2 Donkeys
I have not watered down my understanding of what may be happening, perhaps I have just expressed it badly.
Englishal
Yes, Bermuda is an Overseas Territory of the UK and regulation of aviation is carried out by under a UK statutory instrument. However, the CAA is not the regulator, it is the Governor of Bermuda (or an official acting on his behalf). This arrangement appears to have its problems and the Department for Transport appears to be paying the CAA oodles to help put it right.
http://www.caa.co.uk/airsafety/default.asp?page=1802
Re you later point I can see no impediment on the UK refusing to recognise FAA licences (PPL or CPLs) held by UK citizens on domestic flights in the UK. Can you elaborate. I agree that it would be difficult on international flights.
Gruntos
Regarding your point that "Chicago Conference allowing foreign planes to operate in other countries airspace and as long as there are FAA licensed engineers to do the inspections and remedial work as necessary. So to alter this, doesn't this need a changed by both parties?" I think that someone has given you a rather liberal interpretation of the Convention. Article 5 of the Convention states "Each contracting State agrees that all aircraft of the other contracting States, being aircraft not engaged in scheduled international air services shall have the right, subject to the observance of the terms of this Convention, to make flights into or in transit non-stop across its territory and to make stops for non-traffic purposes without the necessity of obtaining prior permission........." The Convention does not cover domestic flights. Indeed, under section 2 of Danish Air Navigation Act foreign registered aircraft may not make a domestic flight within Denmark unless there is a agreement with the State of Registry which permits such flights or permission of the Minister of Transport is obtained.
http://www.slv.dk/Dokumenter/dscgi/d...gation_Act.pdf