Government Subsidies

Economic Issues Affecting Competition

National airlines of the European countries had been the object of national pride, support, and ownership for many decades, as discussed above. Under the new regulations of the Council effec­tive in 1993, however, subsidization of national
airlines was recognized to be a major problem and impediment to the goal of free competition within the EU. Still, such a long-standing and venerable practice was a difficult subject for the Commission to approach. In 1994, the Commis­sion adopted a complex set of “guidelines” as a statement of policy, and a basis for potential enforcement, on the subject of government aid of airlines.

The guidelines apply not only to carriers but to the operations “accessory to air transport.” These activities would include flight schools, duty-free shops, and airport facilities. Notably, aircraft manufacturing subsidies were not included in the guidelines, an omission that effectively removed any consideration of the

consortium Airbus Industrie from the pol­icy of non-subsidy. State aid to airports and funds for new airport construction were also not included in the scope of the guidelines.

The thrust of the rules governing subsidies is to prevent any operator from achieving a com­petitive advantage over any other operator based in the EU countries by subsidy. The guidelines recognized at least five types of government aid that would be objectionable and contrary to the purpose of the EU. Direct operational subsidies are the most obvious and flagrant form of state aid. State “investment” came under scrutiny by the Commission and became subject to evalua­tion using certain tests and criteria to determine if the aid is really “direct subsidy” in disguise. Other forms of state assistance may include:

• Capital injection

• Loan financing

• Loan guarantees

• The granting of exclusive rights