EU rules may hamper Shannon

THE Dublin Airport Authority (DAA) has absorbed Shannon Airport’s losses in recent years but if it does leave the DAA umbrella, European regulations could restrict Shannon from receiving subsidies from public bodies to cover any continuing operating losses.

The Booz Report, published last week, favours putting Shannon, which is estimated to have lost up to €24 million since the start of 2009, under the control of local public bodies, such as Clare County Council, Limerick County Council and Shannon Development. It’s difficult to see how those bodies could absorb such losses but EU regulations may restrict the provision of ongoing supports to cover losses in any event.
EU rules require compliance with what’s known as the Market Economy Investor Principle (MEIP) and in a statement to The Clare Champion, a European Commission spokesperson explained that public bodies are generally required to act like private investors.
“In theory, if public authorities invest into an airport and on the basis of a business plan, it can be shown that even though the airport might be making losses in the first years, there are very good prospects for profitability in the long term that outweigh the losses in the first years, the behaviour of the public authorities can be compared to the behaviour of a market economy investor (private investor) and there would be no state aid involved.
“However, if a public-owned airport is making losses and there is no business plan showing the prospects of profitability in the long term, the behaviour of the public authorities and their continuous public funding cannot be compared to the behaviour of a private investor and this funding would involve state aid, as the airport under normal conditions would not receive additional funding from its shareholder and would have to exit the market (go into bankruptcy).”
The spokesperson also stated, “Under the existing rules, the public authorities may entrust an airport with Services of General Economic Interest (SGEI) or may decide to restructure the airport once every 10 years. The current state aid rules do not foresee other forms of operating aid to airport.”
If a designation of SGEI is applied to an airport, this would allow for additional supports to cover losses. However, this could also be subject to certain conditions.
In December, the Commission launched new rules on SGEI and in a statement said, “Member states are largely free to define which services are of general interest. But the Commission must ensure that public funding granted for the provision of such services does not unduly distort competition in the internal market.”
Commission Vice-President in charge of competition policy, Joaquín Almunia, said SGEIs would need to be monitored. “The Commission’s duty, of course, is to ensure companies entrusted with services of general interest do not get overcompensated, which safeguards competing activity and jobs and guarantees an efficient use of scarce public resources.”
At present, the European Commission is investigating a number of airports, amid suggestions that they may have received public support in a manner conflicting with regulations. In a statement issued on February 22, the Commission announced an investigation into four regional airports in Germany and Austria that are suspected of having breached rules.
“The European Commission will investigate whether financial arrangements between public authorities and the airports of Saarbrucken, Zweibrucken, Lubeck-Blankensee (Germany) and Klagenfurt (Austria), as well as rebates and marketing agreements concluded between these airports and some of the airlines using them are in line with EU state aid rules.”
The statement said ongoing support for airports can be very problematic. “In the aviation sector, infrastructure investment subsidies can, in principle, be found compatible with the guidelines on state aid in the aviation sector when they are necessary, proportionate, pursue an objective of general interest, ensure non-discriminatory access for all users and do not unduly affect trade in the internal market. Operating support is far more likely to distort competition between airports and is, therefore, in principle incompatible with the internal market.”
The statement also expresses doubts that three of the airports would survive under normal market conditions.
It adds that the Commission is going to be actively looking at the funding of airports. “In 2012, the Commission has already opened four investigations into airports in France, Germany and Sweden and extended the scope of a fifth procedure. The Commission is currently deepening its scrutiny of state aid in the air transport sector.”
The Booz Report states it would be difficult for any operator to keep Shannon operating at a sustainable level at the moment.
“Our analysis shows that, under a number of scenarios, and even with a significantly reduced debt allocation, any airport operator would find it challenging to operate the airport on a viable basis that generates sufficient cash flow to meet its operational costs, maintenance and investment requirements.
“This highlights a need for additional support to the airport to accommodate the withdrawal of DAA support. For example, this could include establishing local funding sources or more closely integrating the airport with adjoining industrial developments – such as the Shannon Free Zone, supported by the inclusion of Shannon Development in the new holding company. In fact, the latter approach could prove to be the most sustainable, creating opportunities to exploit market synergies and increase investment in cargo business, as well as to enhance development in nearby industrial zones.”
Minister Leo Varadkar is expected to announce a decision on Shannon’s future in the next five weeks, while he is also due to address Shannon Chamber on Friday, March 30. This week, he said, “We are now engaging with relevant stakeholders and the deputy will appreciate that there are a number of complex issues to be resolved before any final decisions can be made. These include the financial implications on the airports in the event of a change in the status quo; the DAA pension deficit; the continued downturn in the aviation market and the possible need for legislative changes. However, when I have consulted with all relevant stakeholders, I intend bringing proposals to Government on the future of Cork and Shannon airports. I would hope to be in a position to do this around Easter.”