European Parliament in plenary for approval in the week beginning 11 March and to the Council of Ministers for adoption as soon as possible afterwards.
5.20We thank the Minister for her Explanatory Memorandum and her letter of 21 February 2019. Given the political importance of the proposal and the speed with which it is progressing, we are grateful for the engagement of her Department with our informal enquiries and the additional information on the progress of negotiations she provided in her most recent correspondence.
5.21On the substance of the proposal, we seek the Government’s view of the ‘level playing field’ rules provided for under the draft Regulation, in particular, the competition law provisions that the UK would likely have to comply with. By way of example, we would be interested to know whether the Government considers Article 2(6) of the draft Regulation to be sufficiently precise to include EU competition legislation such as Regulation (EC) No 868/2004 (on protecting EU airlines competing against third country carriers).
5.22Regarding the Government’s domestic preparations for the continuation of air services between the UK and EU in the event of a no-deal Brexit, we seek answers to the following questions:
5.23As negotiations on the proposal are moving quickly, we request a response to our questions by 13 March 2019. We would also be grateful for an update on the current state of play of those parts of the proposal relating to: cooperative marketing arrangements, in particular, code sharing; ownership rights; and the filing and approval of operational authorisations.
5.24We retain the proposal under scrutiny and draw it to the attention of the Transport Committee.
Proposal for a Regulation of the European Parliament and of the Council on common rules ensuring basic air connectivity with regard to the withdrawal of the United Kingdom of Great Britain and Northern Ireland from the Union: (40306), 15788/18, COM(18) 893.
24 European Commission, (November 2018).
25 of the European Parliament and of the Council of 24 September 2008 on common rules for the operation of air services in the Community (recast).
26 There is a question as to the legal status of existing bilateral air service agreement reached between the UK and EU Member States. This is discussed at paragraph 13.
27 This agreement has been publicised by the Council and its preliminary form has been communicated to Committee staff by officials at the Department for Transport. On the provisional agreement see Council of the EU, (February 2019).
28 The Guardian, (14 July 2017). ’
29 AINonline, (18 February 2019).
30 Code sharing is a practice whereby two or more airlines publish and market a flight under their own airline designator and flight number as part of their published timetable or schedule. Codeshares allow flights to be operated into and out of the EU by air service providers based in a third country as if they were an EU carrier.
31 European Parliament Transport and Tourism Committee, (February 2019).
32 of the European Parliament and of the Council of 21 April 2004 concerning protection against subsidisation and unfair pricing practices causing injury to Community air carriers in the supply of air services from countries not members of the European Community.
33 These include Austria (agreed in 1977), Belgium (1953), Bulgaria (1970), Croatia (1996), the Czech Republic (1998), Denmark (1979), Estonia (1993), Finland (1965), France (1946), Germany (1955), Greece (1945), Hungary (1960), Ireland (1946), Italy (1976), Latvia (1993), Lithuania (1992), Malta (1967), the Netherlands (1946), Poland (1960), Portugal (1945), Romania (1995), Slovenia (1994) and Sweden (1979).
34 ch-aviation, (February 2019).
35 Same as above
Published: 5 March 2019