European Commission Considers State Aid Requests for EU Aviation Industry, as Losses Rise High on a Cloud of Volcanic Ash

Author:Mr Jarleth Burke and Natasha Hall
Profession:Jones Day

The European Commission is considering allowing governments to compensate national airlines struggling as a result of the widespread closures of European air space following the spread of volcanic ash plumes from Iceland's erupting volcano. In this exceptional situation, the Commission is considering limited state aid measures, modeled on those following the September 11 attacks.

State aid measures likely to follow

During a European Policy Centre breakfast policy briefing yesterday, EU competition commissioner, Vice President (of the EU Commission) Joaquín Almunia, stated that he was "ready to consider" EU governments' requests to compensate airlines for the losses amassing as a result of the continuing closure of European air space.

Financial aid from governments to selected national companies is generally prohibited as anticompetitive, because it may distort competition by favouring certain companies over their competitors. However, exceptions to the rule exist, including Article 107 2(b), which permits aid to make good the damage caused by natural disasters or exceptional occurrences. Vice-President Almunia explained that he was "looking carefully at what we did after September 11. We can use similar instruments. We are indeed facing exceptional circumstances".

The state aid measures taken in the EU after September 11 included compensation for costs arising directly from the closure of American airspace and, for a limited period, the assumption of the extra cost of insurance. These measures were conditional on them applying in a non-discriminatory manner to all airlines in a given Member State. In the U.S., the measures also included subsidised government loans or loan guarantees.

Vice-President Almunia confirmed that strict conditions would apply to prevent discrimination in favour of a particular airline and to ensure the proportionality of any aid, making clear that "Member States should demonstrate need for the aid and its proportionality".

Any permitted financial aid will not be limitless. The 2001 compensation offered was calculated by comparing the traffic recorded by each airline during the four days of airspace closure with that recorded by the same airline in the preceding week, adjusted to take account of the development in the corresponding period of 2000. Account had to be taken of both of the actual costs incurred and those avoided. The maximum compensation was set equal to the loss of revenue recorded during these four...

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