Spanair's collapse and the crisis engulfing Hungary's Malev point to a bleak future for airlines that depend largely on state funds for their survival. The European Commission is becoming increasingly intolerant of state aid and, faced with Europe's debt crisis, governments are seeking to offload their stakes in national airlines in return for hard currency.
The decision by Spanair to halt all flights and file for bankruptcy protection on 27 January was precipitated by Catalonia's regional government making it clear that no further loans would be forthcoming following the end of talks with Qatar Airways over a potential rescue deal. The Catalonian government is the largest shareholder in Spanair.
The Barcelona-based carrier has been strongly criticised in the past for benefiting from state funding, which the European Low Fares Airline Association (ELFAA) has repeatedly described as illegal state aid. Recent European Commission investigations into state funding at airlines such as Malev and Air Malta are also said to have deterred the Catalonian government from further investment in Spanair.
"I suspect the European Union will have no tolerance to these situations and will only allow help in very extreme situations," said Alex Cruz, chief executive of Barcelona-based carrier Vueling, which has swiftly upped frequencies and added new routes to fill the void left by Spanair.
"The EU will be very stringent. We're coming towards the end of seeing state aid taking place in the EU," said Cruz.
This is evidenced by the current predicament at struggling Hungarian carrier Malev, which has admitted that the financing of its activities has become "unviable" since the Commission in January ordered it to repay nearly $400 million of what it branded illegal state aid.
The ruling followed an in-depth investigation launched in December 2010, which concluded that financing granted to the carrier between 2007 and 2010 did not comply with European Union state aid rules because Malev, "given its consistently difficult financial situation, would have been unable to secure such financing in the market on the terms conceded by Hungary, nor possibly any financing at all".
Also under investigation by the Commission is whether the Maltese government's planned €130 million ($169 million) restructuring aid for ailing Air Malta is in line with state aid rules.
The Commission has expressed concerns over the airline's long-term viability, and said it needs more information to establish whether the carrier is eligible for restructuring aid in view of a 2004 capital injection carried out by Malta. Restructuring aid is only eligible once in a 10-year period under the Commission's one-time, last-time rules.
Peter Morris, chief economist at Flightglobal's Ascend data consultancy business, warns against a black and white approach that declares national subsidies are all bad and free market enterprise is all good. He points out that "in most cases" the use of state subsidies by airlines is "done within the interpretation of EU law, but there are elements of grey". However, Morris believes airlines that become wholly-dependent on state funding face being "wiped out when that white-heated competition comes along".
"It's not so much a case of is it morally right or morally wrong - from an economic point of view this dependency culture is counterproductive," said Morris.
Another struggling carrier that is using state funds as a life support machine is Slovenia's Adria Airways. The Slovenian government last year agreed to inject €49.5 million into the airline in order to keep it afloat. The investment was granted on the condition that Adria provides the government with quarterly updates on the implementation of measures drawn up under its restructuring plan.
Adria, which is majority-owned by state-run restructuring agency PDP, has been on the lookout for a strategic investor since November 2010.
Meanwhile, as governments look to reduce their debts, state-owned airlines are very much saleable assets.
Poland's government, for instance, is in talks with Turkish Airlines and an undisclosed bidder over the sale of an as-yet undetermined portion of its 93.07% stake in LOT Polish Airlines. A spokeswoman for the Polish ministry of treasury told Flightglobal Pro that the government would like to complete the sale "as soon as possible" but definitely by the end of this year.
Likewise, the Irish government has signalled its intention to sell its 25% stake in Aer Lingus as part of a programme to raise finances following Ireland's bailout by the EU and the International Monetary Fund. No decision has been made about the Aer Lingus stake, but the Irish government has said that it could potentially happen this year.
And in Portugal, the privatisation of TAP has long been on the cards. The sale process for the Portuguese flag carrier is expected to be defined by the middle of this year, and interest has been shown by International Airlines Group and unnamed Gulf carriers.
But unless state-owned airlines have something that sets them apart from low-cost competitors it will be hard for them to attract outside investors and, as a result, they could reach "the end of the road", according to Morris.