European Commission defends €3bn annual subsidies for airports and low-cost airlines

The European Commission published new draft guidelines that will allow regional airports and EU airlines using them to keep receiving subsidies worth as much as €3bn a year. The consultation lasts till 25th September. In several cases the EC subsidies prop up unprofitable regional airports and low-cost carriers, so they can continue to operate in an unsustainable way which distorts competition between budget and national carriers. Commercial airlines can receive subsidies to establish and run new routes from financially non-viable airports. Transport & Environment (T&E) have expressed their disappointment about this, and that the draft guidelines to not go far enough to prevent the continued construction of f trophy” airports by regional administrations, which end up under-used or even permanently closed and invariably add unsupportable financial burdens on regional coffers.  T&E say scarce taxpayer money should be put to better use.

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Commission defends €3bn annual subsidies for low-cost airlines

3 July 2013  (Transport & Environment)

Brussels.

The European Commission today published new draft guidelines [1] that will allow regional airports and EU carriers serving them to keep receiving subsidies worth €3bn a year  [see below].

In a good number of cases [2] these rules prop up unprofitable regional airports and low-cost carriers, allowing them to continue to operate in an unsustainable way which distorts competition between budget and national carriers. The proposed guidelines also permit the bail out of financially unviable operations for a decade and allow infrastructure aid for building new airports to continue in aeternum. [forever]

Transport & Environment (T&E) expresses disappointment that the draft rules don’t go nearly far enough in stopping the exploitation of state aid provisions by some low-cost carriers to subsidise their own expansion and operations. Nor do the revisions go in any way far enough to prevent the continued construction of trophy airports by regional administrations, which end up under-used or even permanently closed and invariably add unsupportable financial burdens on regional coffers.

Aoife O’Leary of T&E said: “Aviation needs to pay its own, fair way. The old guidelines promoted the construction of a plethora of state-funded regional airports, some even with no planes landing, such as in the case of the Spanish Castellón Airport. Some low-cost carriers have disproportionately and unjustifiably benefited from these subsidies while the promises of thousands of tourists/visitors/second homebuyers and wider benefits to the local economy have often not materialised. We urgently need robust provisions to stop these on-going abuses so we can put scarce taxpayer money to better use.”

As presently drafted, the Commission’s guidelines don’t stipulate any economic underpinning that proves subsidising airports promotes the common good rather than harming it. Likewise, there is no weighing up of the benefits of the subsidies against the environmental damage that aviation creates.

If aviation was a country it would be ranked 7th in the world in terms of annual greenhouse gas emissions, between Japan and the UK. Historically, it is responsible for about 5% of global warming [3] and yet, unlike any other mode of transport, it does not pay a penny in VAT or fuel tax. This results in an effective subsidy to the [European] aviation industry of about €30 to €42bn every year [4] – all this on top of the state aid monies.

“Any EU state aid guidelines should be based on the principles of cost-effectiveness and environmentally sustainable development. The current situation where commercial airlines receive subsidies to establish and run new routes from financially non-viable airports must be changed,” Aoife O’Leary concluded.

ENDS

 

Notes to Editors:

[1] These EU guidelines govern taxpayer monies that subsidise regional airport operations and start-up aid for airlines serving them. These rules are not subject to parliamentary oversight and will be legally binding once the public review process is closed. Stakeholders will have three months to comment on these draft guidelines and is expected that the Commission, after reviewing all submissions, will publish the final, revised guidelines in early 2014.

[2] To name but a very select few examples:

Antwerp Airport (with three investigations relating to State Aid: Cases N355/2004, N156/2007 and N114/2010);

Aid directly to Ryanair to fly from Toulon to London (Case N563/2005);

Lodz Airport in Poland (with two investigations relating to State Aid: Cases N741/2006 and N638/2007);

Aid to Derry Airport (also with two investigations: Cases NN21/2006 and NN65/2009)

 

[3]  David Lee et al ‘Aviation and global change in the 21st century, available at http://www.tiaca.org/images/tiaca/PDF/IndustryAffairs/2009%20IPCC%20authors%20update.pdf

[4] For the calculation on VAT: Europe’s global market share is almost 30%, of a 2010 market of $565bn or €430bn http://www.iata.org/pressroom/pr/Pages/2010-12-14-01.aspx. Europe’s aviation market is therefore worth about €120bn, of which approx. €100bn for passenger transport. Well over half of passenger transport revenues, or about €50bn+, is leisure and would hence normally be subject to VAT (after business deduction of input VAT).

Assuming an average 20% VAT rate we arrive at an estimated €10bn subsidy [20% of €50 billion] as a result of the current zero rating.

Fuel Tax is worked out by looking at the EU-27 use of aviation fuel 2011: international: 44,489,000 toe [tonne of oil equivalent] and domestic 6,026,000 toe with the total of 50,515,000 toe.

The energy content Jet A1: 9600 kWh/m3 and 1 toe = 11630 kWh.

50,515,000 toe x 11630 kWh = 583,256,130 000 kWh / 9600 kWh/m3 = 60,755 846,875 m3 energy content.

If EU minimum kerosene tax of 330 euro per m3 is applied, the tax bonus is: €20,05 billion.

If EU average petrol/diesel tax 530 euro per m3 is applied, the tax bonus is: €32,30 billion, from: http://epp.eurostat.ec.europa.eu/tgm/refreshTableAction.do;jsessionid=9ea7d07d30dc86e2dfa07dda4b96b123bed7dada4c23.e34MbxeSaxaSc40LbNiMbxeNax8Pe0?tab=table&plugin=1&pcode=tsdtr250&language=en

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http://www.transportenvironment.org/press/commission-defends-%E2%82%AC3bn-annual-subsidies-low-cost-airlines

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Brussels, 3 July 2013

State aid: Commission consults on new state aid rules for airports and airlines

by Europa

The European Commission is inviting comments on its review of EU state aid rules on the public financing of airports and start-up aid to airlines. During the last ten years, the market environment of the aviation industry has changed considerably. The Commission proposal takes account of this evolution and provides guidance on how Member States can support airports and airlines in line with EU state aid rules. In light of the submissions received, the Commission will adopt revised guidelines in the beginning of 2014.

Joaquín Almunia, Commission Vice-President in charge of competition policy, said: “Our aim is to ensure that taxpayers’ money is well-spent and goes where it is truly needed. The next state aid guidelines will be a key ingredient for a successful and competitive European aviation industry, preserving fair competition regardless of the business model – from flag carriers to low-cost airlines and from regional airports to major hubs”.

The Commission has published a draft of revised state aid rules for the public funding of airports and start-up aid to airlines.

The main provisions of the proposed guidelines (see MEMO/13/639) are:

  1. State aid for investment in airport infrastructure is allowed if there is a genuine transport need and the public support is necessary to ensure the accessibility of a region. Whereas the current guidelines leave open the issue of investment aid intensities, the revised draft rules define maximum permissible aid intensities depending on the size of an airport, in order to ensure the right mix between public and private investment. The possibilities to grant aid are therefore higher for smaller airports than for larger airports.
  2. For operating aid to airports, which is not allowed under the current guidelines, the Commission proposes to allow such aid for a transitional period of 10 years under certain conditions, in order to give airports time to adjust their business model. Operating aid will decrease during this period. The path will depend on the financial situation of each airport.
  3. Start-up aid to airlines to launch a new air route is permitted provided it remains limited in time. In the draft new guidelines, the compatibility conditions for start-up aid to airlines have been streamlined and adapted to recent market developments.

The proposal takes into account the results of a first public consultation in 2011. It also reflects the principles of the Commission’s agenda for State Aid Modernisation (IP/12/458): state aid policy should focus on facilitating well-designed aid aiming at boosting economic growth and furthering other objectives of common European interest, while discouraging harmful aid that does not bring real value added and create distortions to competition in the Single Market.

The proposal is available at:

http://ec.europa.eu/competition/consultations/2013_aviation_guidelines/index_en.html

Comments should be sent by 25 September 2013 to: Stateaidgreffe@ec.europa.eu

Background

Air transport contributes significantly to the European economy, with more than 15 million flights per year, 822 million passengers transported to and from European airports in 2011, 150 scheduled airlines, a network of over 460 airports and work for some 2.3 million people. Airlines and airports contribute more than €140 billion to the EU’s Gross Domestic Product. Linking people and regions, air transport plays a vital role in the integration and the competitiveness of Europe.

Member States’ public funding of airports and airlines is currently assessed under the 1994 and 2005 Aviation Guidelines. The 1994 Aviation Guidelines were adopted in the context of the liberalisation of the market for air transport services and contain provisions for assessing social and restructuring aid to airlines in order to provide a level playing field for air carriers. They were complemented in 2005 by guidelines on the public financing of airports and on the start-up of airline services from regional airports.

Neither of the guidelines has an expiry clause, but in view of the significant market changes that have taken place in the last decade, the Commission has initiated this review, with a first public consultation in 2011 aiming in particular to determine whether a revision would be necessary (see IP/11/445). The main conclusions were:

  1. The existing guidelines need to be reviewed to take account of market developments. Stakeholders emphasised the need for more clarity and active enforcement of the applicable rules.
  2. In particular, the rules for the financing of airports need to become more transparent.
  3. Stakeholders sought more guidance on the application of state aid rules to rebates or other advantages granted by regional airports to certain airlines and considered that rules concerning start-up aid should be simplified.

The draft new guidelines take stock of the new legal and economic situation concerning the public financing of airports and airlines and specify the conditions under which such public financing may constitute State aid within the meaning of Article 107(1) of the Treaty on the Functioning of the European Union (“TFEU”), and when it does constitute State aid, the conditions under which such aid can be declared compatible with the internal market. The Commission’s assessment is based on its experience and decision-making practice, as well as on its analysis of current market conditions in the airport and air transport sectors; it is therefore without prejudice to its approach towards other infrastructures or sectors.

At the same time the Commission is working on around 60 state aid investigations in the aviation sector. New publications of state aid decisions on the internet and in the Official Journal are listed in the State Aid Weekly e-News.

http://europa.eu/rapid/press-release_IP-13-644_en.htm

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More information on airport subsidies at http://www.airportwatch.org.uk/?p=590 with many examples of subsidies over the years.

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