France and Germany are said to have rejected a softening of longstanding rules that require EU airlines to be owned and controlled by EU nationals or else lose their licences.
While the ownership issue poses no immediate threat to flights, it brings a longer-term challenge to some of Europe’s biggest aviation names even with the trade deal.
British investors will be deemed non-EU after the Brexit transition ends on Dec. 31 - a headache for airline groups with EU-licensed carriers and large UK shareholder bases.
"There’s been a last-ditch effort from a few member states to get something more liberal in the agreement on ownership and control," said an aviation source briefed on the discussions.
"There is not a hope in hell of it happening," the source added. "The big pushback came from France and Germany."
Spokespeople for the European Commission and the governments of Britain, France, Germany, Hungary, Ireland and Spain declined to comment or did not respond to Reuters questions. London and Brussels have for months been negotiating a post-Brexit aviation accord to accompany a broader trade deal.
But the rebuff to Spanish-led efforts means that even a deal breakthrough would leave ownership problems unsolved.
They are particularly acute for IAG, which also owns Ireland’s Aer Lingus and Spanish-based Iberia and Vueling. A large UK shareholder base and a 25% stake held by Qatar Airways will leave EU investors in a clear minority.
Ryanair boss Michael O’Leary predicted recently that Brexit could force a breakup of IAG, in comments dismissed by the UK-headquartered group, listed in London and Madrid.
The Irish low-cost airline acknowledges that Brexit will swing its own non-EU shareholders into a majority, and has warned that they stand to lose their votes and the right to buy new shares in the absence of a deal granting more flexibility.
Even including UK investors, EU ownership has previously fallen close to 50% at both IAG and Wizz Air - listed in London and based in Budapest. To stay compliant, IAG barred non-EU share purchases for most of last year, while top Wizz shareholder Indigo Partners sold part of its stake.
EasyJet, reliant on its Austrian carrier for some routes post-Brexit, is also trying to bolster its non-British EU investor ranks, which currently hold about 45% of the group.
All the affected airlines maintain they are Brexit-ready, with ownership compliance strategies vetted and approved by national authorities under Brussels supervision.
"Last year, IAG’s airlines submitted plans on ownership and control to the national regulators in Spain and Ireland," a group spokeswoman said. "Those regulators confirmed that the plans would satisfy EU ownership and control rules in the event of a no-deal Brexit."
As the same governments’ failed initiative shows, however, concerns persist that the compliance efforts may be unsustainable, or open to legal challenge by competitors.
Stripping votes may restore European control but not ownership. Among other moves, IAG’s transfer of most Iberia voting rights to retailer El Corte Inglés might not amount to relinquishing "decisive influence on the running of the business", as the critical EU regulation defines control.
The proposals from Spain, Ireland and Hungary would have allowed UK-based airline shareholders to continue to be counted as EU investors.
2Hungary has Wizz Air listed in London, (and) Spain has Iberia in a group with BA, so their interests were in watering down ownership and control requirements in the new UK deal," an EU diplomat told Reuters.
Airline breakups unthinable outcome
"But the Commission has been rather intransigent on this one," the diplomat said. Relaxing ownership rules could weaken EU autonomy, they added, "a major issue compared to some specific interests of some specific member states."
Rival airlines under solidly EU ownership may also seek competitive advantage by demanding a strict application of the rules by the Commission or the European Court of Justice.
Relaxing ownership requirements for the UK could give third countries like Qatar a bridgehead to buy up stakes in EU carriers, a policy official at a major European airline said.
"The rules are there to be obeyed," he said. "If there is a legal challenge and the Commission checks Spain and Ireland’s analysis, it will lead to some difficult conversations."
But investors are more focused on a post-pandemic travel recovery and Brexit-related currency risks than on longer-term ownership issues, Citi analyst Mark Manduca said.
Airline breakups are an unthinkable outcome of rules "originally designed to stop Asian and Middle Eastern airlines from buying up stakes," said Manduca, who expects EU policy eventually to accommodate the multinationals. "A bunch of lawyers will be discussing this for most of 2021," he said.
© Reuters, aero.uk | Image: British Airways | 28/12/2020 09:24