Brussels Powerless To Stop Swissair Rescue Bailout

by Ulrika Lomas, Tax-News.com, Brussels

24 October 2001

EU Transport Commissioner Loyola de Palacio said on Tuesday that the SFr4bn recapitalisation of Swissair could cause serious distortions of competition - but because the bilateral transport agreement which binds Switzerland into EU rules has not yet been ratified there is little that the EU can do other than to exert diplomatic pressure.

The EU has been applying strict limits to the amounts of support its member states are allowed to give to airlines in the financial soup after the September 11th attacks, classifying excessive assistance as 'illegal State Aid'. The Swiss government's participation in the Swissair rescue package amounts to half of the total $4bn, which is way outside the EU limits, if they applied.

Switzerland has signed a number of bilateral accords with the EU which will bind it in to ever-increasing parts of the EU's 'acquis communautaire', and a transport accord was one of a group of accords approved in a Swiss referendum earlier this year; but the accords don't go into effect until they have been ratified by each of the EU's 15 member states, which still retain sovereignty in such matters, to Brussels' chagrin. In the case of the transport accord, four states have yet to ratify it.

"Under the Vienna convention, a country which has signed an agreement should not act against that agreement," said a Commission spokesman. "But while the agreement is not in force, we are only really talking about diplomatic pressure."

Reaction to the rescue package was mixed. While labour unions and the airline's representatives were jubilant, most economic commentators asked what the non-airline companies participating in the plan hoped to achieve, and wondered how their action could be painted as being in shareholders' interests. Evidently they had yielded to patriotic pressure - often used as a fig leaf for economic insanity of one kind or another. The new airline is entering an extremely competitive market with a high cost base when only no-frills operators like Ryanair and EasyJet are managing to make money - it will have a tough time even surviving, never mind making money.

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