A "no-deal" Brexit will squeeze airlines' cashflows, hitting Irish carriers such as Ryanair and Norwegian Air, ratings agency Moody's warns.
Flights between the UK and Europe, and the UK and US, could halt should there be a "no-deal" Brexit next March as such a move would end the jurisdiction's participation in various air travel agreements.
A note from Moody’s, which assesses companies’ ability to repay debts, warns that UK airlines, and those with a big share of that market, such as Ryanair, could face a severe immediate financial hit in this case, with a more modest impact in the longer term.
The agency says the potential disruption, followed by the negative impact on the UK economy, could hit these airlines’ cashflows.
However, Moody’s notes that carriers with strong cashflows and low costs, such as Ryanair and Easyjet, are best-placed to withstand these pressures.
Market exposure
Its note adds that while Norwegian Air Shuttle, owner of Irish-registered Norwegian Air International, is less exposed to the UK market than some others, its “very weak liquidity” makes it more vulnerable to disruptions and economic decline.
The UK is part of the Open Skies regime, which allows EU-registered airlines to fly throughout the bloc and the wider European Common Aviation Area (ECAA), which includes Norway, Iceland and most Balkan states.
If the country were to crash out of the EU without a deal, it would automatically fall out of Open Skies and the remit of the European Aviation Safety Agency too.
This could bar air travel between the UK – including the North – and the ECAA and the US, which negotiates aviation treaties with Brussels rather than individual member states.
Grounded flights
Moody's says that it is difficult to calculate the cost should flights be grounded for a time following a hard Brexit. However, the organisation estimates that British Airways and Easyjet could lose under £10 million a day in this scenario. It makes no calculation for Ryanair.
The ratings agency also suggests that Air France-KLM and Germany's Lufthansa could see an increase in some bookings as businesses and people shift from the UK to the continent after Brexit. However, Moody's suggests that any financial benefits would be limited.
The prospect of the UK leaving the EU without a deal rose last week after British prime minister Theresa May failed to sell her proposals for the country's departure from the bloc to other European leaders at a summit in Salzburg, Austria.
