What is Brexit and How Will it Affect Private Aviation?

by Richard Zaher / Jun 30, 2016

Brexit

What is Brexit?

Brexit is a neologism combining the words ‘Britain’ and ‘exit’ to refer to the recent referendum on Britain leaving the European Union (EU). The referendum was first suggested in 2013 when then-Prime Minister David Cameron attempted to tackle unrest regarding Britain’s status in the EU. He promised that if he were to be re-elected he would hold a referendum allowing the British public to vote as to whether they wanted to remain in the EU or leave.

At the time, the Brexit referendum was seen as a low-risk solution to calm a growing unease in the Conservative camp and help secure Cameron’s chances of securing a second election. However, as the Leave campaign began to pick up momentum, it became clear that the vote would be much closer than predicted. Backed by the likes of ex-London Mayor Boris Johnson, Leave emerged victorious by the narrowest of margins as they won with 52% of the vote.

As the outcome of the referendum was announced David Cameron immediately stood down as British Prime Minister, leading to a period of uncertainty as Britain and the world await the announcement of the next PM.

How has Brexit Affected the Economy?

As soon as it was announced that Britain would be leaving the EU the value of sterling tumbled, falling to its lowest level against the dollar in 30 years. Britain’s AAA financial rating was reduced to AA amid uncertainty over how the markets will fare in the coming months, with reports that around $185 billion was wiped off the face of the FTSE 350 following the news.

Will Brexit Affect the Aviation Industry?

Brexit has already had a huge and immediate impact on the aviation industry. Many experts are anticipating pricier fares for airlines that could see a decrease in outbound travel from the UK. Having previously claimed that a Brexit would lead to a fall in revenue, budget airline EasyJet saw its shares fall by 22%, with Lufthansa taking a 10% hit and IAG close to 25%. HSBC analyst Andrew Lobbenberg anticipated further revenue declines brought about by reduced traffic out of the UK. He said: “We expect airlines serving the U.K. market to face immediate weaker outbound leisure demand, as the pound weakens and business travel declines given economic and political uncertainty.”

But it’s not just a matter of the financial impact. Until the vote, UK airlines enjoyed unlimited access across Europe thanks to the European Common Aviation Area (ECAA). All EU member states are permitted to use airspace and airports within the EU without restrictions. It is possible this arrangement will be continued but in order to do so the UK would have to agree to EU Aviation Laws.

Outside of Europe, the UK has until now operated an EU-US Openskies agreement which permits an open door policy on flights between the UK and the US. With Britain now set to leave the EU, a new agreement will have to be reached between the UK specifically and the US. It is highly likely that this will be met with minimal fuss, as has been the case with other non-EU European countries such as Iceland and Norway.

Brexit

What About Business Aviation?

There are a number of significant ways that Brexit could affect the private aviation industry. Here are five of the most important:

Taxes

There has been worried speculation about how Brexit could have an impact on the cost of private aviation with some experts predicting a 15-25% increase in prices. However, there may already be a loophole that could allow private flyers to avoid paying VAT.

Private aircraft flying from a non-EU country to one within the EU may be eligible for temporary importation, thereby dodging costly VAT prices.

Access within Europe

Previously, private aircraft could fly freely between the UK and other European countries. New agreements will have to be drawn up in order for this to continue.

Cabotage

Restrictions could be placed on private aircraft aiming to make internal flights within an EU country. For example, an operator may wish to drop one passenger off in Rome before picking up another in Milan. These kinds of flights help drive the private aviation sector by avoiding wasted fuel and empty legs whilst making short hop journeys as profitable as possible. With London attracting the highest levels of private aviation in all of Europe, this could prove worrying.

Red tape

Ex-London Mayor Boris Johnson drummed up plenty of rhetoric regarding the removal of “red tape” as part of an agenda to promote the Leave campaign, but for the private aviation sector it could prove to be the opposite case.

With the UK soon to be treated as a separate entity outside of the current EU new arrangements must be drawn up. This could take months or years with countless documents being redrafted and renegotiated, which will only serve to prolong this period of uncertainty.

The Unknown

Until plans are firmly put in place and decisions made, the uncertainty of Brexit will lead to a volatile marketplace in which passengers may have to pay the price. Given that the Brexit process could take up to four years, it will be some time before the market mellows to manageable levels.

What happens next?

In order to officially begin the process of leaving the EU Britain must trigger Article 50 of the Lisbon treaty – a procedure dictating how a country must go about leaving the EU. During the campaign Cameron had made clear that he would invoke article 50 immediately should the Leave campaign win, but his resignation has left the act in the hands of his successor – and it is expected that the next Prime Minister will not be confirmed until October.

Some media outlets are even reporting the possibility of article 50 not being triggered which would mean Britain remaining in the EU despite the vote; a move which would no doubt cause huge controversy in the United Kingdom. Scotland is also contemplating a renewed independence referendum given the fact they could be removed from Europe despite overwhelming support in their country to remain in the EU.

In a Nutshell

Voting to leave the European Union was as much of a shock to UK residents as it was to the rest of the world after strong predictions of a Remain win. Whilst the remain campaigners desperately scramble for loopholes that could delay or even annul the outcome of the vote, David Cameron’s words and actions appear to have confirmed that Britain will indeed leave the EU. The question of when exactly is still unclear.

A win for Leave was always going to result in volatile markets in the short-term as investors panic, but with such tight connections to both the EU and the US it is very likely the UK will work out similar aviation arrangements to those it currently enjoys.

About Richard Zaher

Richard Zaher Richard Zaher is the founder and CEO of Paramount Business Jets. He is a former pilot and the President of ACANA. Richard is a graduate of Embry Riddle Aeronautical University (ERAU) with a Bachelor of Science in Aerospace Studies. A seasoned international jet charter expert, entrepreneur, humanitarian, and the recipient of the Embry Riddle Eagle Excellence Award at the 2012 National Business Aviation Association (NBAA) convention. He is also an active member of the Aircraft Owners and Pilots Association (AOPA) as well as several safety and air charter organizations.

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