Consultation on rules for European Commission state aid to airports and airlines
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.
Background to State air for 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.
Details of the state aid and its problems are in the T&E briefing at State Aid for Airports and Airlines
There is also an interesting paper, from Germany, about the state aid that has been received by Leipzig/Halle airport. State aid to airports_20130916_IGN Germany_Position
EU Takes Aim at Airport Subsidies—and Ryanair
In a move that could shake up the business model of low-cost airline Ryanair(RYAAY), European Union antitrust regulators want to phase out most governmentsubsidies for unprofitable European airports. The plan could lead to higher operating costs for carriers that operate out of smaller, secondary airports; Ryanair, Europe’s biggest discounter, flies almost exclusively to such airports.
“Airport overcapacity gives airlines an opportunity to shop around for subsidies at taxpayers’ expense,” EU antitrust chief Joaquin Almunia said earlier this week. “Just like other economic activities, airports should recover their operating costs from those that use them, namely airlines and passengers.”
The move could lead to another dust-up between Brussels regulators and Ryanair’sflamboyant Chief Executive Officer Michael O’Leary. In recent months they’ve tangled over issues ranging from passenger compensation for canceled flights to Ryanair’s failed effort to acquire fellow Irish carrier Aer Lingus (AERL:ID).
EU antitrust regulators currently are investigating at least 23 cases, 19 of them involving Ryanair, in which airports eager to attract flights allegedly provided subsidies to airlines (for example, by providing discounts on gate fees). In some of the Ryanair cases, authorities have said the airports went even further, providing direct cash payments to the airline.
Regulators claim that an airport in the French city of Montpellier made payments totaling €798,000 ($1 million) to a Ryanair subsidiary in 2010 and 2011. The payments were supposed to be for advertising and marketing to attract tourism to the region. Government audits found that the services consisted of placing links to local tourist information on Ryanair’s website.
Such payments are “a mere vehicle to grant further discounts” to the airline, EU regulators said last year in a case involving similar payments made to the Ryanair subsidiary by the Klagenfurt airport in Austria. “The Commission has serious doubts whether a market investor airport would have commissioned marketing activities for the same price,” the regulators wrote in a letter to Austrian authorities.
Ryanair maintains that it receives no subsidies. “The European Court in the Charleroi case in 2008 ruled that Ryanair’s arms-length airport contracts do not constitute state aid,” spokesman Robin Kiely said in an e-mailed statement, referring to a case involving a Belgian airport served by Ryanair. In that case, a ruling against Ryanair by EU regulators was overturned by an appeals court, but the regulators subsequently reopened and expanded the case.
The plan announced by Almunia would require state aid to most airports to be eliminated over a period of 10 years. The rules are “markedly stricter” than existing guidelines, Totis Kotsonis, a lawyer at Norton Rose Fulbright told Bloomberg News. “The aviation sector has to depend on its own resources and not expect the state to subsidize it forever.”
The Association of European Airlines, which represents most of the region’s major carriers, has sparred with Ryanair and other discounters over the subsidy issue. A spokesman tells Bloomberg Businessweek that the association “welcomes the announcement” that government aid is to be cut back. Subsidies are causing “competitive distortion,” he says, “and there is no transparency.”