Brexit/airline shares: no frills and no votes

The more abruptly the UK splits from the EU, the greater the disruption to business. Investment provides one example. In their first stock exchange announcements since an EU/UK trade deal was struck, Ryanair and Wizz Air said they planned to strip non-EU shareholders — notably British ones — of some or all of their votes from January 1. Even worse for Ryanair investors, they will now be prohibited from buying stock in the Irish low-cost carrier, or selling their shares to compatriots.

EasyJet and British Airways’ owner IAG have plans for similar restrictions. Airlines are scrambling to avoid classification as majority-owned by non-EU investors. These businesses typically cannot operate services within the EU. Hefty UK shareholder bases — more than one-third of the total in the case of Wizz Air — become a liability from Friday. IAG’s difficulty is exacerbated by a 25 per cent Qatari stake.

Webs of co-operation are tearing like spider silk. Airlines see a hard Brexit, despite the EU/UK trade deal. The treaty is explicit that UK carriers can count on no transitional rights to ferry passengers within the EU. In 2019, IAG carried 62m passengers between EU countries, more than half the total, albeit that the UK still belonged to the trade bloc.

British financial services business will be similarly keen to stay on the right side of Brussels. They are set to lose “passports” to operate within the EU on Friday. Transitional arrangements are skimpy and one-sided. Ridiculously, UK and EU investors could end up trading some securities in the US, whose markets have regulatory equivalence with EU peers.

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Such awkward workarounds are already illustrated by the airlines. Wizz Air expects to disenfranchise about 60 per cent of shares held by non-EU investors. That should bring their voting control down to around one-third of the total, worth £1.3bn. Ryanair has taken a characteristically blunter stance in planning to strip non-EU shareholders of all their voting rights.

Shares in Ryanair and Wizz rose in parallel with other London-listed stocks on Tuesday morning. Lost voting rights represent no more than a small incremental cost for a subset of investors. This counts for little compared with stronger sterling and a legally robust means for airlines to keep EU air traffic rights. What will matter more for UK business is the totality of such costs. This can only rise.

The Lex team is interested in hearing more from readers. Please tell us what you think of Ryanair and Wizz Air’s plans in the comments section below


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