It may only occupy an area of around 6.7 square kilometres (2.6 square miles), but the densely populated nation of Gibraltar, a British Overseas Territory located on the southern end of the Iberian Peninsula, is a major talking point with regard European aviation legislation and in particular the ratification of new air service agreements aimed at boosting connectivity into developing markets.

With a population of around 30,000 and an economy dominated by financial services, online gambling, shipping, and tourism, Gibraltar is currently a major talking point with European aviation regulators, perhaps even more so than the subject of Brexit that dominates the headlines across the continent.

The issue relates to a long-standing disagreement between the UK and Spain over sovereignty of the territory that airport industry body ACI Europe claims is having a clear “damaging impact” on European aviation, economic growth and job creation.

The sovereignty of Gibraltar remains a major point of contention in Anglo-Spanish relations as Spain asserts a claim to the territory even though Gibraltarians overwhelmingly rejected proposals for Spanish sovereignty in a 1967 referendum and again in 2002. Under the more recent Gibraltar constitution of 2006, Gibraltar governs its own affairs, though some powers, such as defence and foreign relations, remain the responsibility of the Government of the United Kingdom.

However, the Brexit vote has seen Spain once more reinforce its push to reclaim control over Gibraltar. Even though Gibraltar overwhelmingly voted to remain in the European Union (an 82 percent STAY vote), the LEAVE victory has left a state of uncertainty. In fact in the days after the referendum Spain's acting foreign minister José Manuel García-Margallo, renewed calls for joint Spanish–British control of the peninsula. He labelled the British people's decision to leave the EU as "a complete change of outlook that opens up new possibilities on Gibraltar not seen for a very long time" speculating "the Spanish flag on the Rock is much closer than before".

European trade body ACI Europe has now expressed frustration over the fact that this bilateral dispute is resulting in a political deadlock for a number of important aviation policy issues at EU level, most notably a new Air Service Agreement between the European Union and Ukraine which remains to be ratified despite being agreed in principle some three years ago.

“Down the line - and alongside other external policy considerations - the Gibraltar deadlock means we are missing out on opportunities for growth and job creation that Europe so badly needs. This is the case today with the EU-Ukraine aviation agreement which cannot be activated, but also with the Single European Sky – where legislative proposals are also stalled,” said Olivier Jankovec, director general of ACI Europe at the recent AeroCongress forum at the Ukraine International Travel Market in Kiev.

Following a successful negotiation, the EU-Ukraine agreement was initialled almost three years ago at the Eastern European Partnership Summit. However, ever since then, the Gibraltar deadlock has prevented its signature and activation by EU Transport Ministers. As a result, a closer integration of the Ukrainian aviation market into the EU Single aviation market remains blocked.

In simple terms this has meant that airports and airlines on both sides are unable to take advantage of the air route development and traffic growth opportunities afforded by the agreement – with consumers and businesses ultimately being deprived of the benefits of increased and more affordable connectivity.

And Jankovec noted that other bilateral agreements could also be derailed by the ongoing dispute. “Next in line might be the EU-Brazil aviation agreement currently being finalised, which might well be blocked for the same reason,” he warned.

“With its Aviation Strategy adopted last December, the European Commission has put our sector in the spotlight as part of its focus on growth, investment & jobs – recognising the tremendous value of air connectivity for the economy. In the past, the Gibraltar dispute did not stand in the way and should not now. We need a swift, responsive and responsible solution,” he added.

Away from the conflict over its sovereignty, Gibraltar is seeing a growth in visitor numbers with passenger traffic at Gibraltar International Airport or North Front Airport up 15.7 percent over the past two years – 8.1 percent in 2014 and 7.0 percent in 2015. The airport’s departure capacity has increased 38.0 percent over the same period from around 250,000 seats in 2014 to a forecasted 345,000 this year based on published timetables in OAG Schedules Analyser.

This growth has been driven by improved connectivity from all of its airline users with 2016 capacity up at Monarch Airlines (35.2 percent), easyJet (32.8 percent), British Airways (21.6 percent) and Royal Air Maroc (29.9 percent). Over the past two years Monarch has added a new link to Gibraltar from London Gatwick, while easyJet has introduced direct links from Bristol and Manchester and Royal Air Maroc from Tangier. Monarch, easyJet and Royal Air Maroc have this year provided their largest inventory from Gibraltar, while the British Airways offer is its largest since 2007 prior to the arrival of easyJet into the market.