State aid to airlines

    Prepared by the ICC commission on : Commission on Customs and Trade Facilitation
    Publication date : 13/06/1995

    The time has come for a relaxation of the rules on foreign investment in airlines. Trends in the economy have long pointed to the internationalisation of markets in a number of other important fields.

    In most countries, the aviation sector is characterised by government ownership and control of airlines. Outside of the United States, where all airlines are privately owned, partial or complete state ownership of airlines is the rule in Africa, the Middle East and Europe, and several important airlines in Asia have government shares ranging from 55-100 per cent. A recent survey of 150 airlines worldwide revealed that 70 had majority government ownership, 20 have minority government shareholdings, and only 60 had no government-held shares. In the European Union, five major EU carriers presently have government holdings ranging from 90-100 per cent.

    Complete or partial state ownership has frequently involved state capital injections into airlines having financial difficulties. In 1994 alone, European governments injected more than $ 7 billion in various forms of aid, direct or indirect, into their national airlines, and other European state-owned carriers have yet to submit their aid requests. States have frequently maintained that their position as an equity shareholder in their national airline constitutes reasonable grounds for investing capital in the carrier, since this is the normal reaction of a shareholder.

    Several forms of state aid have been identified in international discussions, among them: (1) outright government subsidy; (2) soft loans made on less than normal commercial terms; (3) bond issues backed or facilitated by the government; (4) discounts on charges for airport services; (5) discounts on or exemptions from navigation and landing fees; (6) discounts on the price of, or privilege in the supply of fuel; (7) monopoly handling rights; (8) duty-free concessions at the airline's base airport granted without competitive bidding; (9) debt forgiveness, and (10) fiscal privileges.

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