• Commission defends €3bn annual subsidies for low-cost airlines

    The European Commission today published new draft guidelines [1] that will allow regional airports and EU carriers serving them to keep receiving subsidies worth €3bn a year. In a good number of cases [2] these rules prop up unprofitable regional airports and low-cost carriers, allowing them to continue to operate in an unsustainable way which distorts competition between budget and national carriers.  The proposed guidelines also permit the bail out of financially unviable operations for a decade and allow infrastructure aid for building new airports to continue in aeternum.

    Transport & Environment (T&E) expresses disappointment that the draft rules don’t go nearly far enough in stopping the exploitation of state aid provisions by some low-cost carriers to subsidise their own expansion and operations. Nor do the revisions go in any way far enough to prevent the continued construction of trophy airports by regional administrations, which end up under-used or even permanently closed and invariably add unsupportable financial burdens on regional coffers.
    Aoife O’Leary of T&E said: “Aviation needs to pay its own, fair way. The old guidelines promoted the construction of a plethora of state-funded regional airports, some even with no planes landing, such as in the case of the Spanish Castellón Airport [3]. Some low-cost carriers have disproportionately and unjustifiably benefited from these subsidies while the promises of thousands of tourists/visitors/second homebuyers and wider benefits to the local economy have often not materialised. We urgently need robust provisions to stop these on-going abuses so we can put scarce taxpayer money to better use.” 
    As presently drafted, the Commission’s guidelines don’t stipulate any economic underpinning that proves subsidising airports promotes the common good rather than harming it. Likewise, there is no weighing up of the benefits of the subsidies against the environmental damage that aviation creates. 
    If aviation was a country it would be ranked 7th in the world in terms of annual greenhouse gas emissions, between Japan and the UK. Historically, it is responsible for about 5% of global warming [4] and yet, unlike any other mode of transport, it does not pay a penny in VAT or fuel tax. This results in an effective subsidy to the aviation industry of about €30 to €42bn every year [5] – all this on top of the state aid monies.
    “Any EU state aid guidelines should be based on the principles of cost-effectiveness and environmentally sustainable development. The current situation where commercial airlines receive subsidies to establish and run new routes from financially non-viable airports must be changed,” Aoife O’Leary concluded.

    Notes to Editors:

    [1] These EU guidelines govern taxpayer monies that subsidise regional airport operations and start-up aid for airlines serving them. These rules are not subject to parliamentary oversight and will be legally binding once the public review process is closed. Stakeholders will have three months to comment on these draft guidelines and is expected that the Commission, after reviewing all submissions, will publish the final, revised guidelines in early 2014.

    [2] To name but a very select few examples: Antwerp Airport (with three investigations relating to State Aid: Cases N355/2004, N156/2007 and N114/2010); Aid directly to Ryanair to fly from Toulon to London (Case N563/2005); Lodz Airport in Poland (with two investigations relating to State Aid: Cases N741/2006 and N638/2007); Aid to Derry Airport (also with two investigations: Cases NN21/2006 and NN65/2009) 

    [3] https://www.telegraph.co.uk/news/worldnews/europe/spain/8807723/Spains-white-elephants-how-countrys-airports-lie-empty.html

    [4] David Lee et al ‘Aviation and global change in the 21st century, available at https://www.tiaca.org/images/tiaca/PDF/IndustryAffairs/2009%20IPCC%20authors%20update.pdf

    [5] For the calculation on VAT: Europe’s global market share is almost 30%, of a 2010 market of $565bn or €430bn https://www.iata.org/pressroom/pr/Pages/2010-12-14-01.aspx. Europe’s aviation market is therefore worth about €120bn, of which approx. €100bn for passenger transport. Well over half of passenger transport revenues, or about €50bn+, is leisure and would hence normally be subject to VAT (after business deduction of input VAT). Assuming an average 20% VAT rate we arrive at an estimated €10bn subsidy as a result of the current zero rating. Fuel Tax is worked out by looking at the EU-27 use of aviation fuel 2011: international: 44,489,000 toe and domestic 6,026,000 toe with the total of 50,515 000 toe. The energy content Jet A1: 9600 kWh/m3 and 1 toe = 11630 kWh.  50,515,000 toe x 11630 kWh = 583,256,130 000 kWh / 9600 kWh/m3 = 60,755 846,875 m3. If EU minimum kerosene tax of 330 euro per m3 is applied, the tax bonus is: €20,05 billion. If EU average petrol/diesel tax 530 euro per m3 is applied, the tax bonus is: €32,30 billion, from: https://epp.eurostat.ec.europa.eu/tgm/refreshTableAction.do;jsessionid=9ea7d07d30dc86e2dfa07dda4b96b123bed7dada4c23.e34MbxeSaxaSc40LbNiMbxeNax8Pe0?tab=table&plugin=1&pcode=tsdtr250&language=en