Tuesday, April 27, 2010

State Aid on the Way?

European Commission Vice President Siim Kallas, who is responsible for transport, has issued a menu of short and medium-term policy options for the European Commission to pursue in order to assuage the social and economic damage wrought during the so-called "volcanic ash crisis."  See Press Release, Europa, Commission Outlines Response to Tackle Impact on Air Transport, MEMO/10/152 (Apr. 27, 2010) (available here).  In addition to revising international procedures to deal with the fallout of volcanic activity and accelerating the implementation of the Single European Sky, Kallas's recommendations included affording latitude to Member States to provide air carriers with loans and other financial guarantees at market rates.  Kallas noted, however, that any State aid from EU Members "must be granted on the basis of uniform criteria" and "cannot be used to allow unfair assistance to companies which is not direcly related to the crisis."

Even with a green light for limited aid, it's unclear how far EU Member States are willing to go to compensate their airlines for costs related to the crisis when other industrial sectors in the EU were adversely affected as well.  Last week, Peter Ramsauer, Germany's Transport Minister, said he "would resist any appeal to the State" for aid. See Tony Barber, German Minister Opposes Airline State Aid, Fin. Times, Apr. 19, 2010 (available here).  Of course, with EU airlines now saying that their total losses will be in excess of $2 billion while laying a majority of the blame for the disordered nature of the airspace closures on Member State Governments, the pressure for State aid grants is increasing.

Regardless of the form any Commission approved aid guidelines take, there will certainly be room for abuse.  Given the record losses the EU air transport industry has suffered in the last year, some Member States may use any flexibility afforded by the Commission to "prop up" their failing carriers.  At the very least, the infusions of aid will raise monitoring costs for the European Commission and could result in protracted investigations if indeed the Member States decide to test the plasticity of the forthcoming aid guidelines. 

Finally, even if there is a credible chance that some EU air carriers will go bankrupt from the crisis unless they receive the benefit of State aid, it is unclear that it constitutes a problematic development.  The EU market remains saturated with airlines; further consolidation may be what the sector needs before it can begin operating in the black again. 

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