Europe's privately owned and publicly quoted airlines must be wondering what they have to do to make a dent in the European Commission's stance on state aid. Their jubilation at the European Court of Justice's annulment of the FFr20 billion (US$3.3 billion) aid package to Air France on 25 June proved short-lived following the Commission's decision to reinstate the funding on 22 July.
The basis of the annulment was that the wording of the original conditions with regard to the purchase of new aircraft and the application of aid to non-EU routes was too loose. The Commission has, therefore, rephrased the original wording of the approval and reinstated the 1994 package. While a spokesman for BA says that an appeal to the UK government is an option, the original appeal against the funding, made by the airlines to the European Court of First Instance, was backed by a parallel appeal to the European Court of Justice by the UK, Norwegian, Swedish and Danish governments. This appeal may now be resumed.
British Midland chairman Michael Bishop issued a furious condemnation of the decision, saying that the 'profoundly serious episode' exposed 'fundamental weaknesses in the application of both law and democracy by the European Commission'. The BA spokesman describes it as 'a lost opportunity for the commission to take a firm stand on airline subsidies'.
Transport commissioner Neil Kinnock's commitment to state aid was further underscored in late July when the EU's block on state funding to Olympic Airways was removed. The original GDr54 billion (US$184 million) aid package was frozen after an unauthorised government grant to cover redundancy payments was made. A reduced amount - GDr40.8 billion - will now be released. 'We are very happy with the decision,' says an Olympic spokesman. 'We expect to make a profit this year, even if it is marginal,' she adds. A total GDr19 billion of the package had already been paid out before the freeze and two further tranches will now be issued. The second tranche will now total Dr14 billion and the third GDr7.8 billion. New restrictions on the airline will remain in place until 2002 and include a ban on price leadership on the Athens-London and Athens-Stockholm routes and the restriction of seat capacity to 1997 levels.
Chris Partridge, aviation analyst at Deutsche Morgan Grenfell, says that airlines should take a different view of state aid. 'The restrictions on state aid curtail carriers' growth opportunities and are good news for the competition,' he claims. He adds that the Air France row has focused attention on the weaknesses of subsidy documentation and will have the beneficial effect of tightening this up.
Source: Airline Business
