Airlines Urge State Aid After Industry Chaos

By Albert Stephens,2014-04-21 12:59
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Airlines Urge State Aid After Industry Chaos

    Airlines Urge State Aid After Industry Chaos By RAPHAEL MINDER and JAMES KANTERPublished: April 20, 2010

    MADRID European airlines Tuesday started focusing on their own fate rather

    than that of their stranded passengers amid signs that securing financial

    compensation from governments could prove even more complicated than getting

    their aircraft back in the air.

    With air traffic gradually resuming across Europe, three associations of European

    airlines called Tuesday on the European Commission and governments to make a

    firm commitment to provide financial support ―to ensure that the extra costs

    involved with the crisis and the loss of income to carriers do not threaten the

    financial viability of airlines to the point of bankruptcy.‖ Their demand came a

    day after E.U. transport ministers decided to shelve the issue of state aid at least

    until the volcanic ash dissipates and normal travel conditions are restored.

    The muted political response, according to some analysts, suggests that European

    airlines should not expect their governments to agree on the kind of support

    provided by Washington to ailing American airlines following the terrorist attacks

    on Sept. 11, 2001, even though the travel disruption in Europe could prove much


    David Bentley, European associate for the Centre for Aviation, a think tank based

    in Sydney, said: ―The comparison between this situation and 9/11 really ends at

    the visual level of seeing all that smoke. Europe is still a series of disparate

    countries, so at the end of the day everybody really is more inclined to help

    themselves. This also has not affected the whole of Europe, like 9/11 did for the

    U.S., so I’m sure that some European countries will want to break ranks over any

    coordinated response.‖

    Furthermore, in the wake of the worst disruption of European commerce since

    the Second World War, the carriers will almost certainly be competing with other

    sectors from food retailers to car manufacturers for large dollops of government

    largess. In fact, European airports said Tuesday that they would for the first time

    be seeking state aid on the back of a crisis, after estimating that they lost more

    than ?200 million combined over the past six days. ―Around 9/11, state aid was

    permitted to the airlines and we feel that we now have a valid argument as well,‖

    said Robert O’Meara, spokesperson for ACI Europe, an association of over 400

    European airports.

    Airlines will face an additional barrier to milking their governments for state aid: There simply isn’t much money to go around. Governments are pretty well broke after bailing out scores of banks last year and not keen on continental burden sharing, as shown by the wrangling over whether to help Greece avoid default. Under E.U. rules, governments are entitled to give aid to companies whose business has been destabilized by natural disasters and exceptional events. But policing that process will almost certainly be a major headache for regulators in Brussels responsible for stopping governments from using crises as a pretext to support favored companies with unfair subsidies.

    The E.U. rules also stipulate that airlines could only claim for losses incurred during periods when the airspace was shut down. Following the 2001 attacks on New York and Washington, the E.U. commission restricted claim calculations to the period when air traffic was grounded from Sept. 11 and Sept 14. A gradual and partial re-opening, as is now occurring in Europe, will also make such assessments harder.

    Europe’s airlines have not quantified their losses so far and, as of late Tuesday afternoon, no government had yet notified Brussels of any state aid plan, according to Amelia Torres, a spokeswoman for Competition Commissioner Joaquim Almunia. Mr. Almunia pledged Tuesday to ―give the green light‖ very rapidly to justifiable state aid requests for losses resulting directly from the eruption in Iceland.

    Europe’s five biggest airlines have been losing a combined ?150 million in sales a day as a result of the travel paralysis, HSBC analysts estimated Tuesday, but the pain is not evenly spread. In contrast to British Airways, Air France-KLM and Lufthansa, Easyjet and Ryanair ―should remain healthily profitable,‖ according to HSBC.

    A prolonged travel chaos and the related compensation uncertainty could even imperil agreed deals in the sector, most clearly British Airways’ merger with the Spanish flag carrier Iberia, whose terms were finalized only last month after the British carrier reached a hard-fought agreement with its unions to close a ?3.7 billion gap in its employee pension fund.

    The added expenses related to the ash cloud’s disruptions could prompt BA’s management to seek further concessions from unions, including further changes

    to the pension plan, according to Saj Ahmad, an analyst at FBE Aerospace, a consulting firm based in London.

    Under the terms of the merger agreement Iberia still retains the right to pull out of the deal if British Airways fails to find a ―satisfactory‖ solution to the pension deficit by the end of this year.

    Governments could also prove reluctant to act quickly following the swine flu outbreak last year, which ―was meant to kill global airlines,‖ HSBC noted Tuesday.

    As was the case with the pandemic threat, ―when the airlines start flying again, average yields are likely to rise sharply,‖ the bank said in its research note.

    The fact that European airlines have been recipients of large amounts of state aid in the recent past also heightens the potential for further conflict between Brussels and national governments over agreeing swiftly on ash-related compensation. The commission has in fact often taken governments to court for breaching its state aid rules, a lengthy legal process that has often given the carriers enough time to benefit from such funds even in cases when the money

    was not justified and later ordered to be paid back.

    To try and diminish that prospect, the commission said this week that it may adjust the current procedures to ensure that governments would receive a sufficiently quick assessment of their plans to support airlines.

    James Kanter reported from Brussels. Nicola Clark contributed reporting from Paris.

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