Andrew Osborn in Brussels
Wednesday March 26, 2003
The European commission signalled yesterday that it was ready to relax state aid rules and allow the government to offer financial help British airlines struggling to cope with a war-prompted downturn.
Although Brussels said it did not think the situation was serious enough yet to warrant large scale help, it was willing to turn a blind eye to all kinds of state aidif the situation deteriorated.
Under the terms of an emergency aid package due to be approved today, the EC would allow the government to cover the cost of extra security measures and war-inflated insurance costs. More significantly, it would substantially relax state aid rules.
This would include allowing airlines to collaborate in cutting flights and routes - something that would normally be banned - as well as relaxing the rules on take-off and landing slots.
In peacetime the EC enforces a "use it or lose it" rule when it comes to slots, but it said yesterday it would allow carriers such as BA to temporarily stop using them without losing them to a rival.
Separately, BA cancelled some flights to the US yesterday, blaming the war in Iraq. A spokesman said: "We are reviewing our entire world schedule in the light of what's happening in the Gulf."
In relaxing its policy on state aid, Brussels made it clear that it wanted to avoid EU govern ments using the war as an excuse to subsidise failing carriers and said it was fiercely opposed to cash handouts or vague compensation packages.
"The commission will not be able to accept measures which will have the effect of creating distortions between member states and between airlines," its proposals read. "Nor will it accept that the present situation serves as a pretext for delaying necessary restructuring."
The EC is under pressure to act following a claim from the International Air Transport Association that its members stand to lose ¡ê6.5bn due to the war in Iraq, in addition to ¡ê20bn lost since the September 11 attacks.
Airline shares have been hit by the war's inflationary effect on oil prices and depressive impact on demand.