EasyJet AOC announcement is about calming rattled investors after Brexit

UK low cost carrier easyJet has announced it is seeking another air operator’s certificate (AOC) outside of the UK following the British vote to exit the European Union.

EasyJet holds two AOCs, one in the UK (still part of the EU) and one for easyJet Switzerland (Switzerland is not in the EU). Seeking an AOC in another EU country could protect its business if and when the UK formalizes its divorce from the EU.

While it may not be necessary – the terms of the UK’s exit from the EU are nowhere near clear and the split could be years off – easyJet’s announcement is understandable and perhaps even essential given the political and economic turmoil of the past few days.

Investors have lost faith in UK businesses. Specifically in this industry, easyJet, British Airways parent company IAG, and Irish LCC Ryanair all saw their shares hammered Monday, with easyJet and IAG taking the hardest slaps at nearly 30% drops in share value each.

Even if this turns out to be a short-term, gut reaction hit, it’s difficult enough for any airline to convince investors of its worth even when the going is good – ask the US majors that are now producing decent ROICs, but are still struggling to convince the market that their companies will give solid, long-term returns. A seismic economic earthquake of Brexit’s proportions means that only the most golden of companies associated with the UK will hold steady as the Brexit process unfolds.

Brexit affects Ryanair, even though it is an Irish company and Ireland stays in the EU (only Northern Ireland is part of the UK and affected by the Brexit referendum),  because a huge part of its business is with the UK. Ultimately, will EU companies, like Ryanair, need cumbersome licenses and permits to operate its UK flights? The optimistic say no, a deal will be struck. The honest will say, we don’t yet know. Ryanair Holdings CEO Michael O’Leary said after the referendum vote “don’t ask me for what this means, because we don’t know”.

That uncertainty falls much harder on a UK-based carrier, like easyJet, than an EU-based carrier, like Ryanair.

The now boringly over-used British catchphrase “keep calm and carry on” is of little use if you are running a company that, at least in the investor’s eye, is at risk of encountering some significant administrative and cost operating disadvantages, albeit down the road.

EasyJet’s AOC announcement is aimed at addressing those investor jitters upfront.