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

Baroness Vere of Norbiton Excerpts

Tuesday 26th January 2021 Grand Committee

Moved by

[Baroness Vere of Norbiton]

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

[The Parliamentary Under-Secretary of State, Department for Transport (Baroness Vere of Norbiton) (Con)]

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.

--- Later in debate ---

[Baroness Vere of Norbiton (Con)]

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.