Implications of the new EU Airline Licensing Regulation: how much has changed?

16 March 2009

Richard Venables

The new airline Licensing Regulation (No. 1008/2008) “on common rules for the operation of air services in the Community” came into effect on 24 September 2008.  The principal aim is to bring into one Regulation the three constituents of the Third Package, which came into effect in 1993, namely the Licensing Regulation (2407/92), the Market Access Regulation (2408/92) and the Fares Regulation (2409/92).  Whilst not much has changed, there are some anomalies which will cause uncertainty in practice.

Principal place of business

The 1992 Licensing Regulation (2407/92) provided that the right body to issue an operating licence to a European airline was the competent licensing authority of the Member State in which “its principal place of business and, if any, its registered office” are located.  This raised questions about whether airlines were being regulated by the right Member State, not least in connection with Ryanair, which is Irish registered but, in its early days as a low cost carrier, operated mainly out of and within the UK and yet was still regulated by the Irish authorities.

There was no definition of “principal place of business” in Regulation 2407/92, and the new Regulation has remedied this omission.  The requirement is retained that the operating licence shall be granted by the Member State in which the relevant airline’s principal place of business is located and a definition of “principal place of business” is provided.  Unfortunately, the definition raises more questions than it answers.  Article 2.26 of Regulation 1008/2008 provides:


“‘principal place of business’ means the head office or registered office of a Community air carrier in the Member State within which the principal financial functions and operational control, including continued airworthiness management, of the Community air carrier are exercised.”


What is the position, for example, if a Greek airline is owned by a German parent which carries out the financial function?  Or if an airline outsources its principal financial functions to a body situated outside the EU?

It remains to be seen whether these anomalies will be of practical concern.  It is difficult to see that an airline will necessarily want to raise such an issue against another airline but the possibility exists if, for example, it is perceived that the respondent airline gains a competitive advantage through being regulated by a less stringent regulator. 

Guidance from the Commission

The Commission has published an “Information Note” addressed to “Member States Authorities” which sets out to highlight the differences between the new Regulation and the Third Package.  It also purports to set out DG TREN’s understanding of the new provisions.  It is disappointing to report that, whilst the Guidance devotes five paragraphs to the questions raised above about “principal place of business”, no definitive conclusion is reached.

It is also rather disconcerting that emphasis is placed in the Guidance that “this paper is not an official interpretation of the Regulation by the Commission and that the views expressed do not purport to bind Member States or other interested parties.”

Suspension and revocation of licences

The new Regulation devotes a complete Article (Article 9) to the circumstances in which an operating licence can be suspended or revoked.  Whilst powers to suspend existed in the Licensing Regulation (2407/92), it was rare for a competent authority to exercise them.  The reason was that, if an airline was in financial difficulty, the market would bring about the failure before a decision to suspend could take effect. 

The implementing legislation in the UK[1] actually provides for a right of appeal against suspension or revocation so that it does not take effect for 14 days, or, if an appeal is lodged, until the appeal is determined.  So it is a very blunt tool in the hands of the regulator.  Having said that, if news gets out that an airline is appealing against a suspension or revocation order, it is very unlikely that it would survive for very long. 

What might be of more concern is that Article 15 of the new Regulation gives the Commission power to direct the competent licensing authority to suspend or revoke the operating licence of a Community carrier, and there is no appeal against revocation or suspension in these circumstances.

Conclusion

For those airlines which already hold an operating licence, it is unlikely that, in the normal course of trading, the provisions of the new Regulation will have any practical effect.  There may be some changes to established procedures: in the UK, the CAA will issue a new Official Record Series 1.  As always, anomalies will occur when less straightforward circumstances arise.  The fascination of being a lawyer is that it is difficult to predict in advance what these anomalies will be.  Our clients will be forgiven for pointing out that this is not of much help to them!

[1] (SI2009/41)