Some details of how much European governments bail out failing national airlines
There is currently a consultation under way, on EU guidance on state aid to airports and airlines. This consultation ends on 25th September, unless it is extended. A paper by Rose Bridger, in July, sets out details of the extent of state aid to failing airlines across Europe. There are truly remarkable sums involved. The EU regards bail outs for failing airlines as restructuring aid, rather than merely aid for infrastructure or new route development. Some of the cases that Rose has located information on are for national flag carrier airlines. For example, the Hungarian national airline, Malev, received well over €300 million; Scandinavian airline SAS received a €400 million credit facility from three governments; Latvian airline Air Baltic got at least €100 million in share capital; Air Malta got well over €180 million over several years; Polish LOT airlines has had at least €100 million, and likewise for Estonia Air and Czech airlines. Support for airlines brings a disproportionate benefit to wealthier citizens, who fly more. Continued bailouts to airlines exacerbates the financial instability caused by excessive debt.
European governments bail out national airlines
by Rose BRIDGER
Since the economic downturn took hold at least 13 European governments have bailed out flag carriers, attempting to rescue the airlines from spiralling debts and teetering on the edge of bankruptcy. The financial support packages have been approved in the face of austerity programmes – mass redundancies and cuts to welfare, health and education – which have hit the poor the hardest. Moreover, support for airlines brings a disproportionate benefit to wealthier citizens, who fly more. Continued bailouts to airlines exacerbates the financial instability caused by excessive debt.
• State aid to Malev, Hungary’s national airline, in the form of state takeover of loans, deferral of tax and social debt, cash facility and stakeholder loans, totalled ‘tens of billions of forint’ between 2007-2010. Then, in 2011, the Hungarian government allocated €277.5 million in budget funds for a capital injection, and borrowed €16.3 million. In January 2012, the European Commission ordered Malev to repay €305 million in illegal state subsidies, and the following month the airline ceased operations with outstanding debts of €206 million.
• Scandinavian airline SAS is half owned by the governments of Norway, Sweden and Denmark. The European Union is questioning whether a €400 million credit facility to rescue the carrier from bankruptcy, half of which was provided by the three governments, breached rules on state aid to airlines.
• By September 2011, Slovenia’s Adria Airways’ debts reached nearly €70 million. Shareholders approved a debt to equity conversion of €19.7 million and the airline received a €50 million cash injection from the government and the state run PDP Corp.
• The Latvian government stepped in to prop up the national airline, airBaltic, in 2009, with a share capital injection of €22.7 million. But the airline continued to make losses, of €135.6 million between January 2008 and June 2011. The government stepped in again to increase support for the carrier. In September 2011. A closed cabinet meeting agreed to allocate €81.2 million to increase share capital.
• The European Commission approved €130 million in state aid to Air Malta in June 2012. Previous government support for the airline included a state loan of €52 million in 2010.
• The Cyprus government increased beleaguered Cyprus Airways’ share capital by an additional €31 million in July 2012. This sum topped up €23.9 million of government support in 2011 and €15 million in the first half of 2012. Air France-KLM, appointed as consultants to review the business, concluded that the airline would require a further €73 million to continue operations into 2013.
• In September 2012 the European Commission approved €100 million in state aid, a debt to equity swap, to government owned Czech Airlines.
• State aid to Estonian Air between 2009 and May 2013 included three capital injections to the value of €57 million. In May 2013 the Estonian government announced a plan for a new bailout of €40 million. The European Commission asked the government to freeze bailout payments pending a final decision on the legality of the payments under EU competition rules, but €16.6 million had already been granted to Estonian Air.
• A €100 million state bailout package to LOT Polish Airlines, agreed by the government last December, was approved by the European Commission in May 2013. LOT has been posting a loss for five years. Losses of 38 million in 2012 were the highest since 2008. But the bailout is proving insufficient to keep LOT afloat (the usual description for propping up a firm with financial support, the word ‘aloft’ would be more appropriate). On 20th June 2013, Business News Europe reported that LOT had applied for a second bailout, a loan of €88 million.
These counties’ flag carriers, supposed national assets, are national liabilities. It is interesting that a considerable amount of the financial support has been approved by the EU Competition Commission, which maintains that, while financial support to established airlines breaches EU competition laws, emergency support for rescuing and restructuring firms is permitted. The definition of ‘emergency support’ has been interpreted generously as many of the airlines have received financial support repeatedly over long periods.
Croatia joined the European Union on 1st July 2013. This is likely to facilitate the accession of neighbouring Serbia, Bosnia-Herzegovina and Montenegro. All four countries have also provided financial support to their flag carriers in recent years.
• Croatia Airlines was handed a €106 million government cash injection in November 2012. But by April 2013 debts stood at €131.4 million. The airline has been reliant on government subsidies since 1991
• Bosnia-Herzegovina’s BH Airlines is subisidised by the Bosniak-Croat Federation, to the tune of nearly €3.6 million per annum. This proved insufficient for BH, which was grounded in March 2013, its accounts frozen because of outstanding debts. But BH was soon back in the air because of a government deal to partially repay debts with the sale of two of the carrier’s aircraft.
• Serbia’s JAT Airways is attempting to form a partnership with UAE’s Etihad Airways. A deal is unlikely without support from the Serbian government, which in March 2013, stated that it was prepared to take on €170 million of debts, pay leases for six aircraft and secure redundant workers’ severance payments.
• Montenegro Airlines, heavily in debt and short of cash, was granted €9.6 million in government loans in April 2011 – to buy new aircraft, maintain its fleet and start new routes.
Rose Bridger works on environmental issues in the UK in the areas of policy, practical projects and community development. She has been a consultant for the local food sector and campaigned against air freight expansion for a number of years.
Other articles by Rose Bridger are at http://www.uecna.eu/spip.php?page=auteur&id_auteur=2
Plane Truth: Aviation’s Real Impact on People and the Environment [Hardcover], is due to be published in October 2013.
Rose Bridger provides a comprehensive account of aviation’s impact, including how new airports are gobbling up farmland and wildlife habitats and inflicting noise and air pollution on communities. She reveals the extraordinary level of subsidy for the industry, from government expenditure on infrastructure to tax breaks, which helps to support the industry in the face of rising oil prices and the global economic downturn.
Plane Truth demolishes industry claims that fuel-efficient aircraft and alternative fuels can enable growth without increasing climate change and reveals the symbiotic relationship between aviation and the wider socio-economic problems facing humanity.
Bankrupt Alitalia to get € millions of state aid from Italy’s state postal service
Date added: October 14, 2013
The near-bankrupt Italian airline Alitalia is to receive an emergency capital injection from Italy’s state-owned post office. Italy’s government did not say how much Poste Italiane SpA, the Italian postal service, would be investing – but it might be up to €100 million. The Italian government hope the link between Poste Italiane and Alitalia would lead to a synergy of logistics, in passengers and cargo. Italy’s civil aviation authority had warned just hours earlier that the airline risked being grounded if new financing was not found urgently. Alitalia needs some €455 million to stay afloat. The Italian government justified what amounted to state intervention saying Alitalia was considered a national asset. It filed for bankruptcy in August, as high staff costs, industrial relations issues and surging oil prices further dented its finances. It is being suggested that Alitalia might be able to merge with Air France-KLM to help get it out of its financial problems. Alitalia went bankrupt in 2008, and was re-launched in 2009.
Consultation on rules for European Commission state aid to airports and airlines
Date added: September 18, 2013
Under the European Commission, state aid is granted to various sectors of the economy. However, a key issue is the impact it has on distorting the market, and giving an unfair advantage to those companies or organisations receiving it. Airports and airlines are one sector that receives large amounts of state aid through the EC. The Commission’s DG Competition is tasked with overseeing state aid. There have been earlier sets of guidelines on state aid to airports and airlines, but there is a current consultation – due to end on 25th September (which may be extended). The exact amount of state aid given to the aviation sector is somewhat shady, but is at least €3 billion, for those subsidies that are fully notified.There have been widely publicised cases, such as that of Ryanair at Charleroi airport. Transport & Environment have produced an easy-to-read briefing on the state aid situation, and people are urged to respond to the consultation. The state aid gives the aviation industry unmerited subsidy, and helps to encourage very high carbon travel.