BREXIT AND BUSINESS AVIATION
On June 23rd, 2016, the UK voted to leave the European Union. Although even two years later a lot remains up in the air, one thing that has always been certain is that ‘Brexit’ will result in a new relationship between the 27 remaining members of the EU and the United Kingdom. How will this new relationship impact Business Aviation? To try to make sense of the situation, Nick Klenske checked in with some of the industry’s leading players
So, Brexit is happening, that we must accept. What we should not have to accept is Brexit causing avoidable damage to the Business Aviation industry – not just in the UK, but across Europe and beyond. After all, Business Aviation contributes a total of 192,000 jobs to the European economy directly, with an additional 182,000 estimated to be generated indirectly. Furthermore, the sector generates EUR 42 billion in output and EUR 15 billion in gross value add, benefiting a number of economies across the EU. “Germany, the UK, Italy and France are key locations where business aircraft operate, and it is paramount that this business activity continues uninterrupted after Brexit,” says EBAA COO Robert Baltus.
According to an EBAA report, Brexit poses three dangers to Business Aviation. First, based on the EU’s negotiating stance that ‘nothing is agreed until everything is agreed’, the future relationship in respect to aviation will not be subject to any form of bespoke standalone arrangement, but will need to be part of an overarching free trade agreement. The second danger is that negotiators may come to a deal relating to the airline industry without considering the needs of the Business Aviation sector, which are not necessarily the same. “Regulation of the Business Aviation market has traditionally followed in the slipstream of the wider aviation industry, and there is now an opportunity to raise specifically the requirements of this unique sector,” adds Baltus.
The report says the third danger is that liberalization of the air transport sector in the EU which, by general consensus, is one of the EU’s finest achievements and has been of considerable benefit, may be partially or even wholly rolled back.
Need to Maintain the Status Quo
When talking about Brexit and Business Aviation, the topic of preserving the EU’s single market is always top of mind. “The European traffic and cabotage rights that currently exist for UK-based operators are essentially allowed as a result of the EU’s single market,” says Luxaviation UK Chief Executive Patrick Margetson-Rushmore. “If the correct representations by the UK and all 27 EU countries are not made during negotiations, those intrinsic industry rights could be lost.”
According to Margetson-Rushmore, if a reasonable status quo, which he says is in the best interest of the UK and the EU, is not maintained, UK-based commercial operators will, for example, no longer be able to fly for hire between any two points in the EU. “Smaller operators might not survive the new restrictions to their market access,” he says. “A hard Brexit will be particularly challenging for companies that only hold a UK AOC and so cannot reposition aircraft to exploit AOCs in EU nations.”
Margetson-Rushmore further points out that Brexit will also impact Business Aviation in Europe. “The industry in the EU is aware that operators across Europe will suffer from a hard Brexit,” he says. “Flights into and out of the UK – and most significantly into and out of London, one of the most powerful and therefore popular business destinations in the world – will become governed by two sets of regulations.”
One solution often mentioned is to treat the UK like another Switzerland, which is also not a part of the EU. According to FAI Rent-A-Jet CEO Siegried Axtmann, the ultimate outcome of Brexit is that the UK will probably end up with the same status as Switzerland. “In other words, they will hold a full EASA membership, but with some restrictions on flight operations within the EU.” He also notes that in a time of consolidation, another effect of Brexit could be European companies acquiring those based in the UK, effectively giving them a home in Europe.
Luxaviation CEO Patrick Hansen tends to agree, noting that Switzerland is also not a part of the European Union yet is part of EASA. “With the immense traffic between the UK and the EU, combined with the lobbying powers of the major airlines, I believe there is a huge chance that the UK will remain part of EASA – and part of the single European Aviation market,” he says.
Until the question of whether the European open skies policy remains in place is answered, there is little we can do to predict how overall business will be affected. The fundamentals of business will all need reassessing – currency exchanges, training, existing regulations, ability to operate within Europe – but the wider effects of policy changes are most likely to have the greatest impact.
One area where such changes could have a negative effect is employment. “Crews, pilots and other staff are typically multi-national in our industry and naturally mobile,” says PrivateFly CEO Adam Twidell. “How easy will it be for UK crews to work for EU operators and what impact will differing employment legislation have on the desirability for working for British operators?”
Twidell further points out that since the market in Europe predominantly comprises of short domestic point-to-point flights in Business Aviation, outside of the EU, there could be a commercial impact on UK operators operating domestic routes (for instance, within France) and on EU-wide operators who would be prevented from operating domestically inside the UK. “Hopefully, the UK will negotiate to remain part of the European Common Aviation Area, still keeping this open market,” he says.
Going back to the open market, failure to keep it could impact the empty leg market. “After Brexit, UK operators could face a seriously reduced empty leg market,” says Margetson-Rushmore. To illustrate, he points to two of the nine ‘freedoms of the air’ that will be lost if the UK leaves the EU single market. The seventh freedom of the air is the right to operate a service that flies between two foreign countries but does not originate or end in the operator’s home nation. The ninth freedom is the right to operate between two points in a country that is not the operator’s home nation.
“Without these freedoms, a UK cooperator could not, for example, carry a passenger from London to Madrid and then generate empty leg revenue when bringing the aircraft back to the UK by collecting a passenger who needed to fly from Madrid to, say, Barcelona or Paris,” he explains. “Only an empty leg flight back to the UK would be possible.”
Although empty legs aren’t any operator’s core business, in an industry of slim margins, the bonus of empty leg revenue can mean the difference between thriving or barely surviving. “UK-based operators should not have to watch in horror as their empty leg market dramatically shrinks,” adds Margetson-Rushmore.
It’s the Economy, Stupid
Another area for concern is the potential economic impact that Brexit could have. For example, after long enjoying the benefits of a strong pound, the biggest challenge for UK-based operators could be the volatility in the currency exchange rates. Profitability could be limited as the GBP rates fluctuate dramatically against the dollar and the Euro. However, looking on the bright side, this could also prove to be a great opportunity for private charter brokers. “The choice of operator and where they are based can now make a big difference in the price paid by the customer,” says Twidell.
FAI’s Axtmann agrees, saying that volatile currency exchange rates will have a negative short-term effect on British business in general. “For Business Aviation, this is likely to decrease the profitability of a number of companies as the wait-and-see effect takes hold,” he says. “However, much of Business Aviation trading is conducted in US dollars, which could provide some sort of buffer to the negative currency exchange rates the British Pound is currently experiencing.”
“It is absolutely true that uncertainty and associated market and currency volatility are bad for Business Aviation,” adds WingX Advance’s Richard Koe. “But concerns for relocation of investment and economic recession for the UK look exaggerated.” According to Koe, it’s the EU’s sclerotic recovery that looks to be more endangered by Brexit. “Many of the entrepreneurs who appreciate Business Aviation are quite sanguine,” he adds. “It may turn out that in two years, the UK outside Europe is still the continent’s fastest growing economy.”
This last point is echoed by Jetcraft President Chad Anderson, who says that since the announcement of Brexit, Britain has seen an increase in the number of billionaires. This in turn contributes toward an increase in the region’s potential customer base. “We are seeing high net worth buyers in their 30s and 40s executing many transactions, which is good news for the sector as younger buyers will most likely execute future trades and aircraft upgrades,” says Anderson. “This also spotlights the ongoing integrity of Business Aviation and how flying private is resonating with this generation, keeping our industry and its offerings very relevant.”
The Bottom Line
Of course no one wants to see Brexit cause financial damage, either to the UK or across Europe, and no one who understands Business Aviation would deny the high economic impact of our industry. But all operators – from small start-ups to large, established businesses – grow best when allowed the freedom to access the largest geographical markets possible. “A new business model that would work brilliantly on a European scale might not succeed at all if restricted to the UK market and a few bilateral agreements,” adds Margetson-Rushmore. “We must allow our innovative industry to keep expanding and contributing to the economies of Europe.”
The bottom line: it is in everyone’s interest to maintain a strong Business Aviation industry that will strengthen both the UK and Europe. “Nobody will win if Brexit is handled badly,” concludes Margetson-Rushmore.