Many of the obvious problems with a hard or no-deal Brexit for aviation aftermarkets have been addressed by regulators during the long march to the UK’s departure from the EU. But there are still thorny issues involving costs and delays of customs, possible taxes on goods movement and challenges in building the stocks necessary to handle border delays.
EU Reg. 2019/494 allows preservation of the status quo by temporarily extending the period of validity of certain aviation certificates, but only as long as it “is strictly necessary . . . to deal with the United Kingdom’s departure from the Union’s safety system,” notes Thomas Schmid, a senior adviser to Alton Aviation Consultancy.
Schmid predicts that the UK’s regulatory regime after Brexit will remain closely aligned with EASA practices, especially for suppliers of seats and other Airbus components. This alignment may be slightly controversial, as it makes the UK a rule taker, which many Brexiteers despise. But given the safety implications, he thinks UK-EU alignment will prevail.
Customs barriers are a much bigger and trickier issue, in Schmid’s view. WTO’s Agreement on Trade in Civil Aircraft has since January 1980 eliminated import duties on all aircraft, civil engines, parts and components, regardless of EU membership. “We would therefore not expect tariffs to be imposed,” the Alton consultant says. However, he says “it is conceivable that there could be the imposition of Import VAT in the event of a No-Deal Brexit.”
In any case, with or without tariffs or VAT, the EU and UK will need a customs process to manage importing and exporting goods. “Even if the tariff is 0% or de minimis, you have to document the export and import, as well as documentation regarding the application of VAT, its payment or exemption,” Schmid says. “It is bureaucratically cumbersome and therefore costly.”
One issue according to Schmid is how the UK government can efficiently resource and staff these customs processes. “A recent leaked government report suggests that traffic flows of trucks between Dover and Calais could drop to 40-60% of the current throughput within 24 hours of a No-Deal Brexit," he says. This same report emphasized that a quarter of UK medicines are delivered through Calais to Dover, and that there could be a significant impact on provision of medicines and fresh food in the UK, “not necessarily a shortage, but a diminished selection.”
Priority could thus be given to imports of greater public interest, particularly in the short term until custom processing functions are appropriately resourced and processes finessed. “The issue is likely to be exacerbated on the Irish border and this matter has not been resolved as yet,” Schmid says. That means less resources available for processing aviation goods, at least for a while.
With the UK no longer part of the EU, processing goods across EU borders will be slower and require more burdensome documents. “It is impossible to speculate on the length of the delay, as it may be far more problematic getting an engine from France to the UK on the back of a truck, than having an avionics box flown in and processed by customs authorities at the airport,” Schmid says. The Irish border is also pivotal to entry documentarian and exemptions. “The issue is critical for MRO providers that may have critical in-out bound performance criteria for replacement parts, for example for AOG events.”
Challenges might be mitigated by ramping up inventories in the some jurisdictions, but this is inefficient and costly. To mitigate the worst of a no-deal Brexit, many sectors, not only aviation, have been trying to stockpile goods and increase inventories in the UK. The problem here is that, while there was plenty of warehousing available for the original Brexit date of March 29, 2019, “now there appears to be a real shortage in the run-up to Oct. 31, 2019, as businesses are concurrently stocking up as part of their usual annual cycle for the holiday season, so this may be an issue,” Schmid says. But in addition to increasing inventories, suppliers might consider setting up new organizations in the EU, or moving headquarters and operations to the EU.
On the possibility of a new UK-U.S. trade deal to replace some UK-EU trade, Schmid is not optimistic, at least for the near term. This option also depends on whether the Irish backstop is honored by the UK to avoid a hard border in Ireland. “The Irish lobby in the U.S. has been quite vocal about not being supportive of a trade deal between the U.S. and UK if it undermines the Good Friday Agreement.”
The Alton consultant believes the UK should focus on a trade deal with the EU, given that 53% of UK imports are from the EU and 46% of UK exports are to the EU. “The volume of trade with the U.S. is far less significant.” And a new trade deal with the U.S. would raise possible controversies as U.S. firms seek greater access to UK healthcare and agricultural sectors, not popular with many Brits.