Air France Lets Fly Legal Attack on Ryanair

An aerial dogfight is about to break out in the skies of Europe. The French national flag carrier, Air France (AFLYY), has launched the biggest and most elaborate legal challenge so far to the local subsidies – or "contributions" – received by the Irish-based cut-price airline Ryanair (RYAAY) for flying to regional airports in France and elsewhere.

In a complaint filed with the European Commission in December, and made public yesterday, Air France claims that Ryanair now receives €660m (£599m) in public funds from local authorities in Europe each year, including €35m (£32m) in France. Far from making a profit in 2008 and a small loss last year, Air France insists that Ryanair made a whacking de facto loss in both years, disguised by allegedly illegal public subsidies.

"The Irish airline purports to be the Robin Hood [airline] which offers unbeatably low prices, compared to the inflated prices of national carriers," a senior Air France official said yesterday. "In fact, Ryanair is only flying thanks to taxpayers' money."

Ryanair dismissed the suit, which was brought under EU rules guaranteeing free and fair competition. "We pay no attention to false claims from high-fares, fuel-surcharging airlines like Air France," said the Ryanair spokesman Stephen McNamara. "Ryanair is investing millions in regional French airports, whereas Air France ignores them."

Ryanair has survived previous EU challenges to the "contributions" that it demands from local or regional councils for flying to regional airports. Air France claims it has pieced together the true extent of these "subsidies" by trawling through the accounts presented to local financial watchdogs in France and other EU countries.

The money is paid to Ryanair for, among other things, helping to create new regional air links, or for "marketing" local attractions. In recent months, a couple of French local authorities have protested that Ryanair has demanded increased payments and threatened to move its flights elsewhere.

Michel Boutant, the president of the Charente council in western France, complained in December that Ryanair had asked for an additional €175,000 in "marketing" payments to continue its flights from London to Angoulême this year. He accused the Irish airline of "blackmail."

Under a framework agreement drawn up by the European Commission in 2004, Ryanair (and other airlines) can receive local taxpayers' money under certain conditions. The aid must be notified to Brussels, limited in duration and restricted to small airports that would not otherwise attract international flights.

Air France complains that, in Ryanair's case, these conditions are often broken. It points out, for instance, that Ryanair receives payments from Marseille and Nice airports, both of which are already international and neither of which is small.

The Air France complaint will be studied by the European Commission competition directorate, which must decide whether there are grounds to take action. Previous legal moves against Ryanair by Brussels have been overturned by the European Court of Justice or settled by negotiation.

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