Owner of Iberia, BA in talks with EU and government over Brexit

Brexit is fast approaching, and the uncertainty about what will happen the day after the United Kingdom leaves the European Union is growing. In the absence of a deal setting out exactly what the country’s relationship will be with the other 27 countries in the bloc after March 29, 2019, the parent group of Spanish airlines Iberia and Vueling, International Airline Group (IAG), is negotiating against the clock to prevent the divorce from affecting its business. The group – which also owns British Airways and Aer Lingus, and is legally based in Spain but controlled by British capital – is in talks with the Spanish government and the European Commission to try to ensure that IAG continues to be considered an EU-based company, and as such covered by community rules.

According to three government sources and one from the EU, it will be Brussels that will have to ratify the nationality of the group

Since the start of the Brexit process – when 51% of participants opted to leave the EU in a 2016 plebiscite – the airline industry has been considered a priority. Aware that the unknowns surrounding IAG’s two Spanish brands, Iberia and Vueling, were damaging both airlines, Spain was one of the countries that put on most pressure in Brussels to try to achieve this distinction.

At the time, few politicians entertained the thought of a “no deal” Brexit,  nor did IAG take great steps to clarify what its situation would be in the instance that it was left as a company belonging to a third country outside the EU. But as the date of the divorce looms, nerves have increased, and talks with the Spanish government and Brussels have been pushed for mostly by Iberia. According to three government sources and one from the EU, it will be Brussels that will have to ratify the nationality of the group.

The management of IAG and the Public Works Ministry have exchanged a number of letters in which they have been analyzing this strategy. One of them, dated October 1 and sent to the chairman of the group, Antonio Vázquez, confirms the contact with the European Commission to “deal with the impact of Brexit on the ownership and control of the IAG group airlines based in Spain.” According to this text, the government has conveyed to Brussels the efforts of the group to meet the European regulations that set out the criteria for an airline or group to be considered as European: it must have its main headquarters in a member state, and be majority owned or controlled by a person or entity based in the EU. Brussels has doubts as to whether IAG meets this last condition, while the company claims it does.

IAG had not initially considered the risks of the group being linked to a third country after the British divorce

While all sources consulted trust that there will be a deal between the EU and the UK that sees the airline sector protected from the effects of Brexit, the risks remain high. “It should not be overlooked that the companies from the IAG group must, just like any other EU aerospace company, take the necessary steps to ensure that all regulations are complied with after the United Kingdom leaves the EU, and thus guarantee the maintenance of its operating license,” the letter from the Public Works Ministry reads.

Thanks to its current membership of the European single market, British airlines can operate in the rest of the EU without having to request prior approval. They can also do so in 17 other non-EU countries, thanks to deals signed by the bloc. Among these is the United States, a key market, and one that is covered by the European “open skies” agreement. When the UK is no longer subject to this EU legislation, the British authorities will have to draw up new deals with the EU and those 17 countries, which also include Canada and Morocco. Airlines that are dependent on British legislation will be bound by whether or not those deals are signed.

The Public Works Ministry reveals in its letter that IAG had not initially considered the risks of the group being linked to a third country after the British divorce. “The Commission received this news with satisfaction, given that it was not aware that IAG was being sufficiently active to deal with the risks posed by this exceptional situation.” The CEO of the group, Willie Walsh, brushed off the uncertainty. Asked by the Financial Times how he was going to show Brussels that the group should be considered European after Brexit, he answered: “Magic.” An EU source with knowledge of the situation said that the group was in “a state of negotiations” until recently.

The group refuses to give any clues about what it is doing to prove that it is Spanish

The group continues to express its confidence that an ambitious agreement on air travel will be reached within the Brexit framework. “Even if there is no deal, both the EU and the United Kingdom have said that they will apply an agreement that will allow for flights to continue,” said an IAG spokesperson. As for the three-way talks with the Spanish government and the European Commission, the same source said: “IAG has had significant involvement with all of the relevant regulators and governments, and will continue to do so.”

The group refuses to give any clues about what it is doing to prove that it is Spanish. “We trust that we will meet European and British ownership and control rules after Brexit,” it has limited itself to saying. This plan will be presented in the coming days, according to government sources. The government’s initial suggestion was for changes to be made to the business structure in order to ensure that European control takes precedence. IAG will now have to communicate to Brussels the precise plan it has in mind.

English version by Simon Hunter.