UK Prime Minister Theresa May delivered a highly anticipated and hugely important speech on 17 January 2017 setting the principles that would underpin the UK Government’s approach to negotiations with the EU and set out in high-level terms what outcomes the Government would see from Brexit. RAeS Head of External Affairs SIMON WHALLEY looks at what conclusions the aviation and aerospace community might draw from her Lancaster House address.

The UK Government has been keen to play its cards firmly close to its chest when it comes to its negotiating position on withdrawal from the European Union (EU). While promising not to provide a ‘blow-by-blow’ account of Brexit discussions, the PM had become under increasing pressure to at least reveal a direction of travel or a list of goals that she would try to achieve from Brexit. After all, the British public voted on 23 June to withdraw from the EU, but didn’t have a say on what the alternative would look like.  And she needed to provide the country, and her own party, the confidence that the Government did indeed have the semblance of a Brexit plan. Theresa did not want the May-be label to stick.

What the PM provided was a strong set of principles, some unchanged, albeit with elaboration, since her Conservative Party conference speech last October – for example, ‘no deal on immigration to keep the UK in the Single Market’ – and a much clearer vision of what Britain might look like after Brexit…if she UK gets its way. High level, broad in scope, low in detail, it would be hard to draw any definitive, detailed conclusions about outlook for aviation and aerospace.  So what, if anything, does her speech tell about the future of these key economic sectors?

A Global Britain

The PM wants the UK to be ‘a truly Global Britain’ – the very title of her address. A good start indeed for sectors that are by nature global in outlook, in reach and in value. Aviation and aerospace are key enablers of the UK’s ability to reach, connect and trade with the rest of the world. UK aviation and aerospace, then are vital to the achievement of Mrs. May’s ambitions.

However, the industry is majority regulated at the European level. The benefits of cheaper, more frequent flights to an ever growing number of destinations across the world, including Europe, has been achieved through deregulation and the promotion of competition and choice across Europe. Today, the Single Aviation Market – not the same as the Single Market – yields countless benefits to consumers and business that chooses and needs to fly.

Confirmation that the UK does not wish to remain a member of the Single Market does not clarify what relationship the Government wants from the Single Aviation Market, including Open Skies. While the UK has been a leading proponent of aviation market liberalisation, and won’t return to the days of monopoly carriers and protectionism, the Government must take care to preserve these hard-won benefits for passengers and business. After all, the EU is the largest destination market from the UK.

You can forget the Single Market... at least membership of it

What will be the effect on aviation of leaving the single market completely? 

The headline many people were looking out for was whether the UK would remain a member of the Single Market. The result was a resounding no: ‘we do not seek membership of the Single Market. Instead we seek the greatest possible access [author’s emphasis] to it through a new, comprehensive, bold and ambitious Free Trade Agreement…which should allow the freest possible trade in goods and services between Britain and the EU’s members states. And should give British companies the maximum freedom to trade and operate within European markets – and let European businesses do that same”

Just because the UK isn’t a member of the Single Market, enjoying all the benefits and privileges that membership brings, it does not mean that we secure access to it like many other countries. Now, whether that Free Trade Agreement is produced concurrently with negotiations to withdraw, afterwards during a the ‘phased process of implementation’ or when negotiations are all done and dusted, will be dependent on a huge amount of goodwill on the part of our European neighbours. 

Either way, whether members or with negotiated access, the aerospace sector with integrated and complex supply chains spanning the continent, would suffer considerably if a ‘good deal for Britain’ isn’t reached

And the UK's membership of the Customs Union?

Theresa May certainly does not wish to remain a member of the full Customs Union, as it prevents the UK from negotiating its own trade deals, but she does seek ‘tariff free trade with Europe and cross-border trade there to be as frictionless as possible’ and does want the UK to have a customs agreement with the EU.

For an industry that predictably and easily move and trade in goods and services across the Union with ease and minimal cost, the prospect of tariffs and bureaucratic boundaries to trade will be a worry, and could threaten the sector’s future productivity and present competitiveness. Negotiation of tariff-free access to EU is a must-have for the sector, and the UK clearly wants the same, but without acceptance of freedom of movement, this could be a difficult pill to swallow in Europe.

We might participate in some EU programmes

HAV's Airlander has received European Horizon 2020 funding - will UK companies be cut out in the future? (Hybrid Air Vehicles)

The aerospace, including space, as well as engineering, research and higher education sectors have been concerned about the loss of access to EU research funding programmes, such as Horizon 2020, of which the UK is a net beneficiary, as well as long-standing collaborative research projects across the EU. Collaboration outside the EU is far more difficult currently because of the variation and often non-aligned nature of funding streams.

The indication from the Prime Minister that ‘there might be some specific European programmes in which we might want to participate’ and that she would ‘welcome agreement to continue to collaborate with our European partners on major science, research, and technology initiatives’ will give these sectors comfort that the Government would consider participation in these vital programmes.

The issue is whether the EU would agree. Full participation in these programmes would likely require full access to the Single Market, which the Prime Minister wants, and the acceptance of freedom of movement, which she definitely does not…unless it is own the UK’s terms. The statement of intent and openness to continues cross-border collaboration is welcome but in practice may prove challenging to achieve.

A magnet for international talent

Without freedom of movement, aerospace and aviation firms with sites across the Union companies might find it more difficult to attract talent and transfer. The Government is against freedom of movement determined by the European Court of Justice, and the Prime Minister’s plan is to ‘get control of the number of people coming to Britain from the EU’ but ‘continue to attract the brightest and best to work or study in Britain – indeed openness to international talent must remain one of this country’s most distinctive assets’.

Aerospace companies can justifiably claim that the ability to attract talent to maintain global competitiveness should guarantee that they can move their staff freely around the Union, as well as attract new staff from Europe to fill skills shortages. The same should go for UK higher education institutions that rely on European teaching staff and students for income and their world-class status.

Since the PM wants the UK to remain a ‘magnet for international talent’, our sector has a lot to be hopeful about.

Certainty and clarity

There was no specific mention of the Great Repeal Bill in Mrs May’s speech but the commitment to ‘convert the “acquis” – the body of existing EU law – into British law’ remains so that ‘the same rules and laws will apply on the day after Brexit as they did before.’

This all sounds rather straightforward, but as we heard at the RAeS Brexit conference last October, inserting EU aviation regulations in UK law will not address the central issues of continuation of air traffic rights, which would need to be negotiated separately, of whether and how the CAA would take over responsibility for industry licensing, operation and safety oversight, and since EU aviation regulations have been developed and then amended by EU case laws, do we apply the regulations – or the regulations interpreted by case law?

For the industry, regulation of the industry at the national level and withdrawal from the European Aviation Safety Agency is unthinkable but must remain a possibility given the PM’s speech. The sector has some work to do to convince her otherwise.

A phased approach

The PM appears to have heeded the calls of the aerospace industry, and other sectors, that the Government must do everything to avoid the event of a disruptive cliff-edge when Brexit negotiations have been completed to allow business to plans ahead.  Mrs May has confirmed she is seeking a ‘smooth, orderly Brexit’ during which ‘Britain and the EU institutions and Members States prepare for the new arrangements’ and will be welcomed by the industry.

Conclusion

Will it be a fast and dynamic Brexit? (Martin Baker)

She played in tough, setting out her red lines, and leaving party colleagues, parliamentarians, opposite numbers in Europe and the general public where she stood.  The aerospace and aviation sectors should also have a clearer idea of where they stand in forthcoming Brexit negotiations – potential access to the Single Market, a Free Trade Area, a separate Customs Union, continuation of access to some EU programmes, as well as phased implementation of new arrangements and freedom of movement as long as determined in the UK. The issue of industry regulation is the one area of Mrs. May’s speech that will of cause for concern.

Her speech did, however, bake in assumptions that the EU would negotiate with economical rationality just like the UK is. Let’s not forget that the EU was born out of a deliberate political desire for the countries of Europe to unite. EU programmes, initiatives and creations, like the Single Currency, do not always make sense economically – not least the Euro without fiscal union – but does politically when the desire is to achieve ever closer union.

EU member states and institutions would be behaving perfectly rationally should they send a strong political signal that the EU is still strong and punish the UK and leave it worse off than being a full member of EU club, just to preserve the political union, leaving the UK little to show from coming negotiations. The PM is clearly aware of this and for her ‘no deal could be better than a bad deal’.  Let’s hope she’s right.

Afterthought

This morning the Supreme Court ruled that the Government cannot rely on prerogative powers to trigger Article 50 and commence negotiations with the EU without prior approval of both Houses of Commons and Lords. At the time of writing, the Government is expected to introduce a Bill into the Parliament shortly so Ministers can achieve their end of March deadline for commencement of negotiations. While not free to fly, the Prime Minister should expect to get her with way with Parliament, with some turbulence along the way. In the meantime, the industry and organisations like the Royal Aeronautical Society can use the time wisely to help the Government be in the best place possible when Ministers finally get round the negotiating table.

Simon Whalley
24 January 2017