Dictamen de Comité Económico y Social Europeo CCMI/125-EESC-0000 de 09 de julio de 2014

Cuestión

Review of the Community Guidelines on financing of airports and Start-up aid to airlines departing from regional airports

Descripción

Rapporteur: 

Mr Jacek Krawczyk (Employers - GR I / Poland)

 

State aid for airports and airlines: new regulation is not enough

 

The EESC regrets that the new guidelines on state aid in aviation fail to provide sufficient transparency

 

On 9 July 2014, the European Economic and Social Committee adopted an opinion on state aid for airports and airlines. Despite welcoming the new regulation, which has been keenly awaited by airports and airlines, the Committee regrets that due to unjustified pressure from regional lobbies and local politicians, the final regulation does not provide sufficient means to make the European aviation sector substantially more transparent.

"The European Commission has created numerous exemptions from tighter rules, and airlines and airports will unfortunately attempt to use these to continue benefitting from public funding. We must end the current race for subsidies. Only with transparent rules which factor in economic, market-based factors, can we guarantee growth for the European aviation sector," said Jacek Krawczyk, president of the Employers Group and EESC rapporteur for state aid for airports and airlines. He considers that the EU should carry out a detailed study on the state of public aid and similar practices. Although the EESC has repeatedly called for this, no such study has ever been drawn up.

The EU should closely monitor the implementation of the new guidelines to avoid any further watering down of the regulation. Competition cases brought by the Commission show clearly that no level playing field in EU aviation exists. Fair competition is imperative for European aviation in order to guarantee sustainable growth and enable European carriers to keep pace with global competition in aviation.

 

Jacek Krawczyk is president of the European Economic and Social Committee's Employers Group. He has served as rapporteur for many EESC opinions on aviation, and is a member of the Aviation Platform established by Mr Kallas.

 

For further information, please contact Leszek Jarosz, communication officer for the European Economic and Social Committee's Employers Group: leszek.jarosz@eesc.europa.eu. 

Contestacion

Issue 2 | February 2014 ISBN 978-92-79-35541-7, ISSN: 2315-3113

KC- KD-AK-14-002-EN-N

© European Union, 2014

Reproduction is authorised provided the source is acknowledged.

More publications on: http://ec.europa.eu/competition/publications and

http://bookshop europa eu

Competition policy briefs are written by the staff of the Competition

Directorate-General and provide background to policy discussions.

They represent the authors? views on the matter and do not bind the

Commission in any way.

In a nutshell

These are smarter,

tailored and simpler

rules that:

- permit investment aid

if there is a genuine

transport need

- establish transition

periods for small

airports

- provide simple rules

for start-up of new

routes

- are flexible towards

isolated regions

- ensure aid is not

wasted and ends up

where it is most needed

Occasional discussion papers by the Competition Directorate?General of the European Commission

Competition policy brief

New State aid rules for a competitive aviation industry

1. State aid control 2.0

The Commission is modernising all the rules it uses for its State

aid control. The Commission's guidelines are being revised to

align them with the priorities of the EU's growth strategy, Europe

2020. The new rules will encourage Member States to put in

place well-designed aid measures which further economic growth

and objectives of common EU interest, while preserving

competition in the Single Market. At the same time, the

Commission will focus its attention on the cases with the

strongest impact on the Single market, and will simplify the rules

so as to make their implementation by the Member States easier.

The new guidelines on State aid to airports and airlines contribute

to that effort.

2. Introduction

European aviation

industry

Aviation plays a fundamental

role in the European economy

for both EU citizens and

industry, with more than 15

million annual commercial

movements, 150 scheduled

airlines, a network of over

440 airports, and 60 air

navigation service providers.

Airlines carry about 40 per

cent of value of Europe's

exports and imports, and

transport 822 million

passengers per year to and

from Europe.

The majority of airports in the EU are small regional airports, with

60 per cent of the total serving fewer than 1 million passengers

per year.

EU Airports per size category

Over the past 20 years, the EU airport industry has undergone

fundamental changes. Previously airports were mostly managed

as public infrastructures to ensure accessibility and territorial

development; in recent years they have specific commercial

objectives and are competing with each other to attract air

traffic. Over the last decade, many former military or general

aviation airports have been converted into civil aviation airports.

This development has been supported by the emergence of lowcost

carriers.

Low-cost carriers have brought important benefits to passengers,

enabling millions of European citizens to travel more cheaply. In

1992, over 65 per cent of passenger seats were sold by

incumbent air carriers and only 1.5 per cent by low-cost carriers.

Low-cost carriers (42.4%) exceeded the market share of

incumbent air carriers (42.2%) for the first time in 2011. This

trend continued in 2012.

Now there is effective and growing competition among European

airports, brought about by route liberalisation and airport

privatisation. The major European airports compete with each

other for point-to-point and transfer traffic in order to expand

New State aid rules for a competitive aviation industry | Competition policy brief

2

Today 63 per cent of EU citizens live within a two-hour drive from

at least two airports.

Second, the vast majority of regional airports do not generate

sufficient revenue to even cover their costs. Regional airports

sharing the same catchment area may suffer from a

cannibalisation effect, i.e. a split of traffic among several

underutilized airports, which prevents all of them from growing to

become more attractive, and results in higher costs as

density/scale economies are not realised. Ultimately the capacity

of regional airports is and remains underutilised. Subsidies are

then used to pay for investments, to cover operating losses and

to attract price-sensitive airlines. Mainly low-cost carriers receive

a mixture of discounts, success fees and marketing payments t

tter rules. For these reasons we have created a

both their route/airline portfolio and reduce their dependence on

the established hub carriers.

Regional airports have fostered the growth of point-to-point

carriers, mainly low-cost carriers, in offering their capacity to

airlines. As a consequence, the number of city pairs offered

within the EU has risen, and competition among all airlines has

increased, both among flag carriers and low-cost carriers. The

results are lower fares, increased frequencies and more

destinations for air travellers and air freight.

Number of intra-EU27 and domestic routes per season

(summer vs. winter), 2004-2012

Smaller regional airports have also become accustomed to

market pressures, as they compete for no-frills and regional

services. In addition, privatisation has become an increasingly

important trend in the airport industry, introducing even greater

efficiency across the sector.

Why impose State aid control for airports and airlines?

Airports improve access to regions, which facilitates market

access for regional businesses. They can also have significant

economic impact in terms of employment and contribution to a

country's GDP. For many remote communities and small islands,

access to the rest of the country and beyond is often only

possible by air.

Despite their positive effects on regional development and

accessibility, regional airports present a dilemma. First, public

funding to airport infrastructure has often resulted in duplication

of (unprofitable) airports in the same catchment area, creating

ghost airports and overcapacity at regional airports, while leaving

the congestion problem of main airports unsolved.

o

stimulate traffic. When airports and airlines receive aid, their

more efficient and more innovative competitors see the rewards

for their efforts disappear. All this leads to distortion of

competition.

The context in which the new guidelines have been discussed

makes the issues at stake all the more pressing. While the

European economy is showing signs of improvement and

significant efforts have been made by airports to increase their

profitability, 42 per cent of European airports remain lossmaking.

Expanding aid to airports and airlines is not the answer,

even if regions have adequate resources. Instead the rules need

to be tailored to ensure that the current level of public resources

can be used more efficiently and in a less distortive fashion. Also,

in public consultations, stakeholders have asked us for greater

clarity and be

new set of rules that are smarter, simpler and more flexible.

[Link]

http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=CELEX:32012D0021:EN:NOT

New State aid rules for a competitive aviation industry | Competition policy brief

3

3. Improvements introduced by the new

guidelines

Transitional periods for operating aid

One of the innovations in the new guidelines is the provision of a

transition period, during which 50 to 80 per cent of the initial

funding gap (the amount of operating costs not covered by

revenues during 2009 to 2013) of small airports may be covered

by aid.

market

e new rules allow granting of operating aid to

r transitional period,

its own costs.

orts handling fewer than 3 million passengers, the

The new rules replace current guidelines dating from 2005. These

guidelines formed the basis for nearly 100 decisions over the

eight years they were in force.

Four reforms in particular are critical: (1) a transition period for

operating aid, to allow unprofitable airports to adjust gradually to

changing markets, (2) better targeted investment aid, to ensure

that public support targets cases where it is truly needed, (3)

simplified rules for start-up aid, to attract airlines to fly to new

destinations and start using new and untested airports, and (4)

clear rules for the assessment of airport-airline agreements, to

ensure that they are aid-free and contribute to the profitability of

the airports concerned.

New EU guidelines say goodbye to ghost airports

To give small airports enough time to adjust to new

developments, th

small unprofitable airports during a 10-yea

after which the airport must be able to cover

The key element for assessing operating aid to airports is an ex

ante business plan that proves the airport will be able to cover all

operating costs by the end of the 10-year transitional period.

For airp

maximum permissible amount of aid will be limited to 50% of

the initial operating funding gap of the airport (the amount of

operating costs not covered by revenues during 2009 to 2013)

for each year of the transitional period.

For example: if the initial funding gap of a given airport is

equal to EUR 1 million, the maximum amount of operating aid

that the airport could receive would be EUR 5 million over ten

years (50% x 1 million x 10).

For airports handling up to 700 thousand passengers, the

maximum amount of aid will be 80% of the initial operating

funding gap, for a period of five years. After that, the

Commission will reassess the case and see whether special rules

In the intervening time, those

should be devised.

At the end of the transitional period, airports must be able to

finance their operations from their own resources and may no

longer receive operating aid.

airports should improve their finances by gradual increasing

airport charges to airlines, introducing rationalization measures

by differentiation of business models, and attracting new airlines

and customers to fill idle capacity.

Certain European airports have already started to diversify

their activities to increase profitability. For example, Tampere-

Pirkkala airport in Finland (a regional airport handling around

600,000 passengers per year) converted its vacant cargo

hangar into a low-cost terminal to offer cheaper services at a

more efficient cost base than at its full service terminal.

Connectivity remains ensured where necessary

itted

if the disappearance of an airport would hamper the social and

he rest of

ticular

Although airports in general may no longer receive aid after the

transitional period, it will still be possible to receive compensation

for uncovered operating costs of services of general economic

interest (SGEI). This applies to airports with an important role in

improving regional connectivity of isolated, remote or peripheral

regions of the EU. For example, compensation could be perm

economic development of an area by isolating it from t

the EU. The assessment will depend on the par

characteristics of each airport and of the region that it serves.

If the State aid to discharge a SGEI is granted to airports where

the average annual traffic does not exceed 200,000 passengers

over the duration of the SGEI entrustment, it is exempt from the

notification requirement, but needs to comply with the

compatibility criteria set out in the 2012 SGEI Decision1. State aid

not covered by the 2012 SGEI Decision (notably to airports

exceeding the traffic threshold of 200,000 passengers) can be

declared compatible under Article 106(2) of the Treaty, if the

conditions of the 2012 SGEI Framework2 are met. However, the

State aid granted to discharge a SGEI at airports with annual

traffic above 200,000 passengers needs to be notified to the

Commission.

1

Official Journal L7, 11.01.2012, p. 3-10

2

Official Journal C8, 11.01.2012, p. 15-22

For further information see the 2012 SGEI Package IP/11/1571

New State aid rules for a competitive aviation industry | Competition policy brief

4

ment aid.

the first place these rules are clearer. The Commission's case

xperience has shown that many reg airports operate far

below their full capacity. The 2005 guidelines do not provide

clear rules on overcapacity and duplication of infrastructure. They

do not make a distinction for financing needs according to airport

size, and leave open the issue of maximum permissible aid

intensity.

The new guidelines will allow investment aid only if there is a

genuine transport need and only when the positive effects are

clear, such as improved accessibility, regional development and

less traffic congestion at major airports.

Aid should only be used to create additional transport capacity

where there is a demand for it. Public money should not be

wasted on aiding investments that lack satisfactory prospects or

undermine existing airports in the same catchment area. Funds

should not be spent on aiding areas that are already well

connected by other modes of transport ? such as high-speed

trains.

As a general rule, only projects that would not have been

undertaken, or would not have been undertaken to the same

extent without State aid, will be supported.

The new rules for investment aid are not only more clearly

outlined, but also better tailored to airport size.

Aid will not be allowed to exceed certain ceilings. Depending on

the size of the airport, these range from 25 per cent to 75 per

cent of maximum permissible aid.

Airport size Aid intensity

Better targeted investment aid

Besides making operating aid smarter, the guidelines improve the

rules for invest

In

e ional

3 - 5 million Up to 25%

1 - 3 million Up to 50%

Below 1 million Up to 75%

The percentage of maximum permissible aid will be higher for

smaller airports than for larger airports.

Some flexibility may also apply to larger airports (over 5 million

passengers). Public funding may, for instance, be justified when

an existing site is being relocated. Otherwise, state funding may

only be allowed under very exceptional circumstances. There

must be a clear market failure. The Commission will also take the

size of investments into account as well as the impossibility of

financing investments on the capital markets. At the same time,

the aid must have very clear positive effects and competition

distortions must be limited.

More flexibility for airports located in remote and

peripheral regions

The ceilings for investment aid to finance airport infrastructure at

airports located in remote regions (such as outermost regions,

sparsely populated areas, islands) may be increased by up to 20

per cent irrespective of the airport size.

In addition, small airports located in peripheral regions of the EU

may be eligible for higher maximum levels of aid.

Simpler start-up aid for new airlines

In order to improve connectivity between regions, the 2005

guidelines allowed airlines to receive start?up aid for operating

new destinations from regional airports or operating new

schedules with increased flight frequencies. All parties involved,

i.e. airlines, airports and public authorities, considered these rules

complex and cumbersome.

Under the old rules, only airlines at 18 airports in eight

Member States received start-up aid for launching new routes

and new schedules from those airports. Under the new rules,

more airlines should be able to receive aid they are

legitimately entitled to.

The new guidelines simplify the conditions for start-up aid. In the

future airlines will be able to receive aid covering 50 per cent of

airport charges for new destinations during a three-year period.

More flexible arrangements in terms of airport size and eligible

destinations could be justified for airports located in remote

regions, for example on an island or in a sparsely populated area.

Airline-airport arrangements

The new guidelines also provide guidance on how State aid rules

apply to agreements between airports and airlines, including

rebates and other advantages granted by airports and public

authorities to airlines. Since airports are still predominately

publicly owned and often rely on public support to finance their

operations, State aid rules can also apply to agreements between

airports and airlines. Public authorities are often directly or

indirectly involved in attracting airlines through marketing

support, rebates or incentive schemes with the objective of

increasing the connectivity of a region. State aid rules apply to all

agreements between airlines and airports irrespective of their

business model.

Agreements concluded between airlines and airports will be

considered free of aid if a private investor, operating under

normal market conditions, would have accepted the same terms.

The best way of assessing this is to require that the airport be

capable of covering all costs stemming from the agreement with

an airline. In other words, airport revenue (airport charges and the

non-aeronautical revenue, such as shops and parking) must at

least pay for the incremental costs induced by the presence of

the airline, and contribute to the airport's profitability.

If the arrangement is not profitable, the airport/airline deal will be

considered as public support to the airline.

New State aid rules for a competitive aviation industry | Competition policy brief

5

start-up aid, the benefiting Unless it meets the conditions for

airline would need to pay back any incompatible aid.

Example: Following several complaints, the Commission

investigated alleged aid to air carriers at Berlin Schönefeld

Airport. The agreements with the carriers were considered

free of aid because each of these agreements could

reasonably be expected to improve the financial situation of

the airport when they were entered into.

4. Impact

Stricter rules coupled with a ten-year transitional period for

receiving State aid will encourage airport managers to cut costs

and operate more efficiently. The Commission has conducted an

impact assessment to estimate the effects of the new rules.3

Benefits for tax payers

The first beneficiary of the new rule is the European tax payer.

According to the assessment, operating aid per passenger could

be halved from ?6.19 to as little as ?3.09 per passenger. This

could save public authorities across Europe as much as ?2.35

billion over a ten-year period (see table below for estimates per

airport category).

Airport size Current situation New rules

Estimated amount of operating aid in EU airports, in

million EUR, for a period of 10 years

200-500 000 2 497 1 248

500 000 ? 1 million 183 92

1 ? 3 million 71 36

3 -5 million 0 0

Total 4 700 0- 3 325 235

Average per

UR)

6.19 3.09-4.29

passenger (in E

Ticket prices

U es ? as is only f passenger, not the

tax payer, who funds the cost of air travel. While reducing State

trends, airports will open up other

urces of revenue, such as shops, restaurants, cafés and carnder

the new rul air ? it is the

aid could in theory lead to an increase in ticket prices, this change

is estimated to be minor.

According to our calculations, if airports passed on the loss of

subsidies entirely to their passengers, this would lead to at most

a ?3 increase in airfare per journey. However, these calculations

do not take airports' savings into account.

First, to cover gaps created by decreasing State aid, airports will

increase the efficiency of their operations. Estimates of the total

amount of savings per passenger during the transition period run

between ?6.7 and ?12.6 per passenger.

Second, in line with current

so

3

SWD(2014) 42 and SWD(2014) 43.

ger.

iently.

EUR per

parking to cover costs. Possible revenues could increase from

?3.5 to ?8.2 per passen

So, on balance, gains in revenues through increased efficiency

and running commercial operations add up to a total increase of

between ?10.2 and ?20.8 per passenger, which clearly offsets

the ?3 increase in cost per passenger.

The new rules are not likely to affect the low-cost carrier model,

providing these companies continue to operate effic

Expected savings made by EU airports, in

4passenger

Connectivity

The new rules guarantee that isolated regions, in particular

remote regions, will remain connected to the rest of the EU. Key

airports in such areas may still receive State aid to discharge

such an SGEI even after the end of the transition period.

Moreover, airports (irrespective of their size) located in remote

regions will be able to benefit from higher aid intensity ceilings to

develop their infrastructure. In order to increase the mobility of

EU citizens by establishing access points for intra-EU flights and

to stimulate regional development in remote regions, the criteria

for granting start-up aid for new routes from these regions are

more flexible.

4

Calculated under the assumption that currently underperforming

airports would be able to achieve at least the average lev

aeronautical revenues or operating costs (i. e. minimum efficiency gai

el of nonn

).

t-day average by

The upper boundary is calculated under the assumption that currently

underperforming airports will move to the presen

adjusting their revenue and cost structure.

Max Average Min Max

1-3 million ? 7.72 ? 4.68 ? 3.07 ? 6.11

1-500 000 ? 9.75 ? 5.26 ? 2.48 ? 6.98

500 000 - 200 000 ?

Below 200 000

Non-aeronautical revenue

potential per passenger

14.11 ? 5.60 ? 4.89 ? 13.41

? 9.56 ? 6.81 ? 3.53 ? 6.28

? 24.16 ? 14.23 ? 9.93 ? 19.64

? 28.32 ? 19.57 ? 8.76 ? 17.06

n

Average ? 3.50 ? 8.19

Max Average Min Max

1-3 million ? 13.50 ? 7.96 ? 5.54 ? 8.76

1-500 000 ? 13.45 ? 10.97 ? 2.49 ? 4.79

500 000 - 200 000

Below 200 000

Airports with passenger traffic

Min

? 4.7

Average ? 6.68 ? 12.56

Min Maxcy gains Airports with passenger traffic

Total efficiency gains

per passenger

1-3 million ? 8.61 ? 14.86

1-500 000 ? 4.97 ? 11.77

500 000 - 200 000 ? 14.82 ? 33.05

Below 200 000 ? 12.29 ? 23.34

Average ? 10.17 ? 20.76

Total efficie

4

? 8.66

Airport costs

Operating costs

Cost efficiency gains

per passenger

? 4.51

? 11.26

? 0.70

? 3.27

Airport revenue

Non-aeronautical revenue

Airports with passenger traffic

Min

? 1.61

? 2.77

New State aid rules for a competitive aviation industry | Competition policy brief

6

We expect that most airports will be able to transform

example of the United Kingdom, where many

r, put an end to subsidised airports

be granted under strict conditions,

ithout

o the

istortion of competition

c aid is effec

In conclusion - the new g es for State ai iation

in s tha art, simpler ored

to the indus nsu tate aid - t ? money- is

not was re it will bene assengers and

c st.

Outlook

themselves during the ten-year transition period, and that only

the most inefficient airports will close down.

According to the impact assessment, no airports handling over

500,000 passengers will close. However, some smaller airports

may close if they fail to improve efficiency and increase

revenues.

Considering the

small airports are commercially viable, there is reason to be

optimistic and to believe the number of closures will be low.

Simpler rules on start-up aid make it likely that new connections

will appear, which will increase connectivity.

The new rules will, howeve

that duplicate existing capacity. These are a waste of tax payers'

money and undermine competition.

The conditions under which Member States may grant state aid

to companies in financial difficulty are not set out in the present

Guidelines, but in the Commission's Rescue & Restructuring

Guidelines5. Such aid can only

ensuring that the aided company will become viable w

continued state support, that the company contributes t

costs of the restructuring and that the d

reated by the tively off-set6.

uidelin

t are sm

d to the av

and better taildustry provide rule

try. They e re that S axpayers

ted, and is spent whe fit p

itizens the mo

5

Official Journal C244 1.10.2004, p.2 ff

6

MEMO/04/172