The European Court of Justice has ruled that the European Commission decision to permit Air France Fr20 billion ($3 billion) in state aid was illegal.

However, the Luxembourg-based court threw out all but two of the 110 complaints made by rival airlines, including British Airways, British Midland and SAS.

While the airlines celebrated, legal sources in Brussels added their weight to statements coming from the EC that the ruling would not affect the aid package. "Air France will not have to repay the money," says one European legal expert, "because the vast majority of the appeal has been dismissed."

The judgement centres on the failure of the EC adequately to explain its reasoning for two aspects of the original approval. The first concerns the authorisation for Air France to buy 17 new widebodies for $11.5 billion, which the court said was not explained in a "clear and unequivocal" way.

The aircraft were to replace 34 older types, the aim being to allow the airline to reduce its operating costs while not unfairly influencing its competitive position. Overall seating capacity had to remain unchanged - a constraint leading the EC to reduce the size of the intended order from the original 22.

The second aspect was the EC's insufficient reasoning over the competitive effect of the recapitalisation on Air France services beyond Europe, particularly on transatlantic routes. This resulted from airline complaints that the limitations to capacity growth contained in the original EC approval centred on the European competitive situation and failed to recognise out-of-area operations.

The EC will decide on appropriate action "in due course" and the ruling has "no effect on any other state aid decisions". Among its options are an appeal against the court ruling, which has to be made within two months. Another, seen as the most likely, would be for the EC to rewrite the original decision with an "adequate statement of reasoning" on the two points.

Source: Flight International