Brexit: IAG may have to buy out British shareholders
Feb 2, 2019, 3:51 pm
#136
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Except of course history has shown that such set-ups, fail miserably. Irrespective of EU or preceding agreements, PAN AM and TWA and then their successors, United and Delta did actually have the rights to a number of European services, with the right to sell tickets only on those services, for a number of reasons. One could in fact fly United LHR-AMS, or DL from FRA to as many as 15 destinations (and I am not going to get into the Pan Am, BA and AF Berlin services). As times changed, aircraft changed, etc. These became loss making and were all abandoned. Similarly BA thought it could run German and French based airlines and these went down the tubes, similarly to the time a decade ago when BA and AF thought they could poach customers from each others hubs with direct long haul flying, which also largely failed. QR does not really believe that an investment in Air Italy will be profitable, they have other reasons to be doing this. No US, ME or Chinese carrier is looking to start up any sized operation in the EU to fly solely EU domestic flights, it is just not going to happen. They may want to invest in eachother, but that is about it.
Feb 2, 2019, 4:41 pm
#137
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As regards tariffs, I hope that you do realise that the implications of your choice would be that the UK would be unable to conclude any trade agreement with anybody since, having unilaterally disarmed economically, we would not have anything to offer in exchange in such agreements and nobody would conclude an agreement with the UK since they would already have full access to the UK market wihout having to make any concession regarding market access on their side.
Getting back on topic, I would not imagine the the UK would ban BA domestic services if it became minority UK owned.
This is precisely the same problem on the EU side: if the EU does not impose ownership and control requirements on EU airlines and allow investors from third countries to take majority or controlling stakes in EU airlines, those EU airlines would lose all their traffic rights with third countries as other countries would not have to grant those non-EU controlled airlines traffic rights. So, if Iberia was not EU-owned and controlled, then they would lose their traffic rights to South American countries, for instance.
Feb 2, 2019, 5:03 pm
#138
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There is a very good reason. If a foreign airline is able to offer f domestic lights in another country, the aviation industry would today be ruled by a handful of richer nations.
Feb 2, 2019, 5:20 pm
#139
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Owned not ruled, and by foreign stock holders not nations. You need to explain why the nationality of the stock holders makes your reason good.
Feb 2, 2019, 5:58 pm
#140
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Feb 3, 2019, 3:10 am
#141
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Perfect for a Sunday morning, coffee, a croissant and a copy of IAG’s Securities and Registration Document.
Contained in this document are references to IAG’s corporate governance structure including the split of voting rights for BA and IB operating holdings, and compliance with UK and EU ownership and control regulations.
Contained in this document are references to IAG’s corporate governance structure including the split of voting rights for BA and IB operating holdings, and compliance with UK and EU ownership and control regulations.
10.5.4 Corporate governance of the IAG Group
The IAG Group may encounter numerous combination challenges, some of which are not currently foreseeable. The combination could fail to realise the expected benefits or could result in substantial costs as a result, among other factors, of inconsistencies between the respective standards, procedures, policies and corporate cultures of British Airways and Iberia, and the possibility that Management may not be able to fully attend to its responsibilities on account of having to handle issues arising from the business combination.
The governance structure of the IAG Group, as described in section 3 of the Registration Document, includes a number of complex features, such as:
Section 3 of the Registration Document sets out detailed information on, among other aspects, the composition of the Board of Directors of IAG and the IAG Group Management Team, the operation and composition of the Boards of Directors of the Opcos, the Assurances agreed between Iberia and British Airways, and operation of the Nationality Structures.
No assurance can be given that the governance structure to be put in place will be effective or that it will not restrict the performance of one or both of British Airways and Iberia or the IAG Group as a whole.
In addition, the application of the Assurances could limit the IAG Group’s capacity to establish the type of intra-group guarantee agreements generally used within corporate group structures to maximise the financial advantages offered by combining the balance sheet strength of the individual group companies. This could mean that IAG might not be able to leverage the balance sheets of British Airways and Iberia for the purposes of the IAG Group as efficiently as could it otherwise could.
The “Dirección General de Aviación” (in respect of Iberia) have confirmed that the Nationality Structure, following its implementation as described in the Registration Document, will comply with the requirements to treat Iberia Opco, after the Hive Down, as a Spanish airline for the purposes of bilateral conventions.
The United Kingdom Civil Aviation Authority (in respect of British Airways) has confirmed that, following implementation of the Nationality Structure, British Airways would continue to meet the ownership and control requirements imposed by UK and European regulations.
link: http://www.iairgroup.com/phoenix.zht...rol-mergerdocs
The IAG Group may encounter numerous combination challenges, some of which are not currently foreseeable. The combination could fail to realise the expected benefits or could result in substantial costs as a result, among other factors, of inconsistencies between the respective standards, procedures, policies and corporate cultures of British Airways and Iberia, and the possibility that Management may not be able to fully attend to its responsibilities on account of having to handle issues arising from the business combination.
The governance structure of the IAG Group, as described in section 3 of the Registration Document, includes a number of complex features, such as:
- The Nationality Structures to preserve operating licences of British Airways and Iberia under the bilateral treaties with non-EU member states. Under these structures, at least 50.1 per cent. of voting rights in British Airways will be held by UK shareholders, and at least 50.1 per cent of voting rights in Iberia will be held by Spanish shareholders.
- The Assurances to safeguard the specific interests of British Airways and Iberia and their shareholders and the interests of the IAG Group. The Assurances Agreement will automatically expire five years from the Merger Effective Date, irrespective of whether the Nationality Structures are eliminated or renewed.
- Maintenance of different operating systems for each airline.
Section 3 of the Registration Document sets out detailed information on, among other aspects, the composition of the Board of Directors of IAG and the IAG Group Management Team, the operation and composition of the Boards of Directors of the Opcos, the Assurances agreed between Iberia and British Airways, and operation of the Nationality Structures.
No assurance can be given that the governance structure to be put in place will be effective or that it will not restrict the performance of one or both of British Airways and Iberia or the IAG Group as a whole.
In addition, the application of the Assurances could limit the IAG Group’s capacity to establish the type of intra-group guarantee agreements generally used within corporate group structures to maximise the financial advantages offered by combining the balance sheet strength of the individual group companies. This could mean that IAG might not be able to leverage the balance sheets of British Airways and Iberia for the purposes of the IAG Group as efficiently as could it otherwise could.
The “Dirección General de Aviación” (in respect of Iberia) have confirmed that the Nationality Structure, following its implementation as described in the Registration Document, will comply with the requirements to treat Iberia Opco, after the Hive Down, as a Spanish airline for the purposes of bilateral conventions.
The United Kingdom Civil Aviation Authority (in respect of British Airways) has confirmed that, following implementation of the Nationality Structure, British Airways would continue to meet the ownership and control requirements imposed by UK and European regulations.
Feb 3, 2019, 4:02 am
#142
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Perfect for a Sunday morning, coffee, a croissant and a copy of IAG’s Securities and Registration Document.
Contained in this document are references to IAG’s corporate governance structure including the split of voting rights for BA and IB operating holdings, and compliance with UK and EU ownership and control regulations.
Contained in this document are references to IAG’s corporate governance structure including the split of voting rights for BA and IB operating holdings, and compliance with UK and EU ownership and control regulations.
10.5.4 Corporate governance of the IAG Group
The IAG Group may encounter numerous combination challenges, some of which are not currently foreseeable. The combination could fail to realise the expected benefits or could result in substantial costs as a result, among other factors, of inconsistencies between the respective standards, procedures, policies and corporate cultures of British Airways and Iberia, and the possibility that Management may not be able to fully attend to its responsibilities on account of having to handle issues arising from the business combination.
The governance structure of the IAG Group, as described in section 3 of the Registration Document, includes a number of complex features, such as:
No assurance can be given that the governance structure to be put in place will be effective or that it will not restrict the performance of one or both of British Airways and Iberia or the IAG Group as a whole.
In addition, the application of the Assurances could limit the IAG Group’s capacity to establish the type of intra-group guarantee agreements generally used within corporate group structures to maximise the financial advantages offered by combining the balance sheet strength of the individual group companies. This could mean that IAG might not be able to leverage the balance sheets of British Airways and Iberia for the purposes of the IAG Group as efficiently as could it otherwise could.
The “Dirección General de Aviación” (in respect of Iberia) have confirmed that the Nationality Structure, following its implementation as described in the Registration Document, will comply with the requirements to treat Iberia Opco, after the Hive Down, as a Spanish airline for the purposes of bilateral conventions.
The United Kingdom Civil Aviation Authority (in respect of British Airways) has confirmed that, following implementation of the Nationality Structure, British Airways would continue to meet the ownership and control requirements imposed by UK and European regulations.
link: IAG - International Airlines Group - Merger DocumentsThe IAG Group may encounter numerous combination challenges, some of which are not currently foreseeable. The combination could fail to realise the expected benefits or could result in substantial costs as a result, among other factors, of inconsistencies between the respective standards, procedures, policies and corporate cultures of British Airways and Iberia, and the possibility that Management may not be able to fully attend to its responsibilities on account of having to handle issues arising from the business combination.
The governance structure of the IAG Group, as described in section 3 of the Registration Document, includes a number of complex features, such as:
- The Nationality Structures to preserve operating licences of British Airways and Iberia under the bilateral treaties with non-EU member states. Under these structures, at least 50.1 per cent. of voting rights in British Airways will be held by UK shareholders, and at least 50.1 per cent of voting rights in Iberia will be held by Spanish shareholders.
- The Assurances to safeguard the specific interests of British Airways and Iberia and their shareholders and the interests of the IAG Group. The Assurances Agreement will automatically expire five years from the Merger Effective Date, irrespective of whether the Nationality Structures are eliminated or renewed.
- Maintenance of different operating systems for each airline.
No assurance can be given that the governance structure to be put in place will be effective or that it will not restrict the performance of one or both of British Airways and Iberia or the IAG Group as a whole.
In addition, the application of the Assurances could limit the IAG Group’s capacity to establish the type of intra-group guarantee agreements generally used within corporate group structures to maximise the financial advantages offered by combining the balance sheet strength of the individual group companies. This could mean that IAG might not be able to leverage the balance sheets of British Airways and Iberia for the purposes of the IAG Group as efficiently as could it otherwise could.
The “Dirección General de Aviación” (in respect of Iberia) have confirmed that the Nationality Structure, following its implementation as described in the Registration Document, will comply with the requirements to treat Iberia Opco, after the Hive Down, as a Spanish airline for the purposes of bilateral conventions.
The United Kingdom Civil Aviation Authority (in respect of British Airways) has confirmed that, following implementation of the Nationality Structure, British Airways would continue to meet the ownership and control requirements imposed by UK and European regulations.
Ownership and control rules require that the entity concerned be owned and controlled by nationals of the relevant nationality or nationalities. In the EU case, that means EU nationals. As far as ownership, I understand that SNC, which is owned and controlled by EU nationals, has 50.1% ownership of not just voting rights but also ownership of Iberia.
However, just having 50.1% of voting rights does not necessarily lead to the conclusion that SNC has "control" over Iberia.
Effective control is defined in the relevant EU regulation as follows:
Originally Posted by Regulation 1008/2008
effective control’ means a relationship constituted by rights, contracts or any other means which, either separately or jointly and having regard to the considerations of fact or law involved, confer the possibility of directly or indirectly exercising a decisive influence on an undertaking, in particular by:
(a) the right to use all or part of the assets of an undertaking;
(b) rights or contracts which confer a decisive influence on the composition, voting or decisions of the bodies of an undertaking or otherwise confer a decisive influence on the running of the business of the undertaking;
(a) the right to use all or part of the assets of an undertaking;
(b) rights or contracts which confer a decisive influence on the composition, voting or decisions of the bodies of an undertaking or otherwise confer a decisive influence on the running of the business of the undertaking;
The capital structure, therefore, does not prevent IAG from exercising "effective control" within the meaning of Regulation 1008/2008. Therefore, unless IAG is itself controlled by a majority of EU nationals, Iberia (and Level, and Aer Lingus, and Vueling....), being controlled by IAG, is not an EU airline.
The structure is the same for British Airways, with UK Trust instead of SNC. The same reasoning follows: if IAG is UK -controlled, then BA is a UK airline. If IAG is EU-controlled, then BA is an EU airline rather than a UK one.
Therein lies IAG's dilemma: If IAG is EU-controlled, then that makes BA an EU airline and not a UK one: if IAG is UK-controlled, then IB is a UK airline and not an EU one; if IAG is neither UK or EU controlled but is controlled by third country nationals, then BA and IB are neither UK nor EU airlines.
Now, it may be that regulators turn a blind eye and do not look at who genuinely controls either BA or IB and content themselves with the façade of ownership and voting rights. But it certainly cannot be taken for granted and you would want reassurances from EU and UK regulators and also from the regulatory authorities of third countries which are important markets for you. This may be less of an issue with the US as the EU-US agreements happens to have some provisions that help as I already mentioned further upthread, IIRC. Even if the regulators turn a blind eye, depending on the jurisdiction, you cannot either entirely rule out that someone else might challenge the position adopted by the regulator and force the regulator to strictly enforce the ownership clauses. You would have to evaluate whether this is a significant or insignificant regulatory risk and how to address it if required.
Last edited by NickB; Feb 3, 2019 at 4:10 am
Feb 3, 2019, 6:25 am
#144
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The capital structure, therefore, does not prevent IAG from exercising "effective control" within the meaning of Regulation 1008/2008. Therefore, unless IAG is itself controlled by a majority of EU nationals, Iberia (and Level, and Aer Lingus, and Vueling....), being controlled by IAG, is not an EU airline.
Feb 3, 2019, 7:10 am
#145
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However, as I believe the operating licences are not held by IAG (can anyone confirm?), but rather are held by the operating companies (BA, IB, VY, and EI), so referring to Article 4 (e) and (f) of reg 1008/2008, it seems to me it is the ownership of the individual OPCOs that matters and will of course be open to scrutiny by the relevant licensing authorities.
Feb 3, 2019, 7:16 am
#146
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The issue would be similar but there are EU-Switzerland agreement covering this treating Switzerland more or less on the same footing as an EEA state for intra-EU purposes (in any event, I do not think that Swiss operates intra-EU services). Regarding third countries, you need special arrangements or at the very least the tacit approval of the relevant regulatory authorities. If you look at the EU-US ASA, for instance, you will find that there are specific provisions concerning Lufthansa Group and Swiss, precisely to avoid traffic rights issues.
Feb 3, 2019, 7:24 am
#147
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The issue would be similar but there are EU-Switzerland agreement covering this treating Switzerland more or less on the same footing as an EEA state for intra-EU purposes (in any event, I do not think that Swiss operates intra-EU services). Regarding third countries, you need special arrangements or at the very least the tacit approval of the relevant regulatory authorities. If you look at the EU-US ASA, for instance, you will find that there are specific provisions concerning Lufthansa Group and Swiss, precisely to avoid traffic rights issues.
Feb 15, 2019, 1:20 am
#148
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Another story in today’s FT
‘The announcement by IAG, the owner of British Airways, that it would consider UK shareholders as EU investors after Brexit has been described as “totally absurd” by a senior official in Brussels.’
That really seems to come out of the plan to place a cap on non EU investors by requiring new non EU investors to sell their shares in IAG within a few days of acquisition.
‘IAG said UK investors “are not and will not be subject to the restrictions on share acquisitions . . . unless IAG notifies shareholders otherwise. IAG has no plans to issue such a notification.” ’
https://www.ft.com/content/3da640e2-...4-e7016697f225 (subscription required)
‘The announcement by IAG, the owner of British Airways, that it would consider UK shareholders as EU investors after Brexit has been described as “totally absurd” by a senior official in Brussels.’
That really seems to come out of the plan to place a cap on non EU investors by requiring new non EU investors to sell their shares in IAG within a few days of acquisition.
‘IAG said UK investors “are not and will not be subject to the restrictions on share acquisitions . . . unless IAG notifies shareholders otherwise. IAG has no plans to issue such a notification.” ’
https://www.ft.com/content/3da640e2-...4-e7016697f225 (subscription required)
Feb 15, 2019, 1:37 am
#149
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Another story in today’s FT
‘The announcement by IAG, the owner of British Airways, that it would consider UK shareholders as EU investors after Brexit has been described as “totally absurd” by a senior official in Brussels.’
That really seems to come out of the plan to place a cap on non EU investors by requiring new non EU investors to sell their shares in IAG within a few days of acquisition.
‘IAG said UK investors “are not and will not be subject to the restrictions on share acquisitions . . . unless IAG notifies shareholders otherwise. IAG has no plans to issue such a notification.” ’
https://www.ft.com/content/3da640e2-...4-e7016697f225 (subscription required)
‘The announcement by IAG, the owner of British Airways, that it would consider UK shareholders as EU investors after Brexit has been described as “totally absurd” by a senior official in Brussels.’
That really seems to come out of the plan to place a cap on non EU investors by requiring new non EU investors to sell their shares in IAG within a few days of acquisition.
‘IAG said UK investors “are not and will not be subject to the restrictions on share acquisitions . . . unless IAG notifies shareholders otherwise. IAG has no plans to issue such a notification.” ’
https://www.ft.com/content/3da640e2-...4-e7016697f225 (subscription required)
They've put a 47.5% limit on non-EU ownership of their shares (the current level). So non-EU persons are not able to buy shares. The reference to UK persons is simply that the cap/bar does not apply to them: they are currently EU persons and can carry on buying shares.
IAG did also say "IAG has no plans to issue such a notification", notifying that UK persons are treated as non-EU. IMO this relates to trading in the days/weeks ahead, not post March 29th. Frankly I don't see how they could declare a UK person to be non-EU atm.
Any such cap is totally at the Board's discretion, based on what they deem desirable to protect operating rights.