Airline subsidies draw broadside from US: Transportation secretary says aid is 'flatly unfair'

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The Independent Online
THE AMERICAN Transportation Secretary, Federico Pena, has angrily complained to the European Union over reports of subsidies being paid to member state airlines, the department said yesterday.

Mr Pena said in a letter to the EU commissioner for transport and energy, Marcelino Oreja Aguirre, that subsidies to inefficient carriers 'hinder the evolution of a financially sound, sustainable airline industry'.

He cited reports that the EU was ready to subsidise Air France, which wants dollars 3.5bn, and approve more than dollars 1bn in aid to TAP Air Portugal and a request by Greek carrier Olympic Airways for a radical rescue plan including a dollars 2bn debt write-off.

The EU is expected to announce the aid packages today.

Such aid is 'flatly unfair to competing, private airlines which cannot draw from the coffers of government which seem to be liberally open to some national airlines', Mr Pena said. 'Unprecedented billions in subsidies are being poured into the state-owned European airline industry.'

The United States has been under pressure to help some of its financially troubled airlines 'but we chose to let the market work, and as a result, our industry, as a whole, has become leaner, stronger and better able to compete than before'.

The European Commission is expected to order Air France to repay Fr1.5bn (pounds 182m) in aid when it concludes a separate state aid inquiry into the airline's Fr20bn restructuring package, a senior Commission official said last night.

Air France announced in February last year an issue of convertible bonds totalling Fr750m and a perpetual loan carrying share options for an identical amount.

The Commission has lumped together the Fr1.5bn deal with its examination of the airline's restructuring plan, which it is expected to approve with conditions today. Commission approval of the main aid package is expected to carry up to 20 conditions, officials say.

These are expected to include the removal of restrictions imposed by the French government on access for international airline companies to Paris-Orly airport.

Other conditions include a reduction in Air France's fleet and the abandonment of certain routes, measures that were announced by Air France in its restructuring plan.

Payment of the tranches of the Fr20bn would also be subject to the timely restructuring of Air France, officials say.