Commission Consultation on Regulation 1008/2008

17 April 2018

Simon Phippard, Lucinda Richmond-Wigg

On 15 March 2018 the European Commission launched a public consultation on Regulation No 1008/2008 (Regulation 1008). This is one of two consultations being carried out concurrently (the other a set of targeted consultation activities of key industry stakeholders covered by the provisions of Regulation 1008), with a view to its potential revision.

Background

The Aviation Strategy adopted in December 2015 promised a review of Regulation 1008. Subsequently, the Commission published a Roadmap and, in February 2018, an Inception Impact Assessment. Preliminary information collected by the Commission highlighted the following areas of potential concern which it will be seeking to collect evidence on as part of the consultations:

  • Factors undermining competition between EU airlines, and the adequacy of consumer protection;
  • Risk of hampering innovation in EU airline business models;
  • Risks affecting EU airlines' ability to maintain and develop their business in an increasingly global environment; and
  • Risks for EU consumers' ability to benefit from truly global airline businesses and strong competition in the EU internal aviation market.

On a broader level, the Aviation Strategy seeks to assess whether the current legislative landscape poses barriers or produces inefficiencies which are limiting growth in the EU air transport market. In an initial consultation on the Aviation Strategy, respondents noted, among other issues, that rules on ownership and control of EU air carriers require clarification.

The consultation

The public consultation will be open until 7 June 2018. Its stated aim is to provide individual companies and consumers with the opportunity to express their views on the key issues outlined above. As well as focussing on consumer choice and pricing, the questions asked relate to safety, financial health of airlines, traffic distribution rules and public service obligations.

Implications for ownership and control

Of particular interest for airlines will be whether the impact assessment, which follows the consultation period, will recommend that the rules on ownership and control are retained in their current form or modified in some way. 

Currently, EU air carriers must be majority owned (i.e. 50% plus one share) and effectively controlled by EU Member States or their nationals. This is a two-stage test which looks at both percentage shareholding in the air carrier and the concept of "effective control". Any air carrier that is not majority owned and effectively controlled by Member State nationals will not be eligible to obtain/maintain an operating licence by the Member State in question; this prevents the air carrier from taking full advantage of the traffic right freedoms of the EU's internal air transport market.

The ownership and control test can be notoriously difficult to apply. In particular, questions arise where shareholders are complex corporate entities such as trusts or investment funds; where there are questions of positive/negative control; and where there is joint control of air carriers. Responsibility for assessing compliance lies with the licensing authority of the relevant Member State. National regulators have taken different approaches to implementation of the provisions and many arrangements are approved by the national regulator without publication of their rationale. Indeed, the Commission published interpretative guidelines on ownership and control on 8 June 2017 to try and address some of these issues.

Some stakeholders argue that the current ownership and control test prevents foreign investment in air carriers and restricts the flow of much needed capital. The consultation asks participants directly whether it is important to limit foreign investment in EU air carriers. It offers other options for ensuring that EU security and strategic concerns are safeguarded, including allowing Member States to block foreign investments for strategic reasons (as proposed by a Commission proposal for a Regulation establishing a framework for screening of foreign direct investments in the European Union); or relaxing the restrictions only on the basis of reciprocity. The consultation papers emphasise that ownership and control requirements are frequently imposed by non-EU countries in air services agreements with the EU or with a Member State, but that does not of itself oblige the EU to impose the same requirements on carriers operating within the internal aviation market.

Although the review of Regulation 1008 is in its early stages, its scope indicates at least some openness to a relaxation of the current test provided that the internal market is still adequately protected. In March 2018 the Commission announced that it is looking into common ownership of airlines by investment funds and its effect on competition. It will be interesting to see whether these concerns are borne out, and if so, whether this could influence the Commission's approach to ownership and control requirements.

For UK air carriers, changes to restrictions on ownership and control are at the forefront regardless of the outcome of the Commission's consultations, given the impact of Brexit. The UK's Civil Aviation Authority has generally taken a more liberal approach to airline ownership restrictions, and it is possible that post-Brexit the UK will move away from a nationality-based approach to ownership and control, although this very much depends on the outcome of the negotiations.

Outcome

Regulation 1008 is central to the regulation of air transport throughout the EU, and currently enshrines the structure which dates back to 1993. A review is therefore of great importance and, in addition to the ownership and control issue discussed above, the consultations look to examine other tricky issues such as cross-border leasing, employment conditions and pricing transparency.  

In the longer term, the Initial Impact Assessment indicated that the Commission may choose to maintain Regulation 1008 in its current form; take a softer legislative approach by publishing guidance notes and improving application/enforcement action; or revise Regulation 1008 directly. Any legislative revision of Regulation 1008 is not expected until the first quarter of 2019.

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