Julian Moxon/PARIS

SPANISH FLAG CARRIER Iberia may try and circumvent the state-aid rules of the European Commission (EC) by raising up to Ptas130 billion (£630 million) of new capital itself.

The carrier says that the money, which would follow a previous cash injection of Ptas120 billion in 1992, is simply "an annexe to our strategic plan", and is justified because of "...financial deviations that were out of our control". It cites the devaluation of the peseta, the recession in Spain, and the lack of return on its investments in South American airlines. "This has provoked a situation which requires a correction in our strategic plan," says the airline.

Iberia lost Ptas69 billion in 1993 and is expected to show losses of up to Ptas44 billion in 1994. The airline is owned by state holding group INI, which would provide the cash through the sale of 10% of the Endesa electricity utility, which is being privatised. "The money would therefore be raised independently of the Government," says Iberia. "We do not think it is state aid."

The EC's Competition Directorate is likely to think differently, however. If Spain acts unilaterally, the EC will demand that the money be repaid, and may bring a case in the European Court. Competition Commissioner Karel Van Miert has said publicly that he is against any further awards to Iberia, because it would undermine the EC's guidelines of a "one-last-time" cash injection laid out by its own "Committee of Wise Men".

The dossier on state aid to airlines also rests with the Transport Directorate and its new Commissioner, former UK Labour Party head Neil Kinnock, who takes over on 23 January. The Iberia case will be his first exposure to the air-transport-liberalisation policies introduced by Van Miert when he was in the same job.

If the Spanish Government goes through the correct channels and asks the EC to allow the aid, Kinnock and Van Miert will have to agree on the conditions under which the airline will restructure.

Iberia has already attempted to introduce a tough survival plan, but this is being revised after the pilots' union rejected the 15% salary cuts which were demanded and instead agreed on a last-minute deal for an 8.5% reduction in return for a watering down of the airline's redundancy plan.

Analysts believe that the new proposal will not be tough enough to satisfy the two Commissioners, however.

Source: Flight International