Commission urged to clip Air France's wings

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The Independent Online
British airlines are stepping up pressure on the European Commission to bring Air France, the state-owned operator, to heel. They claim Air France, already being taken to the European Court over Brussels' approval of a Fr20bn (£2.3bn) subsidy, continues to flout Europe's free trade rules and the conditions set when the aid was granted.

The mounting concern comes as Spain seeks 130bn pesetas (£650m) for its national airline, Iberia, which submitted its second case for aid to the new EC transport minister, Neil Kinnock, earlier this month.

Last week British Midland urged the Commission to investigate Air France's decision to cancel orders and options for 17 aircraft. Approval of the Fr20bn (£2.4bn) in aid - equivalent to the total losses made by the world's airline industry on international routes last year - was based on Air France's restructuring plan.

If the orders have been cancelled "it is clear that Air France will no longer require the full Fr20bn increase in capital", British Midland said in its letter to the EC.

Other airlines have complained that Air France is refusing to repay a further Fr1.5bn raised via bond issues that has been deemed illegal by the European Commission.

And there are claims that the French government has cynically flouted decrees to open up Paris's Orly airport to competition by changing take- off and landing rights. New rules governing peak time flights favour the larger aircraft of Air France, with BA and especially British Midland facing restrictions.

"Anger over the subsidy has intensified," said one analyst. "There is a feeling Air France is just thumbing its nose against the rest of Europe."

Where the French Ministry of Transport has opened up domestic routes to competition it has simultaneously waged a ruthless price war, even last month cutting fares several times in one day.

British Airways said Paris's actions were a serious setback for the development of a genuine free market in Europe's airline market. Last year, BA joined forces with five other European airlines, including KLM of the Netherlands and Scandinavian Airlines Systems, to bring an action in the European Court against the subsidy.

British Midland and the UK Department of Transport have started separate actions. These latest Air France actions will provide further evidence for a case against the subsidy but it could take some time to resolve.

The French company defends itself vigorously, arguing that the Fr20bn injection was to re-capitalise Air France and reduce £4bn in debts, not to buy new aircraft. The changes in slot allocation at peak times at Orly were based on environmental issues and the need to deal with increasing demand for flights.