Sir George Young, Secretary of State for Transport, led the criticism of the deal, the first controversial decision since the former Labour leader was appointed 12 months ago. Tory MPs were furious that it could lead to unfair competition against BA, the former state airline, which has made a profit since being privatised.
Mr Kinnock said the European Commission was still committed to phasing out state subsidies for airlines, but said the money for the struggling airline was not state aid in the traditional sense.
But Sir George said: "UK airlines compete in Europe without subsidy. It is about time the Commission insisted that other airlines are also run on purely commercial lines. It really does stretch credibility to claim that a commercial investor would be willing to put any money at all into Iberia. It has been losing money for years."
Ministers will seek to embarrass Tony Blair, the Labour leader, today over the decision, which they say has echoes of "Old Labour". A Labour source defended Mr Kinnock. "He's just doing his job."
But Tory MPs, clearly sensing Labour could be thrown on to the defensive again, accused the former Labour leader of turning the clock back. Winston Churchill, the Tory MP for Davyhulme, said it was a "kick in the teeth" for British Airways.
Michael Colvin, chairman of the Tory backbench foreign affairs committee, said: "It is outrageous when we are trying to level the playing field within Europe by removing subsidies which distort competition." A former Tory aviation minister, Sir Michael Spicer, said: "The system of allowing subsidies in Europe is very bad."
But Mr Kinnock hinted the airline could qualify for Commission approval for pounds 100m more in aid from the Spanish government in 1997 if there were improvements in its performance. He said it should not be seen as a signal to other loss-making airlines that the Commission will approve other forms of support. He had only given approval after slashing the amount of aid to the airline and winning strict concessions to ensure no trade distortion with competing national airlines in Europe. Iberia said it had been vindicated and Mr Kinnock had ruled "that the capital injection is not state aid but sensible action of an interested shareholder".Reuse content