Imagine that Guinness, the Irish maker of the nutritious, smooth and dark nectar, wanted to sell some more of the beloved beer. Seeing an opportunity, it decides that Germany, with its tradition of clean, crisp Pilsner would benefit from a broadening of the taste buds. This could be an ideal market in which to offer an alternative to the usual German drink of choice, and indeed with superior Teutonic brewing knowhow, plentiful clean mountain water, reduced transport costs, and to meet the expected demand, the obvious thing to do is to open a factory in Germany.
So, it builds a factory in the South of the country, puts a big fence around it, and recruits some ace German brewers. And when they turn up for work, the gates close behind them, a green, white and gold Irish flag is run up the pole, and they are greeted by management: “Welcome to Ireland! Can I see your passports?”
Would anybody accept a business factory being opened in another country, and the factory grounds being treated as sovereign territory of the home country? Especially if that meant avoiding the need to pay taxes where the factory is, recognise the fundamental rights of the local factory workers, or to have health and safety oversight ensured according to local standards. To run the whole factory under a fiction that it was part of another country, even if in practice nobody from that other country was taking any notice of what happened there.
Is a business factory in another country a sovereign territory of the home country?
But that is EXACTLY what we do in European aviation.
Why? It is because of Europe’s Air Services Regulation 1008/2008 that governs air services. For reasons best known to the original EU law makers, they implicitly only considered regulating from the perspective of an airline with bases in one single country, providing air services from there to the rest of Europe and the world. Perhaps because until the last 20 years, that’s how most airlines worked and nobody understood this was changing.
Although Regulation 1008/2008 is only ten years old, it was already old and obsolete at its inception. In fact, I would consider it as the failed spin-off of the so called ‘Services Directive’ (Directive 2006/123/EC), also known as the ‘Bolkestein Directive’, whose scope explicitly excluded air transport. However, this Directive, the main objective of which is to protect the freedom to provide services in the EU, also contemplates the services to be provided through stable and permanent Establishments. By contrast Regulation 1008/2008 treats all air transport as a service only. So when an airline does open a new ‘factory’ – an operational base from where aircraft depart and return to, where offices and facilities to enable this are, and where pilots and cabin crew report for work and go home at the end of a duty – in the eyes of the Regulation, this ‘factory’ simply doesn’t exist.
As a result, Regulation 1008/2008 simply doesn’t concern itself with the principle of Establishment, or all the EU law and obligations that come with it. It only defines a Principal Place of Business, determining which country’s aviation authority and government oversee it, which state’s rules apply to it and license it. It leaves out the necessary prerequisite for this – namely that for one to be “Principal”, there are likely many other Places of Business to choose from, and these are all logically the Establishments from which air services are provided.
Regulation 1008/2008 – a failed spin-off of the Bolkenstein Directive
Until these other Places of Business are acknowledged and legally treated as Establishments, airlines with operational bases in countries outside the Principal Place of Business will continue being able to pretend that their ’factory’ is a sovereign outpost of their home country; a parcel of land de-facto annexed, a non-existing element in the life of the host country, with the most immediate consequence being of regulatory & oversight ‘anarchy’.
While Regulation 1008/2008 may be dreadfully, totally, phenomenally boring to read about, it is this regulation that sets the fundaments of how the aviation business works in Europe. And it seems that the fundaments are skewed, allowing abusive employment practices, rule shopping and tax avoidance to flourish. We are just days away from the launch of a stakeholders’ consultation on the ten-year performance of this Regulation. One of the many changes urgently needed is to recognise these hundreds of Establishments that are airlines’ operational bases and treat them as such. Without such change the employment malpractices, regulatory shopping, and tax avoidance will only get worse – surely not the intent of an updated and modern piece of EU law.