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Operation of Air Services (Amendment) (EU Exit) Regulations 2020

Volume 809: debated on Tuesday 26 January 2021

Considered in Grand Committee

Moved by

That the Grand Committee do consider the Operation of Air Services (Amendment) (EU Exit) Regulations 2020.

Relevant document: 41st Report from the Secondary Legislation Scrutiny Committee

My Lords, these regulations are made under the powers conferred by the European Union (Withdrawal) Act 2018. They amend EU Regulation 1008/2008, which sets out common rules for the operation of air services. These regulations ensure that Regulation 1008/2008 continues to function correctly in UK law after the transition period. They do so by amending the Operation of Air Services (Amendment etc.) (EU Exit) Regulations 2018.

This SI is necessary because the EU amended Regulation 1008/2008 after the UK’s 2018 regulations were made. EU Regulation 1008/2008 was amended in May last year by EU Regulation 2020/696, which inserted provisions to address problems caused by the sharp decline in air passengers resulting from the Covid-19 pandemic. It also inserted powers for the Commission to extend the new provisions by delegated acts. The Commission used these powers and made further amendments to Regulation 1008/2008 via two delegated regulations adopted on 16 December 2020. These extended two of the new provisions until the end of 2021. The earlier amendment made in May would have seen them expire at the end of 2020.

This SI was made using the “made affirmative” procedure as the only means of bringing it into force before the end of the transition period while ensuring parliamentary scrutiny. As I have noted, the most recent EU amendments were not adopted until 16 December; only then was it possible to determine the precise content of this SI. The SI was laid on 23 December, the earliest opportunity after the Commission’s adoption of the delegated regulations.

I will now describe the provisions in more detail. They allow airlines in financial difficulty to retain their operating licences, subject to certain conditions, and allow airports to urgently replace ground-handling providers should they suddenly cease trading. Both provisions will apply until the end of 2021.

Regulation 1008/2008 requires the Civil Aviation Authority—the CAA—to revoke or suspend the operating licence of an air carrier in financial difficulty; it may replace it with a temporary licence. Such action risks the integrity of the air carrier in the eyes of investors and customers. It would raise concerns about the airline’s viability and could, in turn, lead to deeper financial problems. Normally, such actions are justified to regulate tightly carriers in financial difficulty but, during the Covid-19 pandemic, all air carriers have suffered significant decreases in revenues and a more flexible response is required.

Regulation 2020/696 inserted a new provision allowing regulators not to revoke or suspend operating licences where the carrier is in financial difficulty providing that a financial assessment is undertaken, safety is not at risk and there is a realistic prospect of financial reconstruction within 12 months. The CAA is the UK regulator in this respect.

The second provision concerns ground handling at UK airports where ground-handling suppliers are restricted; for example, on safety grounds. Where a ground handler has ceased trading before the end of its contract, the new provision allows airports to choose a new provider directly for a limited period rather than undertaking a tender process.

Reduced passenger demand at airports has severely impacted the ground-handling sector and increased the risk of sudden failure of ground-handling companies. The new provision ensures that airports where ground handlers are restricted can select replacement providers quickly and minimise disruption to users of the airport.

The withdrawal Act retained EU Regulation 1008/2008 in its entirety on exit day. The amendment makes the changes necessary so that this EU regulation continues to function correctly alongside the Operation of Air Services (Amendment etc.) (EU Exit) Regulations 2018.

The SI amends Regulation 1008/2008 to fix deficiencies arising from the amendments made by subsequent regulations and Commission delegated regulations. For example, “Union air carrier” is replaced by “UK air carrier”, and references to the ground-handling directive are replaced by references to the Airports (Groundhandling) Regulation 1997, which transposed the directive. Provisions relating to the Commission’s delegated powers are revoked because they are no longer relevant to the UK.

The impact of the Covid-19 pandemic will continue for some time. The provisions that I have described provide the CAA and airports with additional flexibility to respond. I commend the regulations to the Committee. I beg to move.

My Lords, I am grateful for the opportunity to respond to the Minister, who has given us a comprehensive introduction to the regulations. I suspect, as she hinted, that the Covid situation causing the massive lack in demand for air services will go on for some time and that we will have many such debates on air regulations before the year is out.

I have just one or two questions for the Minister. First, it appears from reading the Explanatory Memorandum that the regulations apply only to the UK and to UK-registered carriers—obviously, it is just the UK—but how do foreign carriers get registered to operate in the UK?

Secondly, I have noted that a UK air carrier must have its principal place of business in the UK, which is perfectly reasonable, but are there any restrictions on the shareholding or ownership or on where those operators might be registered, be they in the UK, within the European Union or elsewhere?

I am also interested in bilateral air services agreements. How many, if any, have been agreed with EU member states and came into force at Brexit? If those agreements are not complete, when will they be—they must be done individually, I believe—and what happens in the meantime? Are we just hoping for the best, or are there some interim arrangements?

Finally, on qualifying air operators being eligible for PSOs—I am obviously interested in PSOs from where I live in Cornwall and the Isles of Scilly—I understand PSOs being limited to EU carriers, but do any EU carriers have cabotage rights to operate in the UK? Would they then be able to bid for PSOs in the same way as UK-registered air carriers?

That is enough from me. I look forward to the Minister’s answers.

My Lords, I join the noble Lord, Lord Berkeley, in thanking the Minister for her explanation. He is probably quite right that this will be the first of many such sessions.

I think I understand the regulations, but I am concerned about the activities of operators such as Ryanair, which now register their businesses on the continent. How are they covered? Are they now counted as a UK carrier, or are they a foreign carrier? We can see quite a lot of that sort of movement in the industry, where it will be quite difficult to determine who is what. Otherwise, I think I understand the regulations and the way in which ground-handling services have been bundled together with air operations. Like the noble Lord, I look forward to—or, rather, I can foresee—many more occasions when we might return to this subject.

My Lords, the trade agreement between the UK and the EU was concluded on Christmas Eve last year and came into force on 31 December, four and a half years after the vote for Brexit. It is almost 1,500 pages, 26 of which deal with aviation. There were major concerns that the existing conditions would be worsened, but this has largely been avoided. Of course, there is some risk of divergence over time, but, as of now, compared with the threat of no deal, we are in a very good place in spite of being out of Europe’s single aviation market. The traffic rights have been preserved. Ownership and control restrictions allow UK airlines to be EU-owned, and there is close co-operation on safety and security, so, on the whole, this is very good news.

However, as has been said, the UK aviation industry has suffered greatly. Industry groups warned in a recent article that there was only so long that airports could “run on fumes”. There are now the new quarantine rules and a requirement to isolate for 10 days, and all travel corridors are closed. The Airport Operators Association is grateful for the £8 million in rates relief for airports, but airports such as Heathrow, whose rates are £100 million in a year, have suffered hugely—at times, the airlines’ and airports’ business has been down by more than 90%. Does the Minister agree that the support needs to continue and that, in particular, the furlough scheme should be extended beyond April until at least the end of June?

There is now talk of the possibility of travellers being forced to quarantine in hotels when they arrive in the UK. Can the Minister inform us as to whether this will happen? Aviation leaders have warned that tougher border controls would be catastrophic. On the other hand, everyone in business understands that health has to come first. As the Prime Minister said, there is a theoretical risk of a new, vaccine-busting variant of the virus, which we have to be able to keep under control. Thankfully, the vaccine looks to be progressing extremely well. Does the Minister agree that we should have a testing regime which comprises not only a PCR test 72 hours before boarding a flight but a lateral flow test on arrival as is the case in the UAE, as well as another lateral flow test five days later, which would avoid the need for quarantine as we look ahead to when the vaccines have been rolled out?

My Lords, the Minister in her opening remarks referred to safety. Obviously, when airlines are not flying at normal levels and get in financial difficulty, sometimes safety is short-circuited and maintenance is put off to save money. Perhaps the Minister could tell us how safety is being maintained given these circumstances.

Secondly, I wanted to ask about the difference between what are called “foreign carriers” and “British carriers”. Airlines are owned internationally these days; they are not normally owned by a particular country, and what is a principal place of business is a matter often in the eye of the beholder. I am not quite clear how these arrangements are entered into. The other important point is that they should be reciprocal. How is that going to be rolled out over future years?

My third point, on the PSO, has already been referred to. The Minister will be aware that there are a number in the UK—in Cornwall, I believe, and I know there are others. We certainly have at least one in Northern Ireland. Given that Northern Ireland is still subject to state aid rules, how will the application of PSOs be looked at in terms of the agreement with the European Union? People could argue that unfair advantages are being given if PSOs are designated in particular areas; and of course, there is also our concern for the social and economic development of more remote regions. Perhaps the Minister could tell us how these issues will be judged. In Northern Ireland we at least have one operational PSO and are still subject to state aid; where is the interface between that and potential PSO rules in Great Britain?

My Lords, I thank my noble friend the Minister for bringing forward these regulations today—they go to the heart of the sustainability and resilience of the industry. At its height, the aviation sector enjoyed a turnover of over £60 billion, contributed over £22 billion a year to the UK economy and employed almost 1 million people either directly or indirectly. My thoughts are with all those who have been involved and who may have lost their jobs in the airline sector and the aviation industry at this time.

I particularly welcome the fact that this statutory instrument allows air carriers to retain licences in the event of passenger numbers falling, subject to the conditions that my noble friend set out, and allows, in the circumstances of a ground handler ceasing to trade before the end of the contract, airports to choose a new provider directly for a limited period to enable them to continue without a tender process at that time.

My noble friend set out the conditions which have to be met in the event of an operating carrier experiencing financial difficulties. If the airline operator cannot meet those criteria at this time and until December this year, what happens to the licences which are released and what procedure is to be followed in those circumstances? It would be very helpful for us and those affected to know.

I also echo the thanks given by the noble Lord, Lord Bilimoria, for the support enjoyed by the airline sector and other industries. But does my noble friend agree that airlines need further economic support at this time, over and above the support they have already enjoyed? Of course, most of the loans have to be paid back, and it may be some time before we enjoy the level of activity that we saw between 2016 and 2018 to enable the airlines to repay those loans. Will my noble friend look at my request to end the current air passenger duty anomaly, which is effectively subjecting UK domestic flights to double taxation?

Those are my two specific questions, in addition to what happens to the licences: what further support might be extended, and can the vexed question of air passenger duty and double jeopardy be tackled?

I thank the Minister for her introduction of the instrument, and I hope she will forgive me if I look a little wider than provisions for financial difficulties—of which I fear there are many and will be many more if we are not careful—and for changes to ground staff handling.

If you take airline travel as the beginning of a chain which links airlines, airports, their employees and suppliers, the aerospace industry and its suppliers, and the communities dependent upon them, there is a long chain of jobs dependent upon the functioning of the air travel industry. For this reason, I urge the Government and the Prime Minister to note and act upon the open letter sent by ABTA to the Prime Minister asking for an aviation, travel and tourism recovery package. We know it cannot take place now, but we need to plan for when it is possible and not wait until it is possible. We will need plans for inward travel, made in conjunction with not only the European Union but other jurisdictions. We will need to know what testing is to be available, where and when and at what cost. What role will vaccination certificates play? A few countries have already indicated unrestricted access for those who have been vaccinated, but how is that going to be proved by individuals?

Lastly—and I hope the Minister will forgive me—I raise yet again, after many questions, European Union regulation 261 on passenger compensation in the event of cancellation or delay. The Minister previously helped me on this point, and I am grateful for her assurance that it remained in force after 31 December. But, while in no way doubting her integrity on the matter, is it in a suitable form post our exit from the European Union on 31 December? Did it not need amendment to reflect this? If so, has it been done, and where?

My Lords, first, I thank the Minister for her introductory explanation. This SI extends temporary provisions to disapply the usual rules for airlines which get into financial difficulty. In normal circumstances, their operating licence is revoked or replaced by a temporary licence. The SI recognises that previously financially healthy airlines are financially at risk while travel restrictions are in place, meaning that they can continue operating without revocation or suspension of their licence so long as they were previously financially stable, safety is not at risk and there is a realistic prospect of restructuring. Similarly, it allows airports to replace ground-handling service providers without going out to tender. These seem sensible measures at the moment, but I have some questions about the detail.

First, week after week there is fresh news of crises among airlines worldwide. Most have responded by downsizing their fleets and personnel, but many clearly face serious financial difficulties still. Can the Minister tell us how many airlines in the UK have been accorded the special measures briefly described by me and referred to in the regulations? Have they been allowed to continue operating when, in normal circumstances, they could have lost their licence?

The process is subject to conditions relating to previous financial viability. Can the Minister explain how those tests are applied in the UK? Is this done by the CAA, the CMA or another government agency? Many airlines, as previous speakers have pointed out, have shareholders in the UK, the EU and across the world; what international co-operation and liaison is there between licensing authorities in such cases? Can the Minister explain how they are dealt with? On ground handling, have there been any instances of airports using the non-tender approach allowed?

Finally, I will ask about the general situation for aviation and, indeed, the travel sector generally, as several other noble Lords have. We seem to be heading towards tighter restrictions in relation to quarantine hotels, which are a very sensible response to the situation. Last month, the ONS published data that shows that the travel sector has been the hardest hit sector in the UK economy. It contributes £65 billion a year to our GVA and sustains 1 million jobs, but the Government are still providing no support targeted specifically to the travel industry; there has been no Eat Out to Help Out for it.

The Minister knows about this—I have asked about it on numerous occasions—and she always refers me to the standard package of measures available for businesses generally, but will she now accept that airlines, airports and all those companies that support them and the travel industry as a whole now need a dedicated package of support? Their request is that the Global Travel Taskforce be reconvened so that the travel industry works closely with government to tackle this very specific problem.

The measures in this SI reflect that, very early on in this pandemic, the EU specifically recognised that airlines and support companies, such as ground handlers, would face financial crises. Almost a year on, the travel industry urgently needs the UK Government to show similar awareness of it as a whole.

My Lords, I welcome the introduction of this instrument to transfer EU regulations into UK statute and to ensure continuity in relation to airlines and their operating licences. Of course, there is much work to be done to ensure that airline finances are more resilient, but this instrument is none the less a welcome contribution towards that. On that note, considering that part of these regulations relates to insolvencies of suppliers of ground-handling services, can the Minister update the Committee on what steps the Government are taking to avoid insolvencies in the near future?

Moving on to the instrument itself, the Minister will recall that, in November 2020, the European Commission stated that the periods for which the previous provisions apply will be extended by 12 months until 31 December 2021. Do the Government expect the European Commission to extend the timeframe further, beyond the current deadline—and, if so, will the UK extend the timeframe to reflect this? In regard to the drafting of this specific instrument, I am pleased that the Government have stated that the CAA supports these regulations. Can the Minister confirm who else the Government have consulted as part of the drafting of the regulations?

Finally, looking to the future operation of regulations in this area, can the Minister detail how the Department for Transport is currently engaging with the European Commission to support airlines? Does the Minister expect the European Commission to introduce any further provisions in this area? As I said, I welcome the introduction of this instrument and I am pleased that the Government are seeking continuity for airlines.

My Lords, I thank all noble Lords for their consideration of these regulations. As ever, I give my special thanks to those who were in touch beforehand to raise any issues or questions with me. It always amazes me, but probably in a good way, that noble Lords are able to raise issues far beyond the scope of the SI. I will do my best to respond, but I will focus on those issues that are directly relevant, while I still have time.

The noble Lord, Lord Tunnicliffe, talked about consultation and engagement. I hope he will recognise that this SI was put in place very rapidly, as the developments came out of the European Commission. We consulted the CAA and key ground-handling companies, but we were not able to consult as widely as we would ordinarily have liked. However, of course, we speak to the aviation sector as a whole, and I am not aware that there were any significant concerns about these regulations.

I turn to the point raised by my noble friend Lady McIntosh about what happens to the licences. There is not a finite supply of them. If the test cannot be met, the CAA can suspend or revoke an airline’s operating licence, or it could issue a temporary operating licence—these procedures are very well understood. I return to what is in the SI: the three tests that the CAA has to put in place are rigorous, and it will be able to assess whether a licence needs to be suspended or revoked.

I turn briefly to the second of the three points, which is about confirming that the financial problem poses no safety risk, and I will pick up the point that the noble Lord, Lord Empey, raised. Of course, safety is our highest priority in aviation; there has been no change to the regulation in relation to it, and there has been no change to the enforcement of safety regulations—that remains the case, and I reassure him on that.

The noble Baroness, Lady Randerson, asked whether these powers have been used, and the noble Lord, Lord Tunnicliffe, asked whether they might be extended in the future. I am not aware that these powers have been used since they became available in May 2020, and, obviously, I hope that they do not have to be used in 2021 either—but they provide the flexibility, should we need it.

On the issue of ground handlers, we are, of course, transposing, or matching our regulations to, things that were set out by the European Commission, as is the case under the withdrawal Act. At the moment, no airports in the UK have a limitation on the number of ground handlers to no more than two on safety grounds, so the ground-handler side of things would not currently be needed. However, on the airline side, it certainly gives the sector some comfort that there is the appropriate flexibility, should it be needed.

Of course, in the first instance, we are looking to the end of 2021, which is why we had to get these powers in quite quickly at the end of last year. I hope that we do not need to extend them in 2022, but we will continue to talk to the industry about this. If we need to consider extending them, this will require primary legislation. As for what the European Commission may do, obviously, we will watch with great interest, but the UK will make these decisions for itself.

This slightly leads into the question of what a UK airline and a foreign airline are. The latter needs to have an air operator certificate and a route licence from the CAA to operate in the UK. A UK airline must have a principal place of business in, and be regulated by, the UK. As such, to a certain extent, an airline decides where its principal place of business is and, therefore, who it is regulated by. Of course, within the EU and, to the largest extent, the UK, it probably does not really matter because you are mostly dealing with the same regulation—so Ryanair is not a UK carrier because its principal place of business is not in the UK and, therefore, it is not regulated by the CAA.

The noble Lord, Lord Berkeley, also asked about new bilateral agreements following the trade and co-operation agreement, which we entered into at the end of last year. There do not need to be any bilateral agreements now, so there will be no new ones with EU member states because the new air services agreement within the TCA covers the entirety of the EU.

Turning to the point made by the noble Lord, Lord Empey, about PSOs, the Northern Ireland protocol applies only to trade in goods, whereas public service obligations are a service. They are therefore not subject to state aid rules and can be considered in the broader context of regional connectivity. The PSOs were put in place under Regulation 1008/2008; as I said, this regulation has been retained in UK law. Indeed, Article 3.5 of the EU TCA makes specific mention of PSOs as an allowed subsidy, which is positive. Decisions on PSOs are made on a case-by-case basis. I believe that the noble Lord, Lord Berkeley, asked whether an EU carrier would be able to undertake one. If no UK airline was interested in providing a PSO, an EU airline could be given greater cabotage rights so that it could then provide the service.

We in government have come up with a good package that covers many types of business in the economy. I will not go through this in detail as I am sure noble Lords have heard it mentioned many times before, but the air transport sector as a whole has received around £3 billion of support from the Covid Corporate Financing Facility and the job retention scheme alone. Noble Lords will be well aware that the airport and ground operations support scheme has been announced by the Government; that should be helpful in reducing cash burn, particularly for small and medium-sized airports. It could also unlock further shareholder and lender support.

It is worth mentioning that further cross-economy measures are available to businesses in the aviation sector if they are eligible. In January 2021—this month—easyJet announced that it had signed a £1.4 billion loan facility with a syndicate of banks, partially guaranteed by UK Export Finance. British Airways also secured a similar commitment for £2 billion, which, again, will be partially guaranteed by UK Export Finance. A lot is going on to make sure that our aviation sector is secure for the future. Also in January, the Chancellor announced the Additional Restrictions Grant. Again, that may be appropriate for some businesses, but we are well aware that, like so many sectors of our economy at the moment, aviation is struggling.

We are now focused on getting a plan together—the noble Baroness, Lady Randerson, mentioned this—for how we will help the sector recover. We are doing a lot of work in this area. The expert steering group, which we originally set up right at the outset of the pandemic, was reconvened in September to focus specifically on recovery work. It includes representative bodies such as the Airport Operators Association and Airlines UK, airlines such as easyJet, IAG, Virgin and Wizz Air, airports, ground handlers, a freight representative, the Association of British Travel Agents—the noble Baroness, Lady Randerson, name-checked it, I think; it is actually involved in the recovery work so I hope that it will share its thoughts with the group—and the CAA. The steering group is working with the department to come up with a recovery plan for the aviation sector. It will explore all sorts of different things relevant to aviation; a specific example is looking at how we can make sure that we maintain our regional connectivity.

The noble Lord, Lord Bilimoria, mentioned border closures. I thank him for his suggestion about testing. As noble Lords know, this is a live issue at the moment. The Government always have it under review and are always thinking about how we can strengthen it.

My noble friend Lady McIntosh mentioned air passenger duty—not for the first time. I am always grateful to her for doing so. As I believe I have said, we take great interest in air passenger duty. The Treasury always keeps taxes under review. The Government have committed to consulting on aviation tax reform. We recognise the issue mentioned by the noble Baroness. I very much hope that, now that the workload around the initial response to Covid-19 has declined somewhat, we will be able to move the consultation forward more quickly.

Finally, on the point made by the noble Lord, Lord Bowness, about Regulation 261 and passenger compensation, I am afraid I can go no further. As I said, it is a functioning regulation and we do not believe that it needs to be updated, but I will ask officials to write to the noble Lord if further detail would be helpful.

Motion agreed.

Sitting suspended.