ANALYSIS: State-aid rules bring uncertainty for Europe’s airports

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The dire state financial state of many of Europe’s regional airports has been laid bare in new statistics released by trade body ACI Europe.

They show that 42.5% of Europe’s airports are making an annual loss, and that this proportion rises the less traffic the airport handles.

Based on operating income alone, 59% of gateways handling between one and five million passengers per annum are incurring an annual loss, while 73% of airports handling fewer than one million passengers are in the red.

In an effort to reverse that trend, the European Commission is seeking to cut the public subsidies that airports can receive in a bid to encourage them to become profitable.

The Commission plans to grade state-aid entitlement for investment projects on a sliding scale based on annual passenger traffic, with aid “intensities” ranging between 75% and 25%.

From March, aid will cease for airports with traffic exceeding five million passengers. Only in rare cases where a “clear market failure exists” will aid be granted.

Airports with under three million passengers will enter a 10-year “transitional period” in which they are expected wean themselves off operating aid and produce a business model that is self-sustaining. During that period, only 50% of funding gaps can be covered by public grants.

The Commission recommends these airports “gradually increase airport charges for airlines, rationalise their activities, differentiate their business model or attract new airlines and customers to fill idle capacity”.

Airports handling 700,000 passengers or fewer will be entitled to 80% of their existing grants, and facilities deemed to be in remote or peripheral areas of Europe will get even more.

While ACI Europe director general Olivier Jankovec welcomes the decision to allow significant aid for airports under 700,000 passengers – the trade body calculates 800,000 passengers per annum as the minimum needed to cover operating costs – he says some gateways could be forced to close.

“There is a risk that some very small airports might close, because although the Commission has revisited its initial proposal and now allows operating aid for airports up to 700,000 passengers a year, it still requires such aid to be not more than 80% historic levels of aid airports have been receiving.

“I think you have a lot of airports that have done a lot of cost cutting already over the last few years and would find it very difficult to find this additional 20% reduction in their funding – so that might be a problem for some of these airports.”

Jankovec emphasises that the scale of any airport closures will likely be small, and says feedback from ACI members regarding the Commission’s guidelines are generally good. However, he criticises the decision by the Commission to revisit the guidelines in five years, arguing that this could threaten airport investment.

“When you run a business, especially the airport business, which is about long-term planning, you need certainty beyond five years. So that is something we regret very much that the Commission did not give at least 10 or 15 years, so the issue will be reopened again,” he adds.

Declan Collier, chief executive of London City airport, is more scathing about the new guidelines: “To expect the economics of small regional airports to be assisted by the airlines is a bridge too far, I don’t think that the airlines have an interest – and in many cases the financial strength – to help these airports.

“So I think the cessation of state aid will have an impact both on the provision of routes to these airports and indeed retention of business at the airport.”

In its new guidelines the Commission is also seeking to tackle the controversial issue of incentives offered by airports to airlines to open new routes.

Currently, the guidelines covering such grants are fairly vague, and this has led to numerous investigations by the Commission into arrangements it suspects constitute illegal state aid, such as its probes into deals between Ryanair and Charleroi airport.

Marketing support, rebates and incentive schemes – the typical levers airports use to incentise airlines – will still be allowed under the new guidelines, but will be expected to pass the so-called Market Economy Operator (MEO) test which assesses whether in a similar situation a private operator would have seen the benefits of granting such aid.

Airlines departing from airports with fewer than three million passengers will receive a fixed level of start-up aid covering 50% of airport charges for three years. Member states are also encouraged to notify the Commission of their start-up schemes.

Michael Jurgen Werner, a partner with legal firm Norton Rose Fulbright, says the new regulations could bring much needed clarity to the relationship between airports and airlines, but may prove difficult to enforce in practice.

“As far as the airports and national authorities stick to the new guidelines and the requirements set out therein, the procedures of state-aid investigations might decrease in the future,” he says.

“However, the Market Economy Operator Test is difficult to tackle as it involves very complex economic analysis which might even take the European Commission several years as was shown in some recent cases: e.g. investigation in the Berlin airport, Frankfurt-Hahn and various others.”

As long as the final form the new guidelines will take remains in doubt, judging their long-term impact will remain difficult.