EU to rule over aid to Air France

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A EUROPEAN Union court will rule this week on whether Air France received Fr20bn (pounds 2bn) of illegal state aid in 1994 in a case that could act as a litmus test for state bail-outs of unprofitable companies.

The ruling by the Luxembourg-based European Court of First Instance is set to end a four-year dispute between the European Commission and British Airways and other airlines that attacked its approval of the bail-out, saying it created an uneven playing field in the European airline industry.

The court's decision, due on 25 June, will be a benchmark for whether the Commission has been too lenient to Air France and other state-owned airlines that required bail-outs, such as Olympic Airways, Iberia Lineas Aereas and Alitalia, according to lawyers. It could also force the Commission to impose tougher conditions on future requests for corporate state aid.

"Air France claimed the money was necessary to do their restructuring, but the point is that the Commission didn't put sufficient conditions on how Air France was going to spend the money it was going to get," said Jonathan Branton, a lawyer at Hammond Suddards, who is representing the British Midland complaint.

"We felt this was a gift," he added.

BA and other airlines, including British Midland and KLM Royal Dutch, challenged the EU aid to Air France in court, saying the subsidies gave the carrier an unfair advantage over those limited to raising capital from operations or public markets.

Even if the court finds in favour of the complaint, however, lawyers stressed that its ruling may be nuanced and could allow the Commission to reopen the investigation and approve the aid on different grounds rather than force Air France to repay the funds. It may also be that Air France will have to repay only some of the money, according to Romano Subiotto, a lawyer at Cleary, Gottlieb, Steen & Hamilton, who is representing BA.

"It is an important decision for the state-aid field in general," Mr Subiotto said.

The airlines said the Commission's decision ran counter to its attempts to phase out all state aid in the airline industry as the deregulation of European skies was completed.

"We have been waiting for a long time for this important decision, which will clarify future state-aid policy," said a BA spokesman.

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