European Union: European Commission Revises Guidelines On State Aid To Airports And Airlines

The European Commission released revised Guidelines for the assessment of State aid to airports and airlines on February 20, 2014. The revised Guidelines, designed to take into account the current legal and prevailing market conditions introduce substantial changes:

  • State aid for airport operating costs will only be allowed during a transitional period of 10 years.
  • Investment aid will not be permitted for airports with a passenger volume of over 5 million a year, while new caps for smaller airports have been introduced.
  • Start-up aid to airlines for launching new routes or new schedules involving higher flight frequency will vary depending on the size of the airport and requires an aid plan established in advance.

The revised Guidelines follow from the Commission's public consultation in 2011 to reassess its former 2005 Guidelines. The consultation sought to address not only the former Guidelines' lack of transparency, but also the evolving nature of the industry. The rise of low-cost carriers, which now account for a larger share of intra-European traffic than incumbent legacy airlines, has been one of the most significant changes in the industry which justified a review. These carriers have generally operated in smaller regional airports that have benefited from government aid.

Operating and infrastructure investment aid to airports

According to the Commission, airports should bear their own operating costs: personnel, communications, maintenance, etc. A transitional period of 10 years for operating aid will remain for airports with annual traffic below 3 million passengers per year, provided that (i) a lack of aid would significantly reduce the level of economic activity of the airport, (ii) the amount of the aid is established ex ante as a fixed lump-sum, and (iii) the airport is not dedicated to one specific user—such as providers of ancillary services to passengers, freight forwarders or other services providers, renting out offices and shops, car parking, hotels, etc.—but to all potential users.

Establishing limits on infrastructure investment, the revised Guidelines for the first time lay down maximum percentages of aid based on eligible costs. These are costs relating to the initial investments in airport infrastructure, such as planning, ground handling infrastructure, and airport equipment. Airports handling over 5 million passengers a year are ineligible to receive aid for infrastructure investments, and new limits on funding are imposed on smaller airports. For airports handling between 3 and 5 million passengers a year, the maximum amount of aid cannot exceed 25% of eligible costs. Moreover, the aid will be granted only as a repayable advance. The aid cannot exceed 50% of the eligible costs and not more than 75% for airports with a capacity of respectively (i) 1 to 3 million passengers a year, (ii) less than 1 million passengers a year. The aid in such cases could be granted as direct grant, repayable advance, soft loan, guarantee, etc.

Start-up aid to airlines

The revised Guidelines foresee a stricter approach to Member States for granting start-up aid to airlines launching new routes or a new schedule involving more frequent service. In principle, only airlines departing from an airport with fewer than 3 million passengers a year can be granted such aid. However, start-up aid could also be considered for larger airports located in remote regions, on islands or sparsely populated areas.

In addition to the airport-size restriction, start-up aid would be subject to the following cumulative conditions: (i) an ex ante business plan establishing that the route receiving the funds will become profitable for the airline without public funding after two years, (ii) the aid will cover a maximum of 50% of start-up costs, (iii) the aid should be allocated on a non-discriminatory basis, (iv) the aid is for routes linking airports within the Common European Aviation Area, and (v) the start-up aid cannot be combined with other types of aid granted for the operation of a route.

Conclusion

The revised Guidelines aim to provide aid only where economic development is enhanced. Unlike the former Guidelines, which did not address the issue of investment aid intensities, the new Guidelines define maximum permissible aid intensities based on an "airport-size-test." The Guidelines restrict the conditions for aid to airports and airlines and reflect the fact that certain regional airports and the low cost carriers operating in these airports have reached a stage of maturity and will therefore have to operate with reduced governmental aid.

The new "Guidelines on State aid to airports and airlines" can be found here.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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Authors
Ozan Akyurek
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