By the time that the European courts actually got round to ruling on the Air France state aid issue, it is a fair bet that few people remembered that the case was still pending. It is, after all, four years since the European Commission waved through approval for the French Government to bale out its ailing carrier - provoking howls of complaint and, of course, the legal challenge, from British Airways, KLM, SAS and others.
In the meantime, Air France has received its Fr20 billion ($3.5 billion) of state cash, re-emerged from its restructuring, started posting reasonably respectable profits, and even set off on the process of a partial privatisation. Neither is it much of a test case. Most of Europe's state-owned carriers have already filled their pockets - receiving an astonishing $12.5 billion in the last seven years.
Even if the ruling had come more quickly, there was never much chance that the court would come up with anything too radical to trouble Air France. Four years later and the prospect was becoming remote indeed.
So it proved when the judgement finally emerged from Luxembourg last week. The headlines sounded promising enough - "court declares Air France state aid decision illegal" - but its likely impact is less impressive. Grounds for the annulment centred on two issues. First, that the EC had failed to justify allowing Air France to press ahead with its fleet modernisation rather than cancelling or deferring orders until it had put its house in order. Second, that the EC appeared not to have considered the impact that the aid would have on routes outside Europe. The judgement essentially demands that the EC go off and do some more homework on the issue, but makes no suggestions as to what, if any, new measures it should adopt.
Perhaps inevitably with such cases, both sides emerged claiming a victory of sorts. Air France brushed off the ruling, arguing that it was based on a technicality. It has a point. Out of some 110 complaints, only two were upheld and the cash appears to be as safe as ever.
The airlines that brought the action were, meanwhile, claiming that their view had triumphed. "This is a victory for justice as well as for common sense," pronounced SAS. They hope that a chastened EC could ultimately produce a new Air France decision with new conditions once it has reworked its analysis, although most observers in Brussels will believe that when they see it.
Despite the scepticism, some good may yet come out of the ruling. Not least, it keeps up the pressure on the EC to ensure that these "last time" approvals for airline state aid are indeed for the last time. There have been tough words from Transport Commissioner Neil Kinnock since he arrived at the EC- incidentally, six months after the Air France decision. He has successively turned the screw on state-aid applicants and made it clear that he wants to see no more applications. The Air France judgement should give him confidence to ensure that the policy sticks.
The ruling also makes an important point of principle in highlighting the way in which state aid distorts the whole market. Simply put, it allows otherwise uncompetitive carriers to add large slices of new capacity and to build market share. The privately owned carriers themselves have been bad enough in the past at resisting the temptation to grab share and discount fares rather than focus on duller but more rational strategies for managing prudent, profitable growth. Witness the rollercoaster boom-to-bust cycle that has dominated the industry for years. Yet there are welcome signs of a new determination to break the cycle this time round. The spectre of competitors cushioned from commercial realities by large helpings of state cash is hardly helpful in strengthening their resolve.
The world airline market may be booming again, but the cycle already looks on the turn - the warning signs are spelt out in the Top 50 airline rankings published in this issue. If market distortions remain and if capacity begins to stack up as airlines pursue market share rather than profits, the industry risks running into another nasty pile-up. An end to state aid may be only one component for creating a more rational market, but it is worth pursuing for all that.
Source: Flight International
