Continuous Examination. International University of Applied Science Bad Honnef Bonn International Management Aviation

Continuous Examination International University of Applied Science Bad Honnef Bonn International Management Aviation Effects of Brexit on the Passenger Airline Industry and its Legal Framework in Third Countries: Focusing on the USA Felix Walgenbach Student ID: 9150484 Deutz-Mülheimer Str. 214 51063 Köln Supervisor: Prof. Dr. Christoph Brützel Date of submission: May 26, 2017

TABLE OF CONTENTS 1. Introduction... 1 2. Initial Situation... 2 2.1. The referendum in the UK... 2 2.2. Withdrawal process... 3 2.3. Current legal situation... 3 3. Impact of the Brexit on third countries... 6 3.1. Most affected countries... 6 3.2. Exchange rate effects... 7 3.3. Elasticity effects... 9 4. Feasible options for future air service agreements... 9 4.1. Bermuda II... 10 4.2. UK membership in the EU-US Open Skies agreement... 12 4.3. New bilateral agreement... 12 5. Conclusion... 14 List of references... 15 Appendices... 18 Appendix A: International passenger movements at UK airports... 18 Appendix B: Pivot Tables... 20 i

1. INTRODUCTION After the Brexit-referendum in the UK many predictions and forecasts have been sketched by plenty of institutions, governments and experts regarding the development of different industries in different post-brexit scenarios. The aviation industry has a distinctive character within those scenarios since it is a prerequisite for a major part of international trade and furthermore air service agreements are usually not covered by other trade arrangements. Therefore, the events following the Brexit decision are very central in particular for air traffic. Besides the United Kingdom and the European Union third countries might also be affected by the events. The following paper shall evaluate the impact of those events on the passenger airline industry and its legal framework in third countries with a clear focus on the United States of America. 1

2. INITIAL SITUATION 2.1. The referendum in the UK On June 23 in 2016 the United Kingdom voted to leave the European Union. Former prime minister David Cameron promised to hold the referendum in case of a reelection in 2015 (Iyengar, 2016). In that general election, his Conservative Party won the majority without the pro-european former coalition partner (Liberal Democrats) while the UK Independence Party received 13% (Ryan, 2016, p. 11) indicating an anti-eu tendency in the society. However, according to Ryan (2016, p. 10) The long-standing discord over Europe within the Conservative party is going back to the days of Margaret Thatcher. He also points out that the UK always had a skeptical attitude towards the EU and its predecessors. The main intend of the exit and prevailing argument of the Vote Leave Campaign, led among others by the conservative politician Boris Johnson, was the desire of more political freedom and the avoidance of EU membership fees (Hunt & Wheeler, 2017). Another influential catalyst in the progress that led to the referendum decision was the immigration of refugees from Africa and the Middle East to Europe during the year of 2015. According to Hunt and Wheeler (2017) Brexit supporters ( ) wanted Britain to take back full control of its borders and reduce the number of people coming here [to the UK] to live and/or work.. Furthermore, the refugee deal between the EU and Turkey was forecasted to have an influence on the referendum (Ryan, 2016, p. 10). At the end of the day, the result of the referendum was very narrow. 51.9% decided to leave the EU (BBC, 2016). Uncertainty led to immediate falls in international stock markets and pound sterling. US Airlines within the S&P Composite 1500 fell almost 7% post the announcement of the exit (Trefis Team, 2016). This seems to be an indicator that the Brexit will not only affects the UK and the EU but has most probably an impact on third countries policy, economy and industry. This paper shall provide more details about these long-term and short-term impacts related to the aviation industry in third countries (especially the USA) and evaluate possible countermeasures (in this case: air service agreements) to mitigate those impacts in terms of likelihood and effectiveness. 2

2.2. Withdrawal process The process of leaving the EU is defined by Article 50 of the Treaty on European Union. It says that the respective member state which decides to withdraw shall notify the European Council of its intention (European Union, 2016, p. 44). This was done by prime minister Theresa May on March 29 with her letter to European council president Donald Tusk (Asthana, Heather, & Walker, 2017). Article 50 further says that the withdrawing state and the Union shall negotiate and conclude an agreement which regulates the future relationship between the two stakeholders (European Union, 2016, p. 43). Both parties have two years to do so until the treaties ( ) cease to apply to the State in question unless the European Council, in agreement with the Member State concerned, unanimously decides to extend this period (European Union, 2016, p. 44). This means the EU and the UK have time until the 29 th March in 2019 to negotiate all the arrangements determining the relationship in terms of trade, political orientation and every other field concerned. The IATA (2016, p. 3) as well as the law firm Watson Farley & Williams (2017, p. 2) claim that this period was insufficient to negotiate these agreements. Watson Farley & Williams further notes that the results of all these negotiations must be put into EU and UK law respectively which also takes some time, whereby the actual time to negotiate becomes even shorter than two years (2017, p. 2). Furthermore, there are a couple of so called comprehensive agreements between the EU and third countries which substituted former bilateral agreements (IATA, 2016, p. 2). This means the UK is also obliged to negotiate with third countries while negotiating with the EU since third countries are probably not willing to wait but rather need a degree of certainty regarding trade agreements with the UK. A detailed overview of the current legal situation and its consequences is depicted in the following chapter. 2.3. Current legal situation Aviation policy in the EU is characterized by the single EU aviation market. It stands for regional market integration and liberalisation in air transport (European Commission, 2017). Joint regulations have led to the term EU air carrier or Community Carrier that describes all airlines in the Union which are established and licensed under the same rules and can operate any route within the EU (European Commission, 2017). This integrated market also affects by nature the relationship and the agreements with third countries. 3

Air service agreements between member states of the EU and third countries are subject to an ongoing development and improvement. In 2002, the Court of Justice of the EU decided that bilateral air service agreements between a member state and a third country which grants airlines of the respective country more traffic rights than airlines in other member states are discriminatory and not in line with the EU law (European Commission, 2017). Therefore, relevant discriminatory agreements are under amendment since 2003. Furthermore, all amendments of bilateral air service agreements shall be negotiated by the European commission under mandate from the respective member states. These horizontal agreements also simplify the negotiations for third countries and ensure cost and time efficiency (European Commission, 2017). The actions described above are summarized under the term Pillar 1 agreements and largely achieved their objective (von den Steinen & Probst, 2013, p. 17). However, von den Steinen and Probst point out that important third countries like Russia, China, India and South Korea do not accept the standards defined by the EU (2013). On the one hand this stance results in more difficult and complex negotiations and on the other hand it provides more flexibility to third countries and is a clear sign of protectionism. Since Pillar 1 Agreements are still bilateral agreements Brexit most likely will not have a considerable influence on non-eu countries which have a relation to the EU under Pillar 1. So-called Pillar 2 agreements in contrast are more significant regarding the Brexit. These agreements have the objective to enlarge the European market with a focus on neighboring countries and countries that border on the Mediterranean Sea and several Balkan countries (IATA, 2016, p. 4; von den Steinen & Probst, 2013, p. 13). These agreements are mostly reflected by the European Common Aviation Area (ECAA) and related other agreements like the Common Aviation Area Agreement, the Euro-Mediterranian Aviation Agreement and a separate agreement with Switzerland (European Commission, 2017). They provide a liberalized air space as well as the same standards for safety and security in the member countries (von den Steinen & Probst, 2013, p. 19). Hence, non-eu countries like Norway, Morocco or Switzerland have air service agreements with the European Community and the withdrawal of the UK from this community requires new bilateral agreements between them and the respective third countries. A membership of the UK within the ECAA might also be a reasonable alternative. These options are illustrated in Chapter 4 of this paper. 4

The third pillar represents agreements that establish a comprehensive relationship at EU-level with countries beyond the so-called European Neighbourhood (von den Steinen & Probst, 2013, p. 17). IATA claims that the most high profile of these agreements is the EU-US open-skies agreement which entered into force in 2008 (2016, p. 4). The British Air Transport Association (BATA) confirms the significance by expressing their concern over the Open Skies agreement regarding the Brexit (European Union Committee, 2017, p. 69). Other comprehensive agreements with third countries on EU level are the EU/Canada Air Transport Agreement of 2009, the EU-Brazil Air Transport Agreement of 2011 and individual Horizontal Agreements with Australia and New Zealand (von den Steinen & Probst, 2013, p. 20). It should be noted that the agreements with Brazil, Australia and New Zealand have not yet been implemented so far or are still under negotiation (von den Steinen & Probst, 2013, p. 20). Broadly speaking, the EU-US agreement allows US and EU airlines to fly from anywhere in the EU to anywhere in the US and vice versa (European Union Committee, 2017, p. 69) (3 rd and 4 th freedoms of the air). Moreover, it grants both parties 5 th and 6 th freedoms of the air and the 7 th freedom for cargo operations (von den Steinen & Probst, 2013, p. 19). In 2011, non-eu countries Norway and Iceland also became parties to the agreement (European Commission, 2017). IATA argues that this model might be a scenario the UK could look to replicate (IATA, 2016, p. 5). The possibility is also evaluated in Chapter 4 of this paper. Aviation consultant Dr. Barry Humphreys sees aviation related trade agreements always different than other trade arrangements in the world (as cited in European Union Committee, 2017, p. 65) also because aviation services have never been covered by the WTO (European Union Committee, 2017, pp. 69, 71). Furthermore, aviation as an important transport mode, is a prerequisite for international trade. According to the British Air Transport Association 40% of the UK s trade with economies outside the EU, by value, [are] transported by air (as cited in European Union Committee, 2017, p. 65). This indicates that air service agreements will enjoy a special status during Brexit negotiations. This is also valid for negotiations between the UK and third countries which need legal certainty. 5

3. IMPACT OF THE BREXIT ON THIRD COUNTRIES 3.1. Most affected countries Third countries having comprehensive air service agreements with the European Union that substituted former bilateral agreements resulting from the current legal situation described above are listed below (derived from European Commission, 2017): - Albania - Bosnia and Herzegovina - Canada - Croatia - Georgia - Iceland - Israel - Jordan - Kosovo - Macedonia - Moldova - Montenegro - Morocco - Norway - Serbia - Switzerland - United States of America Depending on the future relationship between the UK and the EU those countries are obliged to negotiate new bilateral air service agreements with the United Kingdom. Table 1 shows the concerned countries with the six highest passenger movements in 2015 at UK airports. The data are derived from UK Department for Transport (2016) and shown in Annex A. Table 1 Passenger movements at UK airports by country of embarkation or landing Country Passenger movements 2015 (in thousands) USA 18.618 Switzerland 6.251 Canada 3.154 Norway 2.675 Croatia 1.059 Israel 985 6

The USA are by far the country with the highest passenger movements to and from the UK. Nevertheless, the air service relationship to the UK might be more important for other countries. In proportion to the population, Norway has the highest number of passengers flying to and from the UK of the countries listed in the table above (population data from: Central Intelligence Agency, 2016). However, the United States shall serve as reference for this paper and the following analyses. This decision is supported by institutions like IATA and BATA which grants the EU-US agreement a high importance during Brexit negotiations (as cited in European Union Committee, 2017, p. 69; IATA, 2016, p. 4). 3.2. Exchange rate effects As stated by HM Treasury the immediate impacts of the Brexit decision arise from uncertainty which leads to a decrease in investments (as cited in IATA, 2016, p. 1). Usually a lack of certainty and investments leads to a depreciation of the domestic currency which in fact happened to Pound Sterling. After the referendum on June 23 in 2016 the currency dropped by approximately 7.5% within one day aginst USD. Comparing the average exchange rate from the year prior to the referendum (June 23, 2015 - June 24, 2016) with the time after the referendum until May 21, 2017 the British Pound Sterling even depreciated by approximately 14.8% against the US Dollar (NZFREX Foreign Exchange Rates, 2017). IATA claims that pound sterling (GBP) also remains weaker in the longer term ( in the region of 10-15% ) (IATA, 2016, p. 2). A depreciation of GBP is favorable for US visitors in the UK since purchasing power is at a higher level. At the same time visits in the US are more expensive for British travelers (IATA, 2016, p. 2). This would mean that outbound traffic from the US to the UK would benefit from the exchange rate effects while inbound traffic from the UK to the US would decrease. Thus, the impact on US airlines depends in theory on the share of outbound and inbound traffic they serve and the sensitivity to exchange rate differences of travelers on that routes. 7

6% 5% 4% 3% 2% 1% 0% -1% -2% -3% -4% 2013 (Jul - Nov) 2014 (Jul - Nov) 2015 (Jul - Nov) 2016 (Jul - Nov) US-EU and EU-US All international routes UK-US and US-UK Figure 1 Passenger volume growth of US airlines from 2013 to 2016 (July - November) Figure 1 shows passenger growth within US airlines in three different markets considering the months July until November respectively for each year. These months were chosen because July 2016 is the first month where exchange rate effects due to the referendum would be visible and numbers after November 2016 have not been available at the time this paper was written (May 2017). Passenger numbers are derived from US Department of Transportation (Bureau of Transportation Statistics, 2016). Pivot tables derived from available raw data are shown in Appendix B of this paper. It is apparent that growth on the UK market is always lower than on total EU market or the whole international market. However, the growth level of the UK-US market in the month after the referendum, when GBP depreciated already significantly against USD, compared to the other two markets is not meaningfully different than in former years. This raises the impression that the exchange rate differences have a relatively small impact on passenger volume of US carriers in comparison with other drivers. This impression is substantiated by IATA claiming that the impact of weaker sterling on UK air traffic is likely to be relatively muted (IATA, 2016, p. 3). 8

3.3. Elasticity effects Another driver of air travel demand is the gross domestic product (GDP) of the respective countries. IATA sums up different GDP forecasts in their publication The impact of BREXIT on UK Air Transport. They claim that UK GDP will be between 2% and 3.5% lower in 2020 compared to the no Brexit baseline (2016, p. 1). Taking an income elasticity of 1.3 into account (IATA, 2016, p. 1) air traffic demand in the UK will be lower by 3-5% within the next three years which will also have a negative impact on US airlines revenues on UK markets in the long-term (Trefis Team, 2016). These assumptions and forecasts can only be tested precisely in the future when relevant data exist and an empirical analysis will be reliable. Exchange rate and GDP development also depend on other trade related negotiations between the UK and the EU. Negotiation outcomes which are directly related to air traffic will lead to a change of the legal trading framework described in Chapter 2.3. The economic impact of the new framework will depend on the nature of the agreements substituting the ones which are currently in place. Different scenarios are handled in the following chapter. 4. FEASIBLE OPTIONS FOR FUTURE AIR SERVICE AGREEMENTS There are plenty of scenarios regarding the future relationship between the European Union and the United Kingdom. Relationship scenarios after the Brexit concerning air traffic between the UK and the USA in contrast are scarce but can be derived from the ones above. IATA lists three basic models defining the broad future arrangement between the UK and the EU (2016, p. 5): - No formal agreement - Membership of the European Common Aviation Area (ECAA) - Negotiated UK-EU horizontal agreement These models can in part be projected to the post-brexit relationship between the UK and the US. Aviation consultant Dr. Barry Humphreys claims that a no-agreement scenario would lead to the agreement, which was in place prior to the EU-US Open-Skies agreement Bermuda II (as cited in European Union Committee, 2017, p. 70). 9

A UK membership in the ECAA can be projected to the UK-US relationship as a membership in the EU-US Open-Skies agreement. This model could be a blueprint comparable to the membership of non-eu countries Norway and Iceland in the same agreement. The third scenario is mirrored by a new bilateral agreement between the United States and the United Kingdom. All three possibilities also apply to third countries other than the United Stated in consideration of the respective former bilateral agreements. In the following, the three options shall be evaluated regarding likelihood and effectiveness, taking negotiation power and consequences like the possible economic impact into account. 4.1. Bermuda II According to Dr. Humphreys (as cited in European Union Committee, 2017, p. 70) the Bermuda II agreement with its last revision in 1997 (U.S. Department of State, 2017) would be valid again if the UK and the US do not negotiate a new agreement until March 29, 2019. Humphreys further observes that Bermuda II was a restrictive agreement (European Union Committee, 2017, p. 70). This implies a possible decrease in economic activity on the US-UK market on a basis of the Bermuda II scenario. The implication shall be examined by a comparison of passenger volumes of US airlines in the market concerned before and after the EU-US Open Skies agreement. Since Bermuda II was substituted by the EU-US Open-Skies agreement only in 2008 passenger volumes of the years before still serve 7.400.000 7.200.000 7.000.000 6.800.000 6.600.000 6.400.000 6.200.000 6.000.000 Bermuda II EU-US Open Skies agreement 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Figure 2 Passenger volume of US airlines on US-UK and UK-US routes from 2000 to 2015 10

as a comparable reference value. Figure 2 shows the passenger volumes for the years 2000 to 2015 by US airlines on routes between the USA and the UK. Passenger numbers are again retrieved from US Department of Transportation (Bureau of Transportation Statistics, 2016). Pivot tables derived from available raw data are shown in Appendix B of this paper. It must be noted that other drivers most probably had a more significant impact on passenger volume in the choosen period. The industry crises following the September 11 attacks in 2001 and war in Iraq in 2003 is clearly visible. The impact of the new Open Skies agreement which came into effect in March 2008 is blurred by the financial crisis in the same year. Nevertheless, passenger volume have not been recovered in the years after the crisis which might be surprising. A logical explanation might be the consideration that the UK and London Heathrow in particular lost its importance as a hub for transatlantic flights due to the EU-US agreement since from March 2008 on all EU community carrier had the possibility to fly from their country to any airport in the US. 7.400.000 7.200.000 7.000.000 6.800.000 6.600.000 6.400.000 6.200.000 6.000.000 Bermuda II EU-US Open Skies agreement 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 19.000.000 18.500.000 18.000.000 17.500.000 17.000.000 16.500.000 16.000.000 15.500.000 15.000.000 14.500.000 14.000.000 Passenger Volume US airlines Passenger Volume UK airports Figure 3 Comparison of the development of passenger volume of US airlines with the volume at UK airports (US/UK market) In Figure 3 passengers (from or to the USA) at UK airports are added to the chart (right axis). Data are retrieved from UK Department for Transport (2016). It must be noted that passengers transported by US airlines to and from the UK is a subset of passengers at UK airports that came from or went to the US. Both volumes show a dip after the financial crisis of 2008 and a begin of a recovery in 2011. While total passenger volume on the UK/US market (blue line) then began to increase again to a level prior 2008 the share of passengers transported by US airlines 11

stagnated. The essential point is that passenger level of US airlines during Bermuda II seemed to be higher than passenger volume after the Open Skies agreement came into effect. Thus, a no-agreement scenario or Bermuda II scenario respectively would most likely harm the UK airlines industry as implied by Dr. Humphreys (European Union Committee, 2017) but the effect on US airlines could even be positive. Nevertheless, it should be noted that other drivers are more significant for the industry. Moreover, they create a bias during the analysis of the impact of air service agreements. Thus, it is not certain why the curves diverge after 2011 and if the Open Skies agreement plays a role in that phenomenon. 4.2. UK membership in the EU-US Open Skies agreement ECAA members Norway and Iceland showed that it is possible for non-eu countries to be part of a comprehensive EU agreement with other third countries (IATA, 2016, p. 5). IATA further observes that this would likely be a scenario that the UK could look to replicate (2016, p. 5). On the other hand, British European Union Committee cites other sources which say that an ECAA membership does not guarantee access for UK air services to third countries (2017, p. 68). Besides, it is apparent that such a UK membership in the EU-US Open Skies agreement would depend on EU-UK negotiations and it is unclear if the United States are willing to make these negotiations a requirement for their own relationship to the UK. Therefore, it is more probable that both parties will seek a bilateral agreement in the first place. An ECAA membership and a membership in the Open Skies agreement might regulate the transatlantic air transport relationship in the long-term. But it should be noted that the UK originally wanted to become less dependent from the EU by voting for Leave in the referendum (see Chapter 2). A membership in the EU-US Open Skies agreement would contradict this standpoint since the UK would have to comply with the range of EU aviation law, but do not have any role in shaping new legislation (IATA, 2016, p. 5). 4.3. New bilateral agreement A new bilateral agreement would ensure more political freedom for the UK since they would neither depend on old agreements nor on the European Union. IATA says that the framework of ICAO would then be the only supra-national influence (2016, p. 6). Despite of a greater flexibility (IATA, 2016, p. 4) for the UK while negotiating bilateral agreements rather than being part of a comprehensive EU agreement, this scenario also had 12

some disadvantages for the UK which might benefit the USA. IATA for example addresses a lack of bargaining power negotiating as a single country with the United States (IATA, 2016, p. 4). The administration under US president Donald Trump might make use of the favorable power situation by negotiating an agreement which is more restrictive and beneficial for the US airline industry. With regard to the limited negotiating time USA and UK could also agree to a temporary transitional agreement which grants both parties the same bilateral traffic rights which are currently defined by the Open Skies agreement. This possibility is also recommended by BATA (as cited in European Union Committee, 2017, p. 70). This solution could also pave the way for the Open Skies scenario described in the chapter above. IATA mentions two trade-offs from the UK s point of view regarding the upcoming negotiations: - trade-off between reaching a quick deal to mitigate the short-term impacts and reaching the best deal to mitigate the long-term economic consequences of Brexit - trade-off between [ ] access for UK airlines and customers to the European Single Aviation Market and policy freedom for the UK to set its own regulations. (2016, p. 4) The need to reach a quick deal can be satisfied by such a transitional agreement. The second trade-off is more difficult to solve since it depends on all three parties (EU, UK, USA) and will be decided by means of different political interests. Though, a new bilateral agreement would be a feasible solution for the US. 13

5. CONCLUSION This paper shows that Brexit will not only lead to new negotiations and air service agreements between the UK and the EU but also between the UK and third countries. The third countries in question can be identified by a look at Pillar 2 and Pillar 3 agreements of the European Union as described in Chapter 2.3. In doing so it becomes apparent that the relationship between the UK and the US is the most significant one. Besides the amendment of air service agreements exchange rate effects and GDP elasticity effects caused by Brexit might also have an impact on the industry in third countries. It could be demonstrated that the depreciation of GBP during first five months after the referendum in the UK did not have considerable influence on passenger volumes of US airlines in the transatlantic market connecting the United States with the United Kingdom. In contrast a lower GDP level after Brexit is forecasted to lead to a decrease of demand in the market. However, overall impact on development of the industry largely depends on the nature of air service agreements which will be negotiated in the upcoming years. A fall back on Bermuda II could have a positive influence on US airlines but is very unlikely since the British airline industry would most likely be harmed and the UK would therefore try to pursue other solutions. A new bilateral arrangement could either serve as a transitional solution leading to a possible membership in the EU-US Open Skies agreement or could serve as a Bermuda III defining the bilateral relationship in the long-term. All in all, it can be stated that the impact of Brexit on third countries will be moderate and will largely depend on the strategies of all parties during negotiations. On the one hand a retrogression to more regulation and protectionism would lead to more flexibility, influence and power of the stakeholders concerned and on the other hand could potentially harm economic growth, competition and the overall development of the aviation industry, especially in the UK. 14

LIST OF REFERENCES Asthana, A., Heather, S., & Walker, P. (2017, March 29). May triggers article 50 with warning of consequence for UK. Retrieved May 19, 2017, from The Guardian: https://www.theguardian.com/politics/2017/mar/29/theresa-may-triggers-article-50- with-warning-of-consequences-for-uk BBC. (2016). BBC. Retrieved May 18, 2018, from http://www.bbc.com/news/politics/eu_referendum/results Bureau of Transportation Statistics. (2016, November). Air Carriers : T-100 International Market (US Carriers Only). Retrieved May 13, 2017, from United States Department of Transportation: https://www.transtats.bts.gov/dl_selectfields.asp?table_id=306&db_short_na me=air%20carriers Central Intelligence Agency. (2016). World Factbook. Abgerufen am 22. May 2017 von Central Intelligence Agency: https://www.cia.gov/library/publications/the-worldfactbook/ European Commission. (2017, May 19). External Aviation Policy - Horizontal Agreements. Retrieved May 19, 2017, from European Commission: https://ec.europa.eu/transport/modes/air/international_aviation/external_aviation_p olicy/horizontal_agreements_en European Commission. (2017, May 19). International Aviation. Retrieved May 19, 2017, from European Commission: https://ec.europa.eu/transport/modes/air/international_aviation_en European Commission. (2017, May 21). International aviation: Switzerland. Retrieved May 21, 2017, from European Commission: https://ec.europa.eu/transport/modes/air/international_aviation/country_index/switz erland_en European Commission. (2017, May 21). International aviation: United States. Retrieved May 21, 2017, from European Commission: https://ec.europa.eu/transport/modes/air/international_aviation/country_index/unite d_states_en 15

European Union. (2016, June 7). Official Journal of the European Union. Retrieved May 18, 2017, from EUR-Lex: http://eur-lex.europa.eu/legalcontent/en/txt/pdf/?uri=oj:c:2016:202:full&from=en European Union Committee. (2017). Brexit: trade in non-financial services. House of Lords. Retrieved May 18, 2017, from https://www.publications.parliament.uk/pa/ld201617/ldselect/ldeucom/135/135.pdf Hunt, A., & Wheeler, B. (2017, April 25). BBC. Retrieved May 18, 2017, from http://www.bbc.com/news/uk-politics-32810887 IATA. (2016, June 24). The Impact of 'Brexit' on UK Air Transport. Retrieved May 18, 2017, from IATA: http://www.iata.org/publications/economic-briefings/impact-ofbrexit.pdf Iyengar, R. (2016, June 24). Time. Retrieved May 18, 2017, from http://time.com/4381184/uk-brexit-european-union-referendum-cameron/ NZFREX Foreign Exchange Rates. (2017, May 22). Historical Exchange Rates. Retrieved May 22, 2017, from NZFREX: http://www.nzforex.co.nz/forex-tools/historicalrate-tools/historical-exchange-rates Ryan, J. (2016, May 25). UK Referendum and Potential Brexit? ifo Schnelldienst, 69(10), pp. 10-12. Trefis Team. (2016, June 30). Forbes. Retrieved 18 May, 2017, from https://www.forbes.com/sites/greatspeculations/2016/06/30/how-will-the-brexitimpact-us-airlines/#dc463324488a U.S. Department of State. (2017, May 25). U.S.-U.K. Bermuda II of July, 23 1977. Retrieved May 25, 2017, from https://www.state.gov/e/eb/rls/othr/ata/u/uk/176322.htm UK Department for Transport. (2016, December 8). International passenger movements at UK airports by country of embarkation or landing: time series. Retrieved May 21, 2017, from Statistical data sets: https://www.gov.uk/government/statistical-datasets/avi01-traffic-passenger-numbers-mode-of-travel-to-airport 16

von den Steinen, E., & Probst, C. (2013, February). An Overview of the Air Service Agreements Concluded by the EU. (P. Department, Ed.) Retrieved May 19, 2017, from European Parliament: http://www.europarl.europa.eu/regdata/etudes/note/join/2013/495849/ipol- TRAN_NT(2013)495849_EN.pdf Watson Farley & Williams. (2017, March 29). Keeping Skies Open After Brexit. Retrieved May 18, 2017, from WFW: http://www.wfw.com/wpcontent/uploads/2017/03/wfw-briefing-brexit-and-aviation.pdf 17

APPENDICES Appendix A: International passenger movements at UK airports Source: UK Department for Transport. (2016, December 8) Department for Transport statistics Aviation Table TSGB0205 (AVI0105) International passenger movements at UK airports 1 by country of embarkation or landing, 2005-2015 Thousands/percentage 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 % of total in 2015 European Union: Austria 1.796 1.788 1.877 1.826 1.746 1.662 1.705 1.669 1.545 1.621 1.779 1% Belgium 1.711 1.626 1.624 1.398 1.185 1.121 1.234 1.295 1.286 1.440 1.592 1% Bulgaria 771 919 953 992 881 858 878 909 979 1.005 1.126 1% Croatia 397 561 658 576 620 623 655 762 893 976 1.059 1% Cyprus 2.989 3.006 2.969 2.951 2.703 2.596 2.636 2.518 2.330 2.293 2.404 1% Czech Republic 2.355 2.159 2.071 1.817 1.516 1.276 1.295 1.370 1.387 1.506 1.747 1% Denmark 2.255 2.305 2.345 2.395 2.452 2.404 2.559 2.568 2.785 2.978 3.289 2% Estonia 186 178 179 157 99 104 244 173 144 146 147 0% Finland 799 931 944 961 946 982 1.002 969 1.021 1.115 1.117 1% France 10.994 11.568 11.785 11.676 10.729 9.659 10.270 10.232 10.398 10.666 11.034 5% Germany 10.937 11.501 11.607 11.155 10.716 11.168 11.641 11.856 12.209 12.484 13.273 6% Greece 5.596 5.522 5.457 5.199 4.873 4.724 4.630 4.797 4.953 5.614 6.096 3% Hungary 1.119 1.014 960 1.096 961 955 1.037 1.245 1.330 1.507 1.729 1% Irish Republic 11.789 12.361 12.259 12.321 10.896 9.555 9.727 9.514 9.690 10.435 11.577 6% Italy 10.713 10.573 11.207 10.737 9.914 9.619 10.260 10.846 11.033 11.921 12.686 6% Latvia 309 461 479 464 458 550 585 504 544 608 718 0% Lithuania 222 319 340 359 319 473 564 728 740 738 836 0% Luxembourg 182 209 251 245 203 210 252 276 370 383 395 0% Malta 1.110 1.055 1.148 1.101 1.024 1.038 1.091 1.111 1.161 1.231 1.289 1% Netherlands 7.888 8.258 8.352 7.660 6.973 6.875 7.550 7.770 8.183 8.749 9.456 5% Poland 1.845 3.329 4.352 5.023 4.228 4.225 4.261 4.619 5.312 5.206 6.155 3% Portugal & Madeira 2 4.531 4.740 5.271 5.448 4.949 4.896 5.339 5.141 5.459 6.105 6.594 3% Romania 157 194 333 488 553 631 717 772 826 1.154 1.553 1% Slovak Republic 285 470 529 716 559 499 469 454 440 509 653 0% Slovenia 157 183 190 168 139 127 127 118 139 140 164 0% Spain & Canary Islands 34.558 34.895 35.538 34.558 30.425 28.711 31.482 31.291 32.743 34.274 35.612 17% Sweden 2.321 2.290 2.267 2.296 2.073 2.188 2.539 2.490 2.568 2.598 2.602 1% Total EU-28 117.982 122.422 126.017 123.869 112.245 107.845 114.907 116.226 120.468 127.403 136.682 65% Other Europe: Norway 1.726 1.893 1.856 1.990 2.016 2.080 2.238 2.429 2.743 2.749 2.675 1% Switzerland 4.501 4.957 5.142 5.415 5.228 5.243 5.805 5.862 5.907 6.099 6.251 3% Gibraltar 346 329 296 369 357 301 385 387 386 414 440 0% Turkey 3.551 3.408 3.887 4.355 4.797 5.408 5.183 5.105 5.443 5.738 5.666 3% Russia 614 684 751 782 671 750 863 901 1.038 1.021 846 0% Other former USSR 3 484 493 483 451 473 494 551 562 541 514 516 0% Former Yugoslavia 3 151 169 189 194 178 200 215 216 216 245 271 0% Rest of Europe 3 402 474 494 427 395 417 481 547 706 831 1.061 1% Total Other Europe 11.775 12.407 13.098 13.983 14.114 14.892 15.721 16.009 16.981 17.611 17.726 8% Total Europe 129.757 134.829 139.115 137.852 126.359 122.738 130.628 132.235 137.449 145.014 154.408 74% 18

Rest of World: Egypt 1.560 1.948 1.965 2.280 2.670 2.886 2.165 2.146 2.049 1.993 1.885 1% Rest of North Africa 1.217 1.514 1.668 1.361 1.401 1.794 1.452 1.645 1.950 2.096 1.662 1% South Africa 1.593 1.612 1.677 1.530 1.466 1.379 1.333 1.315 1.305 1.362 1.356 1% Rest of Africa 1.860 1.988 2.114 1.906 1.856 1.810 1.898 1.789 1.623 1.578 1.380 1% Israel 668 672 709 818 847 770 812 812 892 883 985 0% Qatar 547 689 843 779 865 922 955 1.051 1.060 1.189 1.481 1% Saudi Arabia 205 221 257 300 397 421 465 482 497 565 561 0% UAE 2.881 3.256 3.736 4.049 4.345 4.594 4.891 5.101 5.789 6.224 6.793 3% Rest of Near and Middle East 1.393 1.391 1.323 1.385 1.471 1.436 1.383 1.298 1.313 1.342 1.281 1% USA 18.290 18.068 18.558 18.152 16.351 15.816 16.900 17.259 17.486 17.870 18.618 9% Canada 3.606 3.634 3.865 3.522 3.102 3.065 3.142 3.163 3.080 3.163 3.154 2% Brazil 287 278 309 312 358 400 526 616 621 625 629 0% Rest of South America 92 83 87 103 116 103 156 177 175 216 262 0% Mexico 436 490 500 568 508 533 611 678 827 927 1.026 0% Rest of Central America 834 863 835 812 732 727 651 497 504 485 515 0% Caribbean 1.828 1.903 1.948 1.947 1.832 1.728 1.738 1.584 1.535 1.623 1.808 1% Australia 1.211 1.169 1.211 1.273 1.066 1.052 1.102 792 744 488 444 0% New Zealand 189 215 344 365 409 365 258 220 151 126 126 0% India 1.579 2.329 2.486 2.363 2.507 2.396 2.519 2.402 2.640 2.740 2.623 1% Pakistan 654 703 684 773 637 690 676 587 595 513 503 0% Rest of Indian sub-continent 445 444 448 410 253 332 320 312 364 373 340 0% Indian Ocean Islands 383 389 430 422 374 400 369 285 214 189 201 0% China 487 585 631 571 536 607 663 746 887 974 1.079 1% Hong Kong 1.259 1.439 1.660 1.554 1.529 1.387 1.413 1.398 1.382 1.571 1.709 1% Taiwan 98 128 103 117 124 162 159 98 118 119 124 0% Republic of Korea 255 278 289 285 280 294 311 377 426 439 457 0% Japan 1.184 1.085 1.031 963 780 684 653 720 699 722 611 0% Singapore 1.158 1.272 1.230 1.247 1.222 1.107 1.161 1.269 1.249 1.228 1.259 1% Thailand 696 673 691 593 600 598 579 637 640 582 613 0% Rest of Asia 772 644 535 507 639 748 719 701 817 886 957 0% Cape Verde Islands 0 5 67 87 105 115 158 228 179 185 250 0% Total Rest of World 4 47.665 49.962 52.167 51.268 49.273 49.206 49.990 50.156 51.815 53.276 54.691 26% Oil Rigs 627 713 768 763 752 714 761 781 841 886 825 0% All international air passenger movements 178.049 185.504 192.050 189.883 176.384 172.658 181.379 183.171 190.105 199.176 209.925 100% 1. Includes Channel Islands and Isle of Man airports but excludes data for airlines which have not given permission for their data to be released, unlike other tables in this chapter 2. Includes Azores Source - Civil Aviation Authority 3. See Notes & Definitions for list of countries included in group. Last updated: Aug 2016 4. Includes Greenland. Next update: July 2017 Telephone: 020 7944 2168 Email: aviation.stats@dft.gsi.gov.uk The figures in this table are outside the scope of National Statistics 19

Appendix B: Pivot Tables Raw data source: Bureau of Transportation Statistics. (2016, November) Since the amount of raw data is very high (21.680 rows) an implementation in this document would not be meaningful. These Pivot tables shall summarize data which are graphically shown in the body of this paper. Excel files with raw data are attached to the electronic version. EU - US and US - EU All international routes UK - US and US - UK DEST_COUNTRY_NAME (Mehrere Elemente) DEST_COUNTRY_NAME (Alle) DEST_COUNTRY_NAME (Mehrere Elemente) ORIGIN_COUNTRY_NAME (Mehrere Elemente) ORIGIN_COUNTRY_NAME (Alle) ORIGIN_COUNTRY_NAME (Mehrere Elemente) Year and Month Passengers enplaned Year and month Passengers enplaned Year and month Passengers enplaned 2012 2012 2012 7 2.322.772 7 9.537.582 7 680.307 8 2.283.696 8 9.068.288 8 685.941 9 2.062.168 9 7.200.000 9 632.706 10 1.801.891 10 7.057.687 10 549.539 11 1.326.121 11 6.818.451 11 452.306 2012 Ergebnis 9.796.648 2012 Ergebnis 39.682.008 2012 Ergebnis 3.000.799 2013 2013 2013 7 2.424.829 7 9.923.204 7 688.008 8 2.423.065 8 9.556.543 8 704.609 9 2.154.323 9 7.346.904 9 641.354 10 1.938.422 10 7.381.089 10 580.661 11 1.367.017 11 7.000.809 11 440.581 2013 Ergebnis 10.307.656 2013 Ergebnis 41.208.549 2013 Ergebnis 3.055.213 2014 2014 2014 7 2.397.086 7 10.207.506 7 671.850 8 2.432.567 8 9.802.748 8 703.170 9 2.175.211 9 7.441.218 9 619.918 10 1.897.290 10 7.397.798 10 566.674 11 1.349.538 11 7.164.175 11 446.051 2014 Ergebnis 10.251.692 2014 Ergebnis 42.013.445 2014 Ergebnis 3.007.663 2015 2015 2015 7 2.563.141 7 10.679.948 7 691.091 8 2.538.402 8 10.208.219 8 712.938 9 2.244.296 9 7.800.254 9 624.578 10 2.002.385 10 7.867.938 10 595.749 11 1.379.477 11 7.460.931 11 466.526 2015 Ergebnis 10.727.701 2015 Ergebnis 44.017.290 2015 Ergebnis 3.090.882 2016 2016 2016 7 2.612.345 7 10.914.676 7 686.679 8 2.521.913 8 10.022.762 8 690.659 9 2.203.724 9 7.853.631 9 593.935 10 1.963.072 10 7.845.062 10 558.560 11 1.319.831 11 7.345.573 11 462.110 2016 Ergebnis 10.620.885 2016 Ergebnis 43.981.704 2016 Ergebnis 2.991.943 Gesamtergebnis 51.704.582 Gesamtergebnis 210.902.996 Gesamtergebnis 15.146.500 Passenger volume on UK/US market Year Passenger Volume US airlines Passenger Volume UK airports (Source: UK Department for Transport) 2000 7.294.481 2001 6.824.905 2002 6.863.535 2003 6.459.624 2004 7.165.858 2005 7.311.424 18.290.099 2006 7.272.194 18.068.178 2007 7.310.980 18.558.444 2008 7.282.892 18.151.690 2009 6.637.099 16.351.257 2010 6.613.273 15.815.728 2011 6.795.230 16.899.933 2012 6.612.047 17.258.909 2013 6.661.282 17.486.374 2014 6.585.371 17.869.603 2015 6.572.830 18.617.677 20