By Conor Humphries and Victoria Bryan
DUBLIN (Reuters) - Ryanair <RYA.I> is planning for major disruption in its business as a result of Brexit including the outside possibility it may have to move its entire UK fleet to continental Europe, Chief Executive Michael O'Leary told Reuters in an interview.
Europe's largest airline by passenger numbers, the Irish carrier flies one-third of its 120 million passengers from UK airports, leaving it among the most exposed in the industry to Britain's decision to leave the European Union.
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An "Armageddon" scenario, in which a hard-line approach from both sides leaves planes unable to fly between Britain and the EU at the end of two years of divorce talks is "unlikely, but a possibility," O'Leary said.
"We have a plan, we think, for every eventuality," he said. "But the reality is no one bloody knows."
Even in the best-case scenario in which Britain retained access to the EU's "open skies" deregulated aviation market, Ryanair does not plan to deploy to the United Kingdom any of the 65 planes it has due for delivery during Brexit talks.
Open Skies, which allows EU airlines to fly to and from any airport within the bloc, has been a key element in Ryanair's business model.
The first problem for the aviation industry is the short lead-in time to Brexit, which may not provide enough time for an EU-UK bilateral aviation agreement. Like other airlines Ryanair plans its schedule 12 months in advance.
The second is politics. The impact of leaving the European Union on aviation will be among the most visible to the British public and may be a tempting tool for EU leaders keen to pressure Britain to soften its position, he said.
"If the Europeans want to be difficult with the British, and I think they do, I think 'Open Skies' is where they will first cause trouble," he said. "(German Chancellor Angela) Merkel cannot give Britain an easy exit from the EU."
The worst case scenario, which O'Leary said "unlikely but a possibility" is a hard Brexit in which flights between Britain and the European Union simply cease on the day after Brexit.
"It would be inconvenient for the Europeans, but the UK would get completely screwed," he said.
That could require Ryanair to move its 13 UK bases, which employ over 3,000 people and operate over 100 planes, to bases in continental Europe.
"If we had 12 months' notice, we could re-house 100 aircraft into continental Europe - I mean we have 84 bases," he said. "But it would mean significant over-capacity (on intra-EU routes) ...and there would be downward pressure on pricing and on profits for a year or two."
If a bilateral deal is agreed in time, Ryanair would still likely have to set up an entity with a British Air Operator's Certificate (AOC) in Britain to fly internal routes, which currently represent around 1 percent of its flights.
Ryanair could only own 49 percent or less in the entity under EU rules, he said.
"There are 500 different scenarios, some of them involve us closing them [the UK routes] down, most of them don't," he said.
easyJet <EZJ.L> and British Airways owner International Airlines Group (IAG) <ICAG.L> would likely have to set up separate entities in the EU and Britain with each entity owning less than 49 percent of the other, he said.
easyJet has said it is in the process of setting up an AOC in an EU country and IAG has said it does not foresee problems with its ownership structure.
O'Leary said he was focusing on contingency planning rather than lobbying because "most of the industry is in denial... and the UK are just talking to themselves."
He said he was hopeful that once British negotiators present a draft agreement, British public opinion might begin to change and strengthen the hand of those pushing for a soft Brexit or to remain in Europe.
Ryanair will take its full schedule of deliveries from Boeing <BA.N> and hit its target of 200 million passengers by 2024, even if it has to take lower profits, he said.
(Reporting by Conor Humphries and Victoria Bryan; Editing by Adrian Croft)