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Britain, which by not adopting the Euro and not participating in the Schengen travel zone, was the most independent member of the EU, has voted to invoke Article 50 of the Lisbon Treaty and leave the EU.  This certainly provides some uncertainty in the near term, as Britain will now need to make arrangements for economic and trade relationships bi-laterally, as they once were.  This certainly shouldn’t become a problem, and Britain may, like Switzerland, be able to reach a free trade agreement with the EU without becoming a member.

Of course, there may be some short-term panic regarding the potential implications of Brexit, driven by speculation and fear-mongering, in the near and long-term, there shouldn’t be a substantial impact on aviation.  Rolls-Royce will still be the sole provider of engines for the A350 and A330neo, as there are simply no alternatives in the near-term, and it would be too costly to change vendors in the long-term.  And why would Airbus want to anyway?  The reason that vendor choices are made are primarily due to capability, quality, and price.  Without those fundamentals, OEMs, whether Airbus, Boeing, Bombardier, Embraer, COMAC, or Irkut would choose someone else.

Does Britain have an aviation industry with multiple world-class vendors?  Yes.  Will they suddenly find themselves without applications?  Of course not.  There is no reason to panic.  Will Airbus confine itself to EU vendors and exclude program participation from UK firms in the future?  Not if it wants to sell aircraft to IAG and British Airways or Virgin Atlantic.  Will Airbus confine itself to French and German companies?  Unlikely.  They have global markets and a global supply chain, in which the British aerospace industry has a firm foothold and world-class players.

In terms of airlines, we don’t expect London to shrink into a destination nobody wants to visit.  While some financial activities for the EU may try to move from the London, it will be difficult to replace London as the financial center of Europe.  And Britain, free of EU regulation, could optimize its financial regulations to attract leasing companies and other financial institutions to replace those who leave, and give Ireland a run for its money.

London Heathrow isn’t going to lose traffic, and will still need a third runway for expected traffic growth.  London will remain a key economic center and the natural connection between English-speaking North America and Europe from a business perspective.  Britain’s stature in the world is not dependent on EU membership, and airlines won’t stop flying to Heathrow.

The Bottom Line

The Brexit panic in the markets and media is overdone.  Yes, a change in EU membership has occurred.  But Britain retained its own currency and was only half-in anyway.  Bilateral treaties will be formed, and life will go on.  The only ones really impacted are the politicians in Brussels, whose empire is0going to shrink after a reality check by British citizens who said enough is enough.  Aviation will be just fine, thank you.

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