How Brexit Will Affect Business Aviation: In Focus at EBACE2017 International Transactions Seminar
22 May, 2017
The clock is already ticking. On 30 March 2019, the UK will formally leave the EU.
“The challenges the British government has to address in the next two years are as great as Mount Everest,” said Matthieu de Varax, a partner at Mayer Brown, about the preparations for Brexit. “Business aviation is only a small rock in that mountain.”
Business aviation may not be at the top of British or European negotiators’ priorities, but it will be affected in many, complicated ways by Brexit.
“Brexit is the single most important political and economic event for the UK in a generation,” said Martin Kennaugh, manager of aviation services for ICM Aviation, at the 2017 European Business Aviation Convention & Exhibition (EBACE2017) International Transactions Seminar. “Everything is going to change.”
First, British operators will no longer have an EU air operator’s certificate (AOC). Companies based in the UK that wish to retain their EU AOC will have to relocate their principal place of business to an EU member state.
Second, Brexit will affect traffic rights in Europe for British air carriers. Under EU regulations, European Community air carriers have free access to all flights throughout the EU. Currently, a British operator can pick up passengers in Paris and fly them to Geneva or Lyon. The British Government will have to renegotiate this free access, but it’s still unclear how it will do that.
It’s also unclear how Brexit will affect value-added tax (VAT) liability and calculations for aircraft owned by British, European and non-European companies. Currently, the UK and the EU have a single VAT and customs regime.
“That situation is going to change,” said Kennaugh. “We’re very likely going to have two different areas with two different VAT regimes.”
Finally, there will be implications throughout Europe for English law, which is widely used in business aircraft sales contracts, leases, insurance policies and other documentation. After Brexit, the decisions of English courts will no longer be given the priority they are today, affecting all European transactions.
New Business Models Expanding the Market
In addition to Brexit, the seminar also covered the latest trends in aircraft financing, the interplay between the U.S. and European aircraft markets and new business models for aircraft utilization.
Three new models – driven by digital interfaces – are filling the gap between fractional programs, jet cards and charter:
• App-based brokers like JetSmarter that sell seats on empty legs;
• Operators that own fleets of turboprops or light jets and sell seats on scheduled flights; and
• Operators like Wheels Up or Surf Air that sell annual memberships for access to their owned fleet.
“I’m very bullish about what these companies can do to stimulate the charter market and bring in new users through digital channels and savvy marketing,” said Richard Koe, managing director of WINGX Advance.
“These models can work,” added Graham Williamson, president of TAG Europe, “but they’ll face a lot of difficulties in Europe. They’ll have operational challenges being profitable, getting access to the right routes, creating value from FBO-to-FBO transportation, and from regulatory authorities, but we should embrace this kind of innovation and encourage it.”