BEXIT! Risk and uncertainty in the near term

Dino D'Amore
By Dino D'Amore June 24, 2016 10:44

BEXIT! Risk and uncertainty in the near term

We here have been very vocal about the possibilities for aviation in the event of a vote by the UK to leave the European Union (EU), but over the past six months we have left the matter alone awaiting the vote. With around 1m votes in it, the British electorate returned a vote of 52% to leave and 48% remain, with England and Wales voting clearly to leave the EU.
There will be no immediate change to the UK relationship with the EU and nothing will happen until the UK decides to evoke Article 50 of the Lisbon Treaty, which kick-starts the process of leaving, until then the country is in a period of reflection to consider how to broach the mater of dis-entanglement and how to re-negotiate trade agreements. It is totally inconceivable that Ireland, Germany, France and others will not need to have a trade agreement in place with the UK prior to it invoking Article 50 to leave the EU given that it is the largest importer of manufactured goods from those countries. The real question is where the French, German, Swiss and US banks decide to base themselves in the mid-term. Morgan Stanley for example has already stated it will move its EU HQ out of London. But, the UK will, eventually, be in the clear to support its financial services sector and as such it may seek to advance advantageous policies towards the financial services sector, which may include aircraft leasing. With the right policies and political will, it is conceivable that London could become the aircraft leasing capital of the world by matching the taxation benefits offered by Dublin and trading on its status as a desirable place to live and work.
Also it is now far more likely (it was likely anyway) that Heathrow will receive the green light for a third runway in July 2016 (next month) given that the UK government needs to do everything it can to stimulate growth.
There is only one certainty in the here and now: Delegate fees and sponsorship fees for Airline Economics Growth Frontiers conferences in Dubai, Hong Kong, London and Dublin are now 18% cheaper than they were yesterday! Unless of course you are not paying in GBP.
So what does Brexit mean for the rest of the EU given that Poland, France, Spain, Greece, Cyprus and Portugal all have a majority that would vote to leave the EU if they held a referendum tomorrow. This is not the end for the EU but it might well be the beginning of a resetting of the EU back towards its pre-Euro common market principles in part, but the Euro by its very nature demands closer fiscal and political union and thus maybe this morning we should be fearing for the Euro more than anything else?
In UK aviation, Rolls-Royce and Airbus are most affected, but both companies are strong. The real question is Ryanair and easyJet. The latter has stated this morning that the result of the UK referendum “will not have a material impact on its strategy or its ability to deliver long term sustainable earnings growth and returns to shareholders”. It further added that it had been preparing for this eventuality and has been “working on a number of options that will allow it to continue flying in all of its markets”.

Carolyn McCall, easyJet’s chief executive, said that the airline has written to the UK Government and the European Commission to ask them to “prioritise the UK remaining part of the single EU aviation market, given its importance to trade and consumers.”
Although EasyJet is not affected in the very near term save for losing revenue as the GBP falls, but what will it do next?  My guess is nothing except maybe a need to increase GBP-based prices slightly. IAG on the other hand is safe as houses so long as the economy does not tank.

Dino D'Amore
By Dino D'Amore June 24, 2016 10:44