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EU to Cut Government Subsidies to Unprofitable Airports

July 3 (Bloomberg) -- The European Union will make it more difficult for governments to prop up unprofitable airports, curbing subsidies that regulators said are often passed on to airlines.

Operating aid to airports will have to be cut out over a maximum of 10 years, the European Commission said in draft guidelines published today. The measures are scheduled to take effect starting in early 2014, after the industry has been consulted.

“We should avoid that airport overcapacity gives airlines an opportunity to shop around for subsidies at taxpayers’ expense,” Joaquin Almunia, the European Union’s antitrust chief, said today in Brussels. The new rules seek to preserve “fair competition regardless of the business model -- from flag carriers to low-cost airlines and from regional airports to major hubs.”

Ryanair Holdings Plc has been entangled in a series of disputes with the EU over agreements it struck with small airports seeking to boost regional development with more flights and passengers. The EU in 2012 expanded a probe into government support for Belgium’s state-owned Charleroi airport to examine changes to Ryanair’s contracts on airport access and aid from the local Walloon regional government.

“The European Court in the Charleroi Case in 2008 ruled that Ryanair’s arms-length airport contracts do not constitute state aid and these guidelines reflect that ruling,” Robin Kiely, a spokesman for Dublin-based Ryanair, said in an e-mail.

Almunia said that 61 cases over aid to airports are still pending.

Low-Cost

“Among the 61 cases there is around half -- 35 percent to 40 percent -- that have to do with subsidies for certain low cost companies,” Almunia told reporters in Brussels.

The commission draft guidelines also seek to outlaw investment aid for infrastructure at airports with more than 5 million passengers a year.

“Just like other economic activities airports should recover their operating costs from those that use them, namely airlines and passengers,” Almunia said.

These draft rules are “markedly stricter” than existing guidelines, said Totis Kotsonis, a lawyer at Norton Rose Fulbright LLP. “The aviation sector has to depend on its own resources and not expect the state to subsidize it forever.”

To contact the reporter on this story: Gaspard Sebag in Brussels at gsebag@bloomberg.net

To contact the editor responsible for this story: Anthony Aarons at aaarons@bloomberg.net

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