My Lords, these draft regulations will be made under the powers conferred by the European Union (Withdrawal) Act 2018, and will be needed if the UK leaves the European Union next March without a deal. Following the UK’s decision to leave the EU after the referendum in 2016, the Government have been working to develop a positive future relationship with the EU. This would include a comprehensive and ambitious air transport agreement.
The Department for Transport has undertaken a significant amount of work with respect to the withdrawal negotiations and to prepare for the range of their potential outcomes. The best outcome is for the UK to leave with a deal and, as noble Lords will be aware, a draft withdrawal agreement is being considered. We remain confident that this agreement will enter into force at the end of March next year but, as a responsible Government, we must make all reasonable plans to prepare for a no-deal scenario. To that extent, we have conducted particularly intensive work to ensure that there continues to be a well-functioning legislative and regulatory regime for aviation. We set out in the technical notices in September how this would work and this instrument provides the means to deliver some of those outcomes.
EU Regulation 1008/2008 provides the basis for the internal market in air services. It consolidated provisions within a number of prior regulations that had gradually liberalised the market for air services within the EU. The regulation sets out harmonised conditions for the licensing of air carriers in the EU and provides the right for any EU-licensed air carrier to operate on any route within the EU, without prior authorisation. The regulation prohibits market distortions which had historically existed in Europe, such as restrictions on pricing or the ability of air carriers to freely set air fares and lease each other’s aircraft. It also sets out
common rules for the provision of public service obligations through scheduled flights to peripheral regions that would not otherwise be commercially viable.
A further element of the internal market provided for by this regulation is for wet leasing. A wet lease is when one air carrier leases an aircraft together with its crew, maintenance and insurance from another operator. EU air carriers can freely wet lease aircraft registered in the EU, provided that it would not endanger safety, but restrictions are imposed on the lease of aircraft from beyond the EU. The EU has also pursued an external aviation policy by agreeing comprehensive air transport agreements with third countries, and by seeking consistency in the provisions of the bilateral air service agreements between member states and third countries. Regulation 847/2004 establishes a procedure for member states to notify each other and the Commission, and to work together on the negotiation and conclusion of air service agreements.
The draft regulations we are considering today fix deficiencies in the retained EU regulations, alongside the preserved domestic legislation made to implement aspects of those regulations, so that the statute book continues to function correctly after exit day in the event of no deal. The effect of these fixes was described in the technical notice published in September, which set out how the UK would regulate air carriers. Many of the fixes make it clear that the retained legislation applies only to the UK. For instance, references to “Community air carrier” are replaced with “UK air carrier”. Another amendment requires air carriers to have their principal place of business in “the United Kingdom” rather than in “a member state”. Since, in the event of no deal, the UK would no longer participate in the EU’s external aviation policy and the Commission would have no authority in the UK, regulation 847/2004 would be revoked. The UK would be free to negotiate bilateral air services agreements with other countries without regard to the Commission or EU member states.
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Turning to operating licences, the withdrawal Act ensures that operating licences previously issued to UK air carriers remain valid. An operating licence is required by air carriers before they can offer commercial air transport and ensures that UK air carriers are financially robust, appropriately insured and managed by fit and proper persons. A separate air operator certificate is also required and ensures that the air carrier meets essential safety requirements. While all commercial aircraft operators require an air operator certificate to show that they are safe, some will not provide air transport services—for instance, a hot air balloon offering leisure flights—and therefore would not require an operating licence.
Separate instruments on aviation safety, security and the rights of air passengers will be brought to the House in the coming weeks. UK-licensed air carriers will need to continue to meet all the substantive requirements for a valid operating licence, with one exception. The requirement in regulation 1008/2008 for air carriers to be majority owned and controlled by
EU nationals would be revoked, since this is a definition that would no longer apply to UK nationals. It would also be redundant for two reasons. First, nationality requirements are routinely specified in the terms of our air services agreements. These determine the eligibility of air carriers to operate under the terms of those agreements, based on the nationality of their ownership. We expect any future aviation agreements with the EU to include that nationality requirement. Secondly, in the event of no deal, all UK air carriers would require a route licence to operate beyond the UK. There is a nationality requirement in that route licence too.
UK route licences pre-date the EU operating licence, and in many ways were superseded by it, since, through the UK’s membership of the EU, our air carriers were exempted from the requirement for a route licence for operations to the EU. Route licences serve a useful purpose. Unlike an operating licence, conditions can be attached to the licence preventing air carriers operating certain routes. For example, route licences prevent UK air carriers flying directly to Northern Cyprus, and it is the mechanism through which decisions on the allocation of scarce capacity are enforced.
Route licences are being provided for free by the CAA to any UK carrier that requires one. One of the conditions for a route licence is that the applicant should be either a UK national or an organisation controlled by UK nationals. The Secretary of State also has long-established powers to instruct the CAA to waive this requirement, which he has done historically, most recently for easyJet UK and Wizz Air UK.
As a result of this instrument, the rules for wet leasing foreign aircraft will not change. UK air carriers seeking to wet lease a foreign-registered aircraft would be required to demonstrate to the satisfaction of the CAA, as they do today, that to do so would not endanger safety. If that aircraft was registered in a country other than in the EU they would also have to demonstrate to the Secretary of State that safety standards equivalent to the UK’s would be met and that the lease is justified on the basis of exceptional needs, to satisfy seasonal capacity needs or to overcome operational difficulties. Permission might be refused if there is no reciprocity regarding wet leasing to the country in which the aircraft is registered. This instrument also makes a number of changes to reflect the fact that EU-licensed air carriers would no longer enjoy the automatic right to operate to, from or in the UK.
As I said, public service obligations, or PSOs, are subsidised air services that would not otherwise be commercially viable. Contracts for PSOs in the EU can be won by any EU-licensed carrier, but fixes made by this instrument would mean that only UK-licensed carriers, and carriers from countries with which the UK has exchanged the right to operate wholly within each other’s territory, would qualify for PSO contracts in the UK. As all the PSOs in force in the UK are currently operated by UK-licensed air carriers, there will be no impact on existing services.
In a similar fix relating to scarce capacity, domestic regulations currently provide for a process rarely used in cases where the frequency of operations between the UK and another country is constrained by provisions in the relevant air service agreement. If all the permitted
frequencies are being operated, the UK will always seek to lift or remove the limit. In cases where the other country is unwilling to do so and another air carrier wishes to enter the market, a scarce capacity allocation hearing will be held. This instrument amends the regulations for this allocation process to ensure that only air carriers that would qualify to operate under the terms of the relevant air services agreement—rather than all EU air carriers—are eligible for the scarce capacity allocation.
All the previous points relate to domestic oversight of UK carriers. I turn now to foreign carriers. While air services are not included within the scope of the World Trade Organization, there is an international legal framework for the operation of air services— the Chicago Convention of 1944. One of its provisions is that scheduled international air services are prohibited, except with the special permission of the state concerned. The UK provides permission through the air services agreements it concludes with other countries and the issuing of foreign carrier permits by the CAA.
In the event of no deal, amendments made by this instrument would require that EU air carriers apply for a permit from the CAA before operating to the UK. This would ensure that all air carriers operating to the UK had full and proper safety oversight and that their aircraft were properly maintained and operated.
We envisage granting permits to EU carriers to continue operating to the UK. In its recent communication of 13 November, the Commission confirmed that it intends to reciprocate for UK air carriers. In addition to the announcements about visa-free travel, the Commission said that UK air carriers would still be able to fly over the EU, including Ireland, and to land in and fly back from the EU.
As I said in my opening remarks, we are working to achieve a positive deal with the EU, but this SI is an essential element of our contingency planning for a no-deal exit. It would only enter into force on exit day in the absence of a withdrawal agreement. The legislation would ensure that the UK’s licensing regime for air carriers continues to work effectively and that the aviation industry has clarity about the regulatory framework in which it would operate.
I commend these regulations to the Committee.