THE EUROPEAN Commission has set some far-reaching policies and made some bold decisions in its time. Some of them have been good; some of them bad. Few have been as misguided as its latest decision over support for Iberia Airlines (Flight International, 20 December, 1995 - 2 January, P5). That is not because Iberia does not deserve another chance to set its house in order: it is because in reaching this decision, the EC has sabotaged its own policies on state aid, and through that, sacrificed its own credibility as an economic regulator.
The wisdom of allowing the Spanish Government, through a state-owned holding company, to continue to support Iberia will be judged by history. It may prove to be that a second helping of "one-time, last-time" finance does indeed enable that carrier to regain its footing and become financially self-supporting. It may not: ultimately, the commercial success of any undertaking depends more on its ability to provide a service that the paying public wants at a price it can afford than on any amount of support, no matter from where that support comes.
What will be judged much more harshly by history than Iberia will be the performance of the EC (and more particularly of transport commissioner Neil Kinnock). In that area, no judgement could be too harsh.
The EC has, in recent months, been trying to establish itself as the correct and logical instrument through which the members of the European Union should conduct their aviation relations with the outside world. It has famously tried (thus far without any success) to intervene in the process of establishing bilateral and multi-lateral air-services agreements with third countries. If its performance in the area of state aid to airlines is a guide to its competence, then that lack of success is wholly unsurprising, and wholly justified.
State aid is an emotive subject, but it is also one on which the member states of the EU (and many others) want to see a clear and unambiguous European policy developed. Without it, there will never be the "level playing field" for which so many have searched in recent years.
The starting point for any clear policy on state aid must surely be the definition of what is state aid: it is here that, far from clarifying the issue, commissioner Kinnock has created only confusion. State aid, as far as most people understand it, embraces any funding which comes from the taxpayer as the result of government policy, rather than from ordinary commercial sources investing for a commercial return. To most people, if an airline receives money from a state-owned, state-controlled body, which it would not be able to obtain from an independent bank, finance house or other investor, then that money is state aid, no matter how it is described.
To most people, therefore, the Ptas 87 billion ($700 million) which Iberia is to receive from the Spanish state holding company is state aid, not a trade investment by a normal commercial organisation seeking a normal commercial return. If that is so, the EC's pretence that the Iberia investment is not state aid destroys the whole basis on which the previously understood policy existed.
If the EC does believe that an airline should only be given a "one-time, last-time" injection of funds from its national government, then it had no justification for ruling in favour of Iberia's refinancing. If it does not believe in the "one-time, last-time" policy, then it should not pretend that it does - but it needs to find a new, credible policy, very quickly indeed.
Many European airlines (and their governments) have accepted that the bad old days of state sponsorship are over. Having taken, often expensive and painful steps, to bring their trading practices in line with those of the free-market economy, they look now with dismay at EC actions, which no matter how politically expedient or defensible they may be, have put those who have complied with previous EC policy, at maximum disadvantage.
The taxpayers and airlines of the EU deserve much better than that from their regulators.
Source: Flight International
