Ryanair draws fresh hope from Court’s findings on Air France

Date: 02/07/1998

By Chris Johnstone

LOW-cost Irish airline Ryanair has hailed last week's European Court ruling against the Commission for clearing aid to Air France as a fillip for its own legal challenge to subsidies.

“The Air France case is almost a carbon copy of our own,” said a spokeswoman for the Dublin-based airline.

The European Court of First Instance ruled last week that the Commission had failed on two counts to produce adequate arguments to justify clearing a 3-billion-ecu package of state aid to Air France.

The ruling followed a complaint lodged by British Airways, KLM, SAS and British Midland, backed by the British, Norwegian, Swedish and Danish governments.

The Court's verdict has boosted Ryanair's hopes of victory in its case against the Commission over the decision to clear the second slice of a 213-million-ecu Irish government subsidy to Aer Lingus.

Ryanair says the Commission approved the payment even though Aer Lingus had failed to meet restructuring targets laid down for 1994. The institution said at the time that the expected recovery in the aviation sector would allow the conditions to be met shortly.

In the Air France case, the Court questioned the Commission's arguments justifying the airline's acquisition of 17 new aircraft worth more than 1.5 billion ecu, and added that it had failed to take into account the competitive impact of the aid on small airlines and on international airline services outside Europe.

Air France and the Commission have moved swiftly to downplay the significance of the Court's decision, claiming that the aid itself has not been questioned, only the arguments used to justify it.

Even Air France's rivals admit that they do not expect the case to result in the airline being forced to repay the money, although a spokesman for one major European airline said it “could be a hopeful sign that state aid will not be given so freely in the future”.

British Midland has suggested that Air France would reapply for the aid and the Commission would rewrite its conditions with an eye on the Court's decision.

Another airline expert said the ruling raised a series of questions not only about the Commission's original decision, taken when Marcelino Oreja was Transport Commissioner, but also about the later defence of the action under current Commissioner Neil Kinnock.

He cleared the final tranche of aid to Air France, rejecting complaints from rivals that the airline had cut prices aggressively on international routes with the argument that non-European routes were not covered by the conditions.

“The Court is now saying that third country routes should be considered,” said the airline spokesman.

Air France says the Court's decision will not disrupt plans to place 20&percent; of its shares with employees and a maximum 29&percent; on the capital markets by the end of the year.

The Commission is expected to give an official reaction to the Court's ruling within the next two months.