EU proposal to phase out state aid to small regional airports after 10 years prompts worries of “closure of 100 small airports”

In July 2013 there was a consultation on rules for state aid to European airports and airlines. There are concerns that state aid and subsidies to small airlines, or to start up air routes to small airports, distort the market. The airports and airlines that benefit are keen to see the state help continue and say it has a marked effect on boosting their local economies, and creating wider benefits than just the companies involved. Now the EU has suggested state aid should not be given to small airports until they become profitable – and many of them will not be profitable. State aid should only be for a transition period of 10 years maximum. It is suggested by parts of the aviation industry that this could lead to “the closure of around 100 airports” around Europe. The Swedish argue that their small regional airports are vital, as surface links are impossible over the huge distances. The EU’s Committee of the Regions has called for public financial support for airport infrastructure construction and development not to be considered a state aid. They say “A 10-year transition phase for all airports with under 3 million passengers per year cannot work,” and the different situations of different airports must be taken into account. They want airports with less than 1 million passengers per year to get support beyond the 10 year transition period. 
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What the consultation on state aid to airports and airlines said on the phasing out was:

17. Against this backdrop the present Aviation guidelines introduce a new approach to the assessment of compatibility of aid to airports and airlines:

(a) Whereas the 2005 Aviation guidelines left open the issue of investment aid, these revised guidelines define maximum permissible aid intensities depending on the size of the airport. However, for large airports with a passenger volume of over 5 million per annum, investment aid should not be declared compatible with the internal market.

(b) For a transitional period of 10 years, operating aid to regional airports can be declared compatible.

(c) The compatibility conditions for start-up aid to airlines have been streamlined and adapted to recent market developments.
104. In order to provide proper incentives for efficient management of the airport, the aid amount is, in principle, to be established ex ante as a fixed lump sum covering the expected funding gap of the operating costs (determined on the basis of an ex ante business plan) during a transitional period up to 10 years. For these reasons no ex post increase of the aid amount will be considered compatible

107. By [10 years after the beginning of the transitional period] at the latest, all airports must have reached full coverage of their operating costs and no operating aid to airports will be allowed henceforward, with the exception of operating aid granted in line with general State aid rules.
109. The Commission will approve operating aid to airports for a transitional period of no longer than 10 years beginning on [Begin of the transitional period].

http://ec.europa.eu/competition/consultations/2013_aviation_guidelines/aviation_guidelines_en.docx

 

  • January 2014: Adoption of the new guidelines on state aid to airports and airlines

 


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Revised EU state aid rules ‘could lead to closure of 100 small airports’

4.12.2013 (Euractiv)

The proposed revision of state aid rules to airports and airlines, unveiled by the European Commission in July this year, link will allow start-up aid for launching a new route during a limited period of time and allow operating aid to airports under certain conditions for a 10-year transitional period.

The Commission launched a public consultation over the revised rules but EU regions, especially those that have seen their economic development boosted by local airports, find the new rules “worrying”.

10 year transition phase

Speaking at a panel discussion organised by the Assembly of European Regions on 2 December, Annabelle Lepièce, a lawyer representing the French region of Languedoc-Roussillon, warned that “if the guidelines are applied as the Commission intends to, it could lead to the closure of around 100 airports” around Europe.

Lepièce criticised the EU executive’s plan to decrease operating aid to airports until they become profitable.

“Some of them will never become profitable,” Lepièce claimed, although some of these small airports contribute “immensely” to the economic development of the regions.

The lawyer cited the example of a French village, Saint André de Roquelongue, near Carcassonne in South-West France, which was entirely revived over the past ten years following the construction of a nearby regional airport. Thanks to the connection, the village was repopulated by younger people, mainly Brits, even leading to the opening of a new school.

Similar concerns were raised by Swedish MEP Marita Ulvskog, a social democrat. Sweden is a sparsely populated country where regional airports are “a necessity”, she claimed. With 21 people per square kilometer, the country suffers important geographic handicaps, which local airports help alleviate.

Road and rail are no alternative for big trips, she explained, as driving from north to south can take 21 hours and high speed trains go only “as far north as Stockholm”. Hence, she said domestic flights are a “basic component” of the country’s economy given the lack of alternatives.

“A 10-year transition phase for all airports with under 3 million passengers per year cannot work,” said Catiuscia Marini, link who drafted a report on the matter for the Committee of Regions. “It is not possible to adopt a one-size-fits-all approach in this field, the diversity within this category of airports is huge and there are completely different situations that must be taken into account.”

“The EU’s regions request, therefore, the European Commission allows the possibility to support, beyond the transition period, at least airports with a yearly traffic rate of below one million passengers,” she told EurActiv in an emailed statement.

In a letter to the Commission, sent in September, Swedish Social Democrats MEPs expressed their concern that “the vast majority of [Swedish] regional airports have no prospect of ever making a profit because of the small economies of scale outside of the major urban areas”.

While the Commission foresees specific conditions for so-called Services of General Economic Interest (SGEI), experts fear that most of the airports will fail to be considered as such, as the EU Executive’s definition is seen as “too restrictive” and “not sufficiently harmonised”.

Public mission

In its draft opinion, the Committee of Region calls on the European Commission to consider state aid to regional airports as a public mission.

“What is the Commission trying to do? Interfere in the economic policy of the member states?” asked Olga Simeon, an Italian representative from the Venice region who helped draft the report.

“In most cases, public investments in airports […] help better connect the region with other transport modes. They grant advantage to the whole economy, not to one enterprise. Intermodality investments should be considered a public mission,” she said.

For the Regions, it should also be made clear that micro-airports with less than 300,000 passengers per year should fall outside of the Commission’s scope as they “cannot affect competition between member states, as  defined in the article 107 of the [EU treaty]”, Simeon concluded.

Charleroi airport

However, not all regional airports are small.

In Belgium, the Brussels-South airport in Charleroi manages 6.5 million passengers per year, and has become a viable alternative to the Zaventem (Brussels) national airport, which complained to the European Commission over the generous state aid granted by the Wallonia region to welcome the Irish low-cost carrier Ryanair. The case is currently being investigated by the Commission.

The impressive growth of small airports such as Charleroi has also been denounced, albeit for different reasons, by environmental NGOs, such as Transport and Environment:
“It seems small airports are exploding rather than struggling. State aid is the primary reason that smaller airports have grown so much faster than larger airports. This serious and unfair distortion of competition must be addressed urgently”, the NGO said, adding that “state aid for Charleroi should be out of the question as long as it offers rates so far below market rates”.

The investigation is still ongoing, and it will not be clear before the summer of 2014 whether the alleged aid the airport received was legal or not.

But it does prove the Committee of Regions’ point that there should not be a “one-size-fits-all” approach for state aid rules when it comes to regional airports.

“We want a tailored approach and ask for a review of the rules based on the specific needs of each region,” a spokesperson for the Committee of Regions said.

Next steps:

External links by Euractiv:

European Institutions

Other stakeholders

http://www.euractiv.com/transport/eu-state-aid-rules-lead-closure-news-532105

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Member States’ public funding of airports and airlines is currently regulated by the 1994 and 2005 Aviation Guidelines.

The 1994 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 European Commission initiated a review, with a first public consultation in 2011 aiming in particular to determine whether a revision is necessary (see IP/11/445).


 

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EU State aid rules must not apply to airport infrastructure development

29.11.2013  (European Union, Committee of the Regions)

The Committee of the Regions has called for public financial support for airport infrastructure construction and development not to be considered a state aid. The opinion drafted by the President of the Umbria Region, Catiuscia Marini (IT/PES), also calls for a wider flexibility in state aid rules aimed at making regional airports more competitive as well as promoting intermodality.

With nearly 830 million passengers in 2012, airports have become increasingly important for the EU’s competitiveness. For this reason, regions and cities request the chance of mobilising significant public resources for their modernisation and improvement. “Tight control of state aid
regulation in the EU is unique in the world. In the aviation sector we compete with other global player such as the U.S., Asia and the Middle East, who offer serious financial support for their airports and airlines placing our operators at a heavy disadvantage” said rapporteur Marini, adding that: “We should consider making our strategy for airports more flexible, consistent with the global challenges facing us, and closer to local communities’ needs”.

The opinion, adopted by the Committee of the Regions at the 28-29 November plenary session, comes in the context of the modernisation of State aid rules launched by the European Commission in 2012, and in view of its revised Community Guidelines on the financing of airports and start-up aid to airlines departing from regional airports.

According to EU regions and cities representatives, public support for infrastructure construction and development must not be put on an equal footing with private investment, as it often constitutes a form of fully-fledged economic policy measures and cannot therefore be considered as state aid. If the Union is to meet Europe 2020 objectives, efficient and modern regional infrastructure are a key factor and it is among the duties of all levels of government to promote concrete progress on this field. These principles should also specifically apply to public financing of airport intermodality, acknowledged as a top priority by the EU, which can have a huge impact on regions’ economy, citizens’ mobility and territorial cohesion.

For airports that see between 300 000 and three million passengers pass through each year, the Commission foresees a ten year transitional period leading to full autonomy from public financial support. The opinion points out that a strict transition period cannot be effective with regards to the diversity of airports falling into this category. Therefore, the CoR requests that public support for airports receiving under one million passengers per year will be still allowed, even after the end of the transition period and that the following rules will be based on the outcome of a mid-term review.

Given that 40% of EU airports have a yearly traffic under 300 000 passengers, the CoR calls for a wider margin of manoeuvre including state subsidies for small regional airports. These airports often connect the most isolated or disadvantaged areas and carry high costs that can hardly be lowered because of the limited target market. Public support is therefore key to keep them alive.

http://cor.europa.eu/en/news/Pages/airport-infrastructure-state-aid.aspx
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Previous press releases

http://www.netherlandscorporatenews.com/archive/inp/2013/12/02/T256.htm

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Lufthansa receives boost from EU court

By Nicholas Hirst  (European Voice)
21.11.2013
A German court cannot dismiss state aid allegations against Ryanair and Frankfurt Hahn airport.

A German court should suspend suspected state aid from Frankfurt Hahn airport to Ryanair pending a European Commission investigation into the matter, the European Court of Justice ruled today.

In 2006 Lufthansa asked a German regional court to order Frankfurt Hahn airport to recover and terminate alleged subsidies given to Ryanair.

But the German court ruled in favour of Frankfurt Hahn airport and Ryanair, finding that there had been no subsidies. This was despite the Commission itself having opened an investigation into the terms and conditions offered by Frankfurt Hahn to its main client Ryanair.

After an appeals court told the regional court to reconsider its ruling, it again indicated that it had doubts about whether there had been any illegal state aid. The regional court asked the ECJ what importance it should give to the Commission decision to open an investigation.

The European Union’s highest court ruled today that a national court is, at the very least, obliged to impose provisional measures stooping alleged subsidies where they are the subject of a Commission investigation.

Where the court entertains doubts as to whether the Commission is correct, it may ask the ECJ to rule but cannot simply allow the alleged state aid to continue.

But such rules could prove very disruptive, a lawyer specialising in state aid told European Voice.

If a national court is obliged to suspend alleged state aid pending a Commission decision, the recipient may be forced off the market even if the state aid is subsequently declared legal, he explained.

The Commission’s own investigation into Ryanair in relation to Frankfurt-Hahn has gone on for a little over five years.

A spokesperson for the Commission said: “The Commission will take a decision in this case after the adoption of the next guidelines on aviation in 2014. The Commission has proposed draft new rules in July and is analysing the replies to the public consultation. The draft new rules foresee in particular new provisions on aid granted to compensate the operating losses of airports.”

http://www.europeanvoice.com/article/2013/november/lufthansa-receives-boost-from-eu-court/78828.aspx
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 Earlier:

Consultation on rules for European Commission state aid to airports and airlines

July 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.

http://www.airportwatch.org.uk/?p=17424

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and from Transport & Environment:

Key points about State aid to airports and airlines:

  • Aviation should not receive state aid except in very limited circumstances (e.g. remote islands, for example in the north of Scotland). It is not appropriate to give it to airports to subsidise cheap Ryanair holiday flights, or trips to second homes.
  • Aviation is the most climate intensity mode of transport, per unit time travelled, and it has significant impacts on citizens’ health across Europe, largely through noise pollution b ut also by  local air pollution, (and indirectly, by adding to the burden of more CO2 on the global climate).
  • Aviation is already receiving the indirect subsidies of being VAT and fuel tax free: this has recently been estimated to be worth €39 billion per year in the EU.  The UK has Air Passenger Duty, which goes some small way to compensate for the lack of VAT or fuel tax, but other European countries have even more under-taxed aviation sectors.
  • At the moment aviation receives at least €3 billion a year in State aid, and that is just the subsidies that are know about and properly recorded. The figures are not made transparent or clear, and are not easy to ascertain.
  • There is much unreported State aid so the Commission must make sure that ALL State aid to aviation is notified to the Commission, and that it is easily accessible in a publicly-available database.
  • Day-to-day operating aid is a hugely distortive form of State aid and should not be allowed. Operating aid is just one of the forms of State aid that is given; others are for infrastructure costs to airports, and the other is start up aid to airlines for new routes.
  • Past illegal aid should not be made legal retroactively, as this sends the signal to the industry to disregard the future guidelines as well and disadvantages those parts of the industry that actually complied with the past law
  • No airlines should get aid for start-up routes –if airlines are not prepared to take the risk of whether a route will be profitable then it is clear that taxpayers should not either. At present, State aid is often given to airports or airlines that a prudent private investor would reject. This is only acceptable if there is a strong social need for flights (eg. for an airport on a small island, with slow or difficult alternative transport).
  • It is clear that much taxpayer money across Europe has been wasted on airports. Only the Commission can ensure, through levelling the playing field that this does not happen in the future. The revision of these guidelines is the perfect opportunity to do so.

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Details of the state aid and its problems are in the T&E briefing at State Aid for Airports and Airlines

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