Easy does it? US bids for easyJet face ownership rules

US private equity interest in easyJet raises familiar questions about foreign investment in European airlines.

What’s happening?

easyJet, one of Europe’s largest low-cost carriers, has recently been the subject of competing takeover approaches from US investors. After initially supporting an approach from Castlelake, easyJet's board indicated that it would instead be minded to recommend a higher proposal from Apollo Global Management should a firm offer be made. The competing bids have reignited familiar questions about the extent to which non-European investors can acquire and control European airlines.

The deal is not done yet. While attention is understandably focused on valuation, financing and shareholder returns, any successful bidder will also need to navigate one of the aviation sector’s most enduring regulatory constraints: airline ownership and control requirements.

What are the ownership and control requirements?

Under Regulation (EC) No 1008/2008, an airline must hold both a valid Air Operator Certificate (AOC) and an operating licence to qualify as an EU air carrier. A key condition for the grant and maintenance of that operating licence is that the airline must be more than 50% owned, and effectively controlled, by EU Member States and/or nationals of EU Member States, unless an applicable third-country agreement provides otherwise. 

The more challenging issue is often not ownership but “effective control”. Regulators look beyond formal shareholding percentages to assess whether strategic decision-making and operational control remain with appropriately qualified nationals. Factors such as board composition, voting rights, veto rights, reserved matters and contractual arrangements can all be relevant. Where these conditions are not met, an airline risks losing the authorisations and traffic rights on which its operations depend.

The EU is far from alone in imposing ownership and control requirements. Following Brexit, the UK retained substantially equivalent ownership and control requirements, save that these are now enforced through route licences rather than operating licences. To operate both UK-EEA and UK-third country routes, a carrier must generally be majority owned and effectively controlled by UK nationals, although the Secretary of State for Transport may make exceptions. 

The UK Civil Aviation Authority (CAA) has historically adopted a similarly substance-over-form approach. Its published guidance emphasises that ownership and control are separate tests and that regulators will scrutinise governance arrangements, shareholder rights and corporate structures to determine where effective control truly resides. The guidance also notes that particular attention may be paid to complex structures that appear to have been designed principally to satisfy nationality requirements, reinforcing the importance of demonstrating compliance in practice as well as on paper.

Similar requirements also exist in many jurisdictions around the world, including the United States. Although often criticised as an impediment to investment and consolidation, these rules remain a central feature of international aviation regulation because they determine which airlines are entitled to benefit from traffic rights granted under bilateral and multilateral air services agreements.

For an airline such as easyJet, which operates through both UK and EU AOCs, any change of ownership or control would need to be assessed against both UK and EU requirements. A transaction that resulted in non-qualifying foreign ownership or control could jeopardise access to UK routes, EU routes, or both, which would be a commercially untenable outcome.

The Brexit experience: why ownership and control still matter

Brexit brought ownership and control requirements into particularly sharp focus and accelerated efforts by some airline groups to ensure that their structures were capable of preserving market access on both sides of the Channel.

Faced with the prospect that UK airlines could lose the ability to operate intra-EU services, a number of airline groups restructured their operations to preserve market access. Among these, easyJet established easyJet Europe in Austria, enabling the group to continue operating services within and across EU Member States after the UK's departure from the EU.

Other airline groups relied on existing multi-AOC structures or developed them further to comply with the emerging regime. These included the Ryanair group, whose airlines include carriers such as Ryanair DAC, Malta Air, Buzz and Lauda Europe, and International Airlines Group, through British Airways, Iberia, Aer Lingus and Vueling.

These structures allowed groups to preserve valuable traffic rights and maintain operational flexibility. However, they also illustrate an important commercial reality: multiple AOCs and associated operating licences are rarely a cost-free solution. Separate airline entities typically require their own regulatory oversight, governance arrangements, compliance frameworks and management structures, creating a material operational and financial burden.

For airline legal and compliance teams, ownership and control rules therefore have consequences that extend well beyond corporate structuring. They can influence how an airline group is organised, governed and operated on a day-to-day basis.

How might a compliant transaction be structured?

In the case of a bid by Castlelake or Apollo, any transaction would need to be structured so that easyJet’s relevant UK and EU operating entities continue to satisfy applicable ownership and control requirements.

Castlelake has proposed a structure under which it would hold a 49% stake, with the remaining 51% controlled by EU nationals, including Peter Bellew (the former Chief Operating Officer of easyJet) and Mark Breen (a former senior board member at Flyadeal). Public reports indicate that Bellew and Breen would participate through an EU-domiciled company intended to hold a majority interest in the overall acquisition structure. This is designed to address the EU requirement that EU carriers remain majority owned and effectively controlled by EU nationals. While this structure might be sufficient to address concerns in respect of easyJet’s Austrian operation, it is not clear how this structure would satisfy the equivalent ownership and control requirements relating to easyJet’s UK airline. Apollo’s position has, at least publicly, been less detailed. It has stated that it would take all necessary steps to obtain relevant regulatory clearances, including merger control and EU foreign subsidies-related approvals. However, it has not yet publicly set out an equivalent ownership and control structure.

In either case, the critical issue is unlikely to be shareholding percentages alone. Regulators will want to understand whether the overall governance framework, funding arrangements and decision-making structures support a conclusion that effective control genuinely remains with qualifying UK and EU interests.

What can we learn from past transactions?

European and UK regulators have previously scrutinised investments by non-EU and UK investors where there was concern that formal ownership percentages did not accurately reflect the true nature of control. 

Examples include scrutiny of Etihad’s interests in the now defunct European carriers airberlin, Darwin Airline and Alitalia, as well as Delta’s stake in Virgin Atlantic. In each case, the focus extended beyond share ownership to issues such as governance rights, financing arrangements, commercial cooperation agreements or other mechanisms that could influence decision-making. 

Any successful bidder for easyJet should therefore expect close examination of not only the proposed ownership structure, but also the wider contractual and governance arrangements that accompany it.

Have ownership and control rules come under pressure?

Ownership and control rules have long been criticised as barriers to investment and consolidation. Industry participants have argued that they restrict access to capital and prevent airlines from achieving the scale available in other sectors.

Despite those arguments, meaningful reform has proved elusive. Most major aviation markets continue to view airlines as strategic national assets and remain reluctant to decouple traffic rights from nationality-based ownership and control requirements.

Why do these rules exist?

Ownership and control requirements are ultimately a manifestation of the sovereignty principles on which international aviation is built. 

The Chicago Convention recognises that every State has complete and exclusive sovereignty over the airspace above its territory. Traffic rights are granted between States through air services agreements and are generally intended to benefit airlines that satisfy the relevant nationality, ownership and control requirements. If those requirements cease to be met, the traffic rights on which an airline depends may be placed at risk.

This is directly relevant for easyJet. Its ability to operate many services relies on traffic rights granted under arrangements such as the EU-UK Trade and Cooperation Agreement. Those rights depend upon airlines continuing to satisfy the applicable nationality, ownership and control requirements. A failure to do so could place valuable traffic rights at risk.

What happens next?

Both Castlelake and Apollo have until early August to put forward a firm offer. While investors and shareholders will naturally focus on valuation and deal certainty, aviation regulators will be focused on a different question: whether any transaction leaves easyJet's operating airlines in compliance with the ownership and control requirements on which their operating licences and traffic rights depend.

Whatever the outcome of the bidding process, the situation serves as a reminder that ownership and control rules remain a defining feature of international aviation. For airline groups seeking investment, pursuing consolidation or adapting their post-Brexit structures, these rules continue to shape strategic options in a way that has few parallels in other sectors.

If you would like further information on this topic, please contact your usual contact in the Burges Salmon aviation team.