European air transport regulation needs a rethink

DISCLAIMER: All opinions in this column reflect the views of the author(s), not of EURACTIV.COM Ltd.

European airlines cannot benefit from state aid. [Andrew Thomas/Flickr]

Globalisation has drawn new players to the air transport sector, but the rules applied are not the same for all, writes Emmanuel Jahan.

Emmanuel Jahan is Air France’s representative in Brussels to the European institutions.

Today, as the European Commission mulls improved methods of assessing taxes due and combatting tax avoidance, as Amazon reports its intention to drop ‘sweetheart’ tax arrangements with individual member states, and as the EU maritime sector is resurrected through legislation that seeks to restore fair global competition, one area sticks out like the proverbial sore thumb. European air transport is moving to an uncontrolled market, in which the character of the playing field is a mere by-product of member states’ foreign policy towards third countries. And as a result it is most definitely not ‘level’.

We, the EU citizens working in, supported by, and served by the European air transport industry, need the European Commission and the Parliament to launch an urgent reflection – we must give the means of competitiveness to European airlines. This particularly with regards to the approach of some third country air carriers using unlimited state aid and practices that would lead to the prosecution of European carriers. At stake are huge tax revenues that help support our society and millions of quality jobs for EU citizens, not just the benefits of an indigenous EU infrastructure.

This reflection must find the ways and means for a sectoral regime that can challenge the inequality between the conditions we demand of our own industry, and the rampant capacity dumping and product subsidisation, disrespect of fundamental rights, and absence of societal obligations practiced by some non-EU airlines. That an EU ‘blind-eye’ currently tolerates all this in giving loosely managed market access is something we should be ashamed of, on top of the fact that it is harmful to our own society.

Perhaps the two most notable practices from outside the EU come from the US and the Gulf, and our own institutions are seemingly unaware of the threats they pose to our economic activity and employment. The US have the famous Chapter 11 for protecting their enterprises against bankruptcy (all transcontinental US airlines have used it), whilst the Gulf States provide state aid on a massive, unprecedented scale for their airlines ($42 billion for only 3 airlines). Indeed the Gulf state airlines are nearly indistinguishable arms of their governments’ foreign policy and the opaque sovereign wealth funds that hold it up – a prime example being the ownership and control in one body of not just the airline, but the airport, the finance and service companies, and the regulator.

Of course, the global context has changed: from the 1950s to the 90s, state support for “national” airlines was common in all regions (European and global). However, hand in hand with this was a global market ruled by bilateral agreements between states with managed competition. Today, open-sky policies are the norm, and they are based on competition that is fair only in theory – the reality is that the practices of some states still rely on subsidies and fundamental rights abuses, whilst the checks and balances in the system have gone. And there is no replacement system of arbitration to resolve disputes at the global level, as with the WTO.

Good examples do exist. The European maritime sector could be a guide as to how to set up a regime that can counter these negative trends in transcontinental air transport.

Since 1997, Europe has decided to promote and regulate state aid for the maritime sector to make it more able to meet the challenges of anti-competitive practices from outside the EU, in particular ‘flags of convenience’.

Support for a sector is entirely possible in Europe as part of a policy to maintain an essential activity for Europe in accordance with the Treaty. In the maritime area, such support is multifaceted and goes from a tonnage tax allowing shipping companies to calculate their profits on the favourable basis of a notional profit per day and the tonnage of the ship concerned, to partial financing of a sectoral social security scheme or training.

Neither have social aspects been sidelined. For example, the maritime convention of 2006 also promotes labour rights.

It has been estimated by Dr Konstantinos Adamantopoulos (a specialist maritime sector lawyer) that without state aid rules, the EU shipping sector’s economic contribution would have shrunk by 54% and redundancies among the sector’s employees would have reached 1.2 million between 2004 and 2012.

Of course, a European framework must drive this sectoral regime to avoid any potential abuse. Only activities from the European single market towards third countries could be subject to support (though perhaps a reflection on some of the very low differential tax rates within the EU would be useful – are these harmful, or do they in practice constitute indirect state aid?).

Some say that state aid risks preventing any improvement or adaptation in a company by supporting inefficiency. However, within the EU, airlines are now very used to adapting –they have understood new trends in customer demand and new markets, and are actively restructuring through new lower cost offerings, greater productivity, and new higher quality products. Competition in the EU internal market will always exist and underpin the flexibility and efficiency of EU airlines.

Restructuring can be a long process when an airline is involved in and committed to real social dialogue. Some airlines have rejected any social dialogue and pursue a short-term policy that destroys European employment and leaves the European air transport to the mercy of third states’ policies, including their foreign policy.

These issues must be a concern for our European institutions, and this is why a sectoral regime for air transport is key: for maintaining a vibrant and sustainable European air transport industry that contributes to society, that provides decent productive employment, and that enables the connectivity and European infrastructure our citizens need.

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