Opinion, Publications

Submission by Green Budget Europe to public consultation on DG Competition’s review of the General Block Exemption Regulations (State aid): extension to ports and airports

13th December 2016
Opinion, Publications

James Nix, Director of Green Budget Europe, sent the following submission on 8 December 2016 in response to the Commission’s Directorate General of Competition public consultation. The Commission is proposing to exempt airports with fewer than 3 million passengers annually from State aid rules. Green Budget Europe argues this is a wrong-headed response to acknowledged subsidy dependence on the part of these airports.

We note the Commission proposal to ‘block exempt’ (from State aid rules) investment aid to airports with up to 3 million passengers year – and respond as follows.

Aviation is already extremely heavily subsidised. Taking the EU alone, we can apply annual costs to the kerosene tax exemption – €20bn, the VAT exemption – €7bn, breaches of State Aid rules – €3bn, and subsidies to manufacturers and for air traffic control – c. €5bn. Add these subsidies up and the total comes to €35 billion. Given the context, can a reduction in oversight of subsidisation really be justified?

The effect of COM’s proposal would be to remove from oversight by DG Competition airports such as Rome-Ciampino, Frankfurt-Hahn, Leipzig-Halle, Pisa and Bratislava. Such airports could then be given further subsidies – from public money, sometimes from the EU itself – without recourse to EU structures.

In essence, the COM’s answer to the problem of excessive subsidisation of lower-traffic airports appears to be to make it easier to subsidise such airports. In being so patently false, it defies belief that such a non-solution has come this far.

It does not remotely address the issue or even start to tackle the problem. If the COM shields airport subsidisation from scrutiny, it will be storing up “basket case investments”, as the Commission already knows from its own reports:

“The vast majority of regional airports do not generate sufficient revenue to cover their costs.” And “in the EU, 60% of all airports (62% in 2012) and 77% of airports with fewer than one million passengers per year were loss making in 2014”, according to the Commission. A 2014 European Court of Auditors report, “EU Funded Airport Infrastructures – Poor Value for Money”, gives examples of what actually happens in practice:

“In Kastoria [Greece], airport revenue was 176 000 euro for 2005-2012 while, during the same period, the total cost of keeping the airport open was 7,7 million euro. Some 16,5 million euro (5.6. million euro of … EU-funds) has been invested in an extension to the runway at this airport which has up to [the] time of this report never been used by the type of aircraft for which the extension was built. This cannot be considered as an effective use of public funds”.

The Court of Auditors found that “in 9 of the 20 airports audited, one or more of the projects sampled for audit were not needed at all. This represented 28% of 129 million euro of the EU funding to airports examined”.Why should the EU act to put under a cloak the level of public subsidies that are going to such airports? Moreover, the COM proposal fails to indicate how, after receiving taxpayer subsidies for decades without breaking even, low-traffic airports are expected to become profitable with yet more taxpayer money.

If subsidies to lower-traffic airports can be described as a form of addiction, a solution will not be found by paying the issue less attention.

That many regional airports play an important role in connecting isolated regions is accepted. However, targeted State aid through PSOs is available and achieves this objective. Wholescale liberalisation of State Aid rules would be a disproportionate, unfocused and ineffective response. When it comes to regional connectivity, the Commission must look to its own 2015 report which found:

“a fitness check of Regulation 1008/2008 conducted by the Commission in 2011-2013 considered PSO rules as fit for the purpose to ensure connectivity where the market does not deliver it itself. Recommendations were made by stakeholders and member States to enhance cooperation between national authorities and the EU, and ensure a good articulation between State aid rules and PSO rules including by issuing possible guidance”.

The Commission’s block exemption is replete with ill-defined terms such as “medium term prospects” [for growth] and “reasonable traffic forecasts”. Because of this, the COM would not be able to police its own block exemption.

Of course airlines such as Ryanair, itself a large recipient of public subsidies and potential beneficiary of this proposed regulatory change, are in favour of reduced scrutiny. Such airlines will always welcome changes that help them extract more money from regional authorities, national governments and European taxpayers in the form of higher subsidies to their operations.

The Commission has already presided over an ineffective approach which has pumped billions of euro into loss-making airports: the area needs tighter controls, not a relaxation of them.

The proposed block exemption for investment aid to aviation should be withdrawn and a far stricter regime regulating such subsidies needs to be put in place without delay.