The European Commission has finally released its guidelines on aid at regional airports to a cautious welcome from much of the industry – with the notable exception of the low-cost sector.

The guidelines, which set out rules for financial support from airports and regional governments for airlines starting new routes, have been long awaited. The rapid rise of the European low-cost sector from the late 1990s led some airlines to start routes with substantial support packages.

This practice came to a head in 2003 when the European Commission (EC) received complaints that Brussels Zaventum airport was being unfairly disadvantaged by Ryanair’s publicly supported Charleroi base, around 80km (50 miles) from the Belgian capital. The EC ruled last year that a substantial part of this aid was illegal, and drafted guidelines on state aid in February 2005, from which the new rules were developed.

Ryanair is currently appealing against this decision to the European Court of Justice, and the outcome of this case, expected later this year, could force the EC to redraft the guidelines. “There is still everything to play for,” says Neil Baylis, competition partner in the London office of law firm Kirkpatrick & Lockhart Nicholson Graham.

Brussels says the guidelines seek to take “a positive approach to developing regional airports”, while ensuring strict compliance with the principles of transparency, non-discrimination and proportionality. The EC says that the market investor principle – whether in similar circumstances a private investor would make the same decision – is a key test for granting aid. Not all believe that Ryanair violated this principle in the case of the Charleroi support. “The business logic arguably wasn’t spurious at all,” says Baylis.

The new rules are aimed mainly at airports with fewer than 5 million passengers annually. They include limiting the amount of aid, putting a timeframe on it and ensuring it diminishes over time. To this end, the aid is restricted to a period of three years, and must not exceed an average of 30% of total route costs per year over that period, with the maximum in any one year set at 50%.

The rules also stipulate that aid must be strictly linked to start-up costs that the operator will not have to bear once the service is up and running, such as marketing and advertising new services, or installation costs at the airport. Aid cannot be granted for standard operational costs, the EC says. These include aircraft leasing and depreciation, fuel, crew salaries, airport charges and catering costs. “The remaining eligible costs must correspond to real costs obtained in normal market conditions.”

Brussels is also insisting that the aid payments must be linked to the number of passengers transported. “The amount per passenger must, for example, decrease with the net increase in traffic for the aid to remain an incentive and to avoid adjusting ceilings.”

Financial support must not simply encourage traffic to switch from one airline to another, the EC says. “In particular, it must not lead to a relocation of traffic…from another airport in the same city, the same conurbation or the same airport system, which serve the same or a similar destination.” Aid will also not be allowed where there is already a high-speed rail service in place on the routes being proposed.

One of the key aims of the EC has been to introduce more transparency into proceedings, with bodies that are planning to grant state aid ordered to make their plans public “in good time” and with enough publicity to enable all interested airlines to offer their services.

“The notification must include the description of the route as well as the objective criteria in terms of the amount and the duration of the aid.” States have to ensure that the list of routes receiving aid is published annually for each airport, in each case listing the source of aid, the recipient, the amount of money involved and the number of passengers concerned. “The public body should also carry out an analysis of the new route on competing routes prior to granting start-up aid.” An obligation for airlines, says the EC, is that they must provide a business plan showing the viability of the route after the aid has expired.

Europe’s airline lobby group, ACI Europe, says it gives the new guidelines a “muted” welcome. Roy Griffins, the organisation’s director general, describes the new rules as “fairly robust” and notes that they provide some much needed clarity. He warns, however: “The guidelines are very strict in that they oblige any public aid to be notified to the EC”, adding that this could lead to unnecessary bureaucracy.

The Association of European Airlines (AEA) says it welcomes the guidelines as a step towards transparency. The AEA’s secretary general, Ulrich Schulte-Strathaus, says “the EC rightfully acknowledges that start-up aid distorts competition, which is why AEA supports the fact that taxpayers’ money should be strictly controlled and limited in duration, intensity and scope”.

Low-cost carriers take a different view. The European Low Fares Airlines Association warns that the new rules will impose “unworkable conditions” on public airports in their efforts to grow passenger numbers. Predictably perhaps, Ryanair was particularly vocal in its opposition. Claiming that the new criteria are based on a Charleroi decision that is “legally flawed”, the carrier says that the EC will “destroy” the competitiveness of many of Europe’s secondary and regional airports that are trying to grow passenger traffic.


Source: Airline Business