Airline beggars can’t be choosers

William Todts — December 3, 2020

Let’s call a spade a spade: much of the EU airline industry is bankrupt. Since March airlines have needed a €37 billion cash injection to stay afloat. And there’s more to come. Airports are begging for help. Mighty Airbus too has come up with its own backdoor bailout. But does one of the world’s most polluting industries really need saving?

First, let’s be clear. It is necessary and right that aviation workers are supported through temporary unemployment schemes and other measures. But what about the airlines, airports and their shareholders? Without government aid many of the companies we know today, especially those that were struggling before the crisis (think Alitalia, Brussels Airlines), would disappear. Their shareholders would lose money. But that wouldn’t spell the end of airlines and airports. Indeed, the industry’s basic infrastructure – planes and airports – remains intact. Once the Covid-19 crisis is over, demand will pick up again and connections will be restored by the survivors of the crisis or by new players. As it is, Ryanair and Wizz Air are already planning their post-Covid expansion.

One argument in favour of saving major carriers like Lufthansa, KLM and Air France is to avoid  the economic shock that would follow simultaneous defaultings. But the real reason airlines are being bailed out is that few politicians want to see a national carrier fail on their watch. This explains why – often against economic logic – national carriers have received tons of money. A wise investment with a guaranteed return? Probably not.

On the other hand, as the de facto ‘lender of last resort’ to an industry that isn’t of systemic importance (airlines really aren’t too big to fail), governments do have tremendous leverage. After all, beggars can’t be choosers.

So far, our leaders have been reluctant to use their clout. There was a degree of green spin on the first round of bailouts – like Air France becoming the greenest airline in the world – but that was mostly hot air

This is disappointing but we should also recognise that we can’t green the industry airline by airline, bailout by bailout. Instead, as the entire sector seeks to benefit from aid, directly or indirectly, we need green rules which will work across the industry and across the continent. 

This is why, earlier this month, T&E signed a joint memorandum with Europe’s aviation industry. In the memo, the aviation industry commits to 2019 being the peak year for aviation emissions with “substantial” emission cuts by 2030 and net zero emissions in 2050. On the policy front, the signatories agree that a mandate for clean aviation fuels, and e-fuels particularly, should be introduced. They also accept that the EU ETS is here to stay. (Airlines previously wanted it replaced by Corsia. All of this would be codified in a European sustainability pact to be agreed in 2021.

It would be easy to dismiss the memo as just an attempt by the industry to put some green lipstick on yet more state aid. And, in fact, it probably is. Yet we believe this moment offers our single biggest chance, so far, to set the industry on a cleaner path. 

First, because we believe in the power of green conditionality. A European sustainability pact could become a blueprint for conditions to be imposed on the industry across the continent. A second wave of aviation bailouts is coming. Margrete Vestager, the Commission’s state-aid czar and rubberstamper of airline and airport bailouts, should reject bail outs that aren’t in line with the pact. 

Second, the sustainability pact and the upcoming EU Green Deal initiatives for aviation are a unique opportunity to revolutionise the sector. That starts by setting a more ambitious goal: we need to progressively ban all short-haul and intra-EU flights powered by fossil fuels (not just scrap a few short-haul routes). By 2040 planes flying within Europe should be hydrogen or electrically powered, or more likely running on e-fuels. The goal of the planned (Q1 2021) aviation fuel mandate should be to scale up the e-kerosene whilst providing incentives for other zero-emission solutions like electric or hydrogen.

The memo makes references to ensuring that money given does not create “distortions and competitive imbalances”, and supports “structural adjustments to revenue raising” (such as kerosene taxation). That is good, as the distortions existing pre-crisis were substantial: huge numbers of loss-making airports propped up with annual rolling bailouts; €10 Ryanair tickets made possible by jet fuel tax exemptions and a misfiring emissions trading system. All fuelled the rapid growth in emissions from flying. 

The memo’s language is cautious. But we can be more direct here: before it went bankrupt, Europe’s aviation sector pre-Covid was already deeply dysfunctional. Using taxpayer money to reanimate a failed model is the last thing we should do. Future success needs to be different from what the sector is used to. The aviation industry doesn’t need saving, it needs a green revolution.

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