Expert: David J Bentley - 8/20/2004

Question
i am trying to provide a balanced discussion on the aviation industry in regard to the economical benefits of the industry against the environmental costs particularly for the time period jan 2002 - jan 2003. while doing this i am trying to investigate into the degree of financial support the uk government gives to the industry in the form of subsidies, gifts, and investments. Do you have any information in this area? i would be most grateful

Answer
Hi James

Sorry for the delay in replying – I had some problem with my computer and needed to send this from a remote one - and that I'm not particularly knowledgeable on this subject.

I would have thought that broader European subsidies as opposed to UK ones are the real issue presently, with the allegations by Boeing about continuing support for the A380 by the EC and the problems being experienced by Ryanair in particular over marketing “subsidies” by airports in its support (although this also affects individual countries such as France, Belgium and Denmark).

Apparently total European subsidies are claimed to be running at £30 billion ($54 billion) annually with direct subsidies to aircraft manufacturers amounting to £1.8 billion ($3.25 bn).

The estimate of indirect subsidies from the EU to the aviation industry is approximately £20 billion ($36 billion) a year and mainly take the form of Value Added Tax and/or Excise Duty relief on fuel, air tickets and on the aircraft themselves. There are also claims made that there are significant hidden subsidies on, for example, the costs of providing surface access (roads) to airports. However, my personal view is that some of these inverse ‘multiplier effects' are as spurious as the claims made for positive airport economic impacts. Just as building a new runway can hardly be claimed to be the reason for a new hairdressing salon opening five miles away, new roads also support the local community and businesses.

The problem of direct subsidies to perennially struggling airlines will not go away. Air France, Olympic, Iberia and TAP have been the major beneficiaries in the past. Momentarily it is Alitalia, an airline that, in my view, will not survive its deadline of December for reconstruction or liquidisation in its present form, despite a Euro 400 million emergency bridging loan and extensive cost-cutting measures now in place. I also believe the problem will escalate as low cost airlines that have become de facto national airlines begin to fail. The problem is also made worse by the current fuel price increases – these were responsible for many airline difficulties and requests for state assistance in the past.

In some cases I suppose slot trading at airports could be considered a subsidy, depending on who owns/operates the airport and how the slot governing body is controlled. There will always be horse-trading  - it starts at the bilateral air service negotiations between countries and often brings in factors that have nothing to do with aviation.

The most knowledgeable person I know on this subject is Prof Rigas Doganis of Doganis & Associates, London UK. I have this e-mail address for him: doganis@compuserve.com. I don't know where you are but if you arrange to have a short discussion with him I'm sure he'll point you in the right direction.

Hope this helps.

Regards

David Bentley