The controversial debate about whether government subsidies to European state airlines should be allowed under European Commission regulations has been re-opened by Professor Rigas Doganis, a former Olympic Airways chairman who is now head of the Air Transport Group at the UK's Cranfield University.
Speaking during a lecture at London's Royal Aeronautical Society in London at the end of February, Doganis claimed that state aid should be considered as compensation for costs and penalties which have been imposed on state airlines by their governments.
Doganis headed Olympic in 1994-5, starting a major effort to turn around losses at the airline, backed by a massive write-down of debts by the Greek Government. He argues that losses had been built up in part by "Government controls and interference".
This includes insistence that Olympic operated unprofitable year-round services to the Greek islands and maintains certain uneconomic international routes, while being prohibited from raising domestic fares. He also claims that unpaid invoices by Greek Government departments left a backlog of "many millions of dollars" in uncollected fares. Doganis eventually had to resign, despite steering Olympic back towards profits, and sparked a European Commission investigation over whether the state airline was meeting the terms of its state-aid approval.
Doganis says that, in the face of such interference, along with a lack of access to capital from other sources, state aid "-appears justifiable" even under the Treaty of Rome. Doganis also warns that, if Europe provides no clear mechanism to allow state aid, then governments might well find other, less controllable, ways to support ailing airlines.
Meanwhile, Olympic has embarked on another restructuring programme, being managed by consultancy McKinsey. A report is due in May.
Source: Flight International
