PARIS, Dec 22: Spain, Ireland and Hungary have tried and failed to loosen EU airline ownership rules in a draft aviation deal with the UK, two people with knowledge of the matter said, out of concern about Brexit’s impact on British Airways owner IAG, Ryanair and Wizz Air, reports AFP.

France and Germany are said to have rejected a softening of longstanding rules that require EU airlines to be owned and controlled by EU nationals or else lose their licences.

While the ownership issue poses no immediate threat to flights, it brings a longer-term challenge to some of Europe’s biggest aviation names, with or without a trade deal.

British investors will be deemed non-EU after the Brexit transition ends on Dec. 31 – a headache for airline groups with EU-licensed carriers and large UK shareholder bases.

“There’s been a last-ditch effort from a few member states to get something more liberal in the agreement on ownership and control,” said an aviation source briefed on the discussions.

“There is not a hope in hell of it happening,” the source added. “The big pushback came from France and Germany.”

Spokespeople for the European Commission and the governments of Britain, France, Germany, Hungary, Ireland and Spain declined to comment or did not respond to Reuters questions.

London and Brussels have for months been negotiating a post-Brexit aviation accord to accompany a broader trade deal. The trade talks appeared to be on a knife-edge on Friday, with time running out for an
agreement.

But the rebuff to Spanish-led efforts means that even a deal
breakthrough would leave ownership problems unsolved.

They are particularly acute for IAG, which also owns Ireland’s Aer
Lingus and Spanish-based Iberia and Vueling. A large UK shareholder
base and a 25 per cent stake held by Qatar Airways will leave EU
investors in a clear minority.

Ryanair boss Michael O’Leary predicted recently that Brexit could
force a breakup of IAG, in comments dismissed by the UK-headquartered
group, listed in London and Madrid.

The Irish low-cost airline acknowledges that Brexit will swing its own
non-EU shareholders into a majority, and has warned that they stand to
lose their votes and the right to buy new shares in the absence of a
deal granting more flexibility.

Even including UK investors, EU ownership has previously fallen close
to 50 per cent at both IAG and Wizz Air – listed in London and based
in Budapest. To stay compliant, IAG barred non-EU share purchases for
most of last year, while top Wizz shareholder Indigo Partners sold
part of its stake.

EasyJet, reliant on its Austrian carrier for some routes post-Brexit,
is also trying to bolster its non-British EU investor ranks, which
currently hold about 45 per cent of the group.

All the affected airlines maintain they are Brexit-ready, with
ownership compliance strategies vetted and approved by national
authorities under Brussels supervision.

“Last year, IAG’s airlines submitted plans on ownership and control to
the national regulators in Spain and Ireland,” a group spokeswoman
said. “Those regulators confirmed that the plans would satisfy EU
ownership and control rules in the event of a no-deal Brexit.”

As the same governments’ failed initiative shows, however, concerns
persist that the compliance efforts may be unsustainable, or open to
legal challenge by competitors.

Stripping votes may restore European control but not ownership. Among
other moves, IAG’s transfer of most Iberia voting rights to retailer
El Corte Inglés might not amount to relinquishing “decisive influence
on the running of the business”, as the critical EU regulation defines
control.

The proposals from Spain, Ireland and Hungary would have allowed
UK-based airline shareholders to continue to be counted as EU
investors.

“Hungary has Wizz Air listed in London, (and) Spain has Iberia in a
group with BA, so their interests were in watering down ownership and
control requirements in the new UK deal,” an EU diplomat told Reuters.

“But the Commission has been rather intransigent on this one,” the
diplomat said. Relaxing ownership rules could weaken EU autonomy, they
added, “a major issue compared to some specific interests of some
specific member states.”

Rival airlines under solidly EU ownership may also seek competitive
advantage by demanding a strict application of the rules by the
Commission or the European Court of Justice.

Relaxing ownership requirements for the UK could give third countries
like Qatar a bridgehead to buy up stakes in EU carriers, a policy
official at a major European airline said.

“The rules are there to be obeyed,” he said. “If there is a legal
challenge and the Commission checks Spain and Ireland’s analysis, it
will lead to some difficult conversations.”

But investors are more focused on a post-pandemic travel recovery and
Brexit-related currency risks than on longer-term ownership issues,
Citi analyst Mark Manduca said.

Airline breakups are an unthinkable outcome of rules “originally
designed to stop Asian and Middle Eastern airlines from buying up
stakes,” said Manduca, who expects EU policy eventually to accommodate
the multinationals.

“A bunch of lawyers will be discussing this for most of 2021,” he said.