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EU Regulators Urge Limits on Aid to Airlines - 2001-10-09


A draft report by European Union regulators says the September 11 terrorist attacks against the United States were an exceptional event that justify some government help to European airlines. But the regulators want to restrict such aid to losses directly stemming from the attacks and their aftermath and not use it to help airlines cope with pre-existing financial problems.

The draft report is to be presented Wednesday by the European Commission, the EU executive body. It says European airlines are poised to suffer more than $3 billion in lost revenue and the loss of 40,000 jobs by the end of the year.

The report says European airlines should be compensated for flights cancelled immediately after the attacks as well as for increased insurance premiums and security costs. But it insists that governments should not prop up unprofitable carriers.

EU norms severely restrict government aid to such entities as airlines, but the report by the Commission, which serves as the 15-nation bloc's competition watchdog, says the circumstances created by the September 11 attacks are exceptional.

The director-general of the International Air Transport Association (IATA), Pierre Jeanniot, argues that governments should assume the costs of stepped up aviation security. "We are going to have additional costs for security. It looks like there will be additional costs for insurance. But at the same time, we advocate that security should really be a function of governments," he said. "It is up to the governments to protect their own citizens. And we think that some of the security costs have to be absorbed by governments."

The Association of European Airlines estimates that extra security measures put in place since the September 11 attacks have cost European carriers more than $130 million. It says rising premiums have added an additional $160 million to its members' insurance bills this year.

The European Commission report says governments can pay those costs, as long as they are the result of the terrorist attacks. But it says they should not try to use the crisis caused by the attacks to bail out unprofitable carriers.

That resolve could have immediate consequences for the troubled Belgian airline, Sabena, which has been losing money for years and filed last week for protection from its creditors. The Commission is examining a $115 million loan to the carrier by the Belgian government to keep it from going broke.

Mr. Jeanniot, the IATA official, says the current pressures on airlines are going to make it difficult for some carriers to survive and that governments need to be more flexible to allow consolidation of the industry. "I think we are going to need to have some legislation changed by governments to ensure that it is possible for airlines to merge and become more viable entities," he said.

The U.S. government has granted a $15 billion aid package to U.S. airlines following the terrorist attacks.

The Commission, at the urging of European airlines, says it will try to work out a code of conduct with U.S. authorities to avoid what it calls "distortion of competition" on transatlantic routes resulting from the U.S. bailout.

The European Commission, which has long criticized E.U. governments for negotiating bilateral aviation deals with the United States, wants them to give it a mandate to negotiate all international aviation matters on behalf of the bloc.

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