Perhaps it plays out differently, but just at a glance, it seems like it would weaken the UK navy in the Channel but preserve the transport and destroyer. So, Germany would destroy the bulk of the British fleet still, but the UK would retain a core to build off of, once it retreats to Canada.
Mediterranean strength is slightly improved for the Allies, I think. They lose the French fleet, but it rarely had much effect. They gain centralized power in the UK fleet, and the Italians and Germans have to split their power in the sector. Less than ideal for the Axis.
Most of all, I like the rules on the Free French gaining units over time. France doesn’t get much of a game, but furthermore, its a perpetual downward spiral. At least with a trickle of new troops, they can continue to have their tiny little victories perpetually.