The EU To Punish Subsidised Foreign Airlines

by Ulrika Lomas, Tax-News.com, Brussels

15 March 2002

As the EU proposed to levy additional charges on foreign airlines in receipt of state subsidies, the Swiss parliament voted to investigate the collapse of Swissair - replacement carrier Swiss would be one of the primary targets of the EU's action.

Swiss parliamentarians are keen to establish whether any blame can be levelled at the federal authorities, in particular the Federal Office for Civil Aviation. Doris Leuthard, an MP from the Christian Democratic Party, said the inquiry should also examine “why the State Secretariat for Economic Affairs had neither anticipated nor foreseen the Swissair debacle”.

Swissair was grounded for 48 hours last October when the airline ran out of cash to pay for fuel, just 24 hours after the banks had announced an SFr1 billion ($620 million) bridging credit for the ailing airline, which had run up debts of SFr17 billion ($10.5 billion). The airline began operations again only only after an emergency SFr250 million cash injection from the federal government. It's this payment, plus later recapitalisation of the new carrier, that has attracted the EU's wrath.

Inside the EU, Sabena was allowed to go to the wall while the Belgian government was prohibited from assisting it any further, so the European Commission thinks it is in the right in proposing to apply a levy to Swiss and toi US carriers which were bailed out by the US Government after the September 11th attacks.

The proposal, which needs approval from the European Parliament and EU member states, would also allow European regulators to restrict landing rights of foreign carriers under the same criteria.

"In the European Union, our airlines have to play it by the book whether or not they are undergoing a crisis" such as the one triggered by the September 11 terrorist attacks, EU Transport Commissioner Loyola de Palacio said. "However, their third-country competitors on international routes in the air transport market are not always subject to similar fair trade rules," she said as the proposals were unveiled at the European Parliament in Strasbourg.

"The regulation that the commission is putting forward today will equip the European Union with an instrument that will put our airlines on an equal footing," she said.

The news will sharpen still further an already bad-tempered debate in Switzerland over the Swissair debacle. Apart from the new investigation, a separate parliamentary subcommittee has already been established and is currently investigating the issue of whether the grounding of Swissair’s fleet could have been avoided. The heads of Switzerland’s two largest banks, Credit Suisse and UBS, have been hauled before the subcommittee to explain their role in the airline’s grounding. Critics blame Marcel Ospel of UBS and Lukas Mühlemann of Credit Suisse for not doing enough last October to keep the national carrier in the air.

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