Olympic aid case subject to long delay

Date: 03/10/1996

By Tim Jones

THE European Commission's unprecedented suspension of the payment of 76 million ecu in aid to Greek flag-carrier Olympic Airways looks set to drag on into next year.

The Commission is still not satisfied with the explanations it has been given for 36 million ecu of unauthorised aid, onerous public-service obligations placed on the airline and government interference in Olympic's day-to-day management.

In May, Transport Commissioner Neil Kinnock broke with precedent by vetoing a scheduled injection of Greek government capital into the ailing flag-carrier, pending an investigation into the company's implementation of its 1994 restructuring programme.

When this programme, together with a 1.8-billion-ecu package of loan guarantees, debt write-offs and a three-stage capital injection, was approved in October 1994, Kinnock's predecessor, Marcelino Oreja, set a series of conditions.

The aims of the restructuring programme had to be met in full. This included the shedding of 1,750 jobs through early retirement, a two-year wage freeze, the scrapping of loss-making routes from Athens to Boston, Tokyo and Chicago and the return of two Olympic aircraft to their lessor company.

Until the end of 1997, Olympic could not be a so-called 'price leader' on the routes from Athens to Stockholm and London, and it was not allowed to increase the total number of seats it offered within the European Economic Area beyond the general rate of market growth.

All these conditions were met, but Commission investigators raised question marks over further strictures that no additional state aid could be awarded and that the government had to stay out of the airline's management apart from fulfilling its statutory responsibilities as sole shareholder.

In return for meeting these requirements, the government was allowed to inject extra equity into Olympic worth 63 million ecu in January 1995, although this was not actually done until June. Further injections of 76 million ecu and 39 million ecu were authorised for January 1996 and 1997 respectively as long as the Commission was happy with Olympic's programme implementation.

Kinnock was not. In May, he froze the 76-million-ecu payment after Rigas Doganis, the man who was brought in by Athens to oversee Olympic's restructuring and last year produced its first profit for 20 years, was removed from his post as chairman.

Kinnock wanted assurances from the government that it would not interfere in the company's management, and demanded an explanation as to why it had made an extra 36-million-ecu payment to Olympic in 1995 without Commission authorisation.

Since May, the Directorate-General for transport (DGVII) has been in constant talks with the Greek government, although the administrative shut down in Athens and Brussels during August and the suspension of normal business in the run-up to the Greek general election in September, temporarily halted negotiations. For its part, the Commission has still to appoint an outside consultant to investigate payment of the aid.

Work carried out before the May decision by consultants Alan Stratford seemed to substantiate Athens' case that the 36-million-ecu payment was made to compensate Olympic for losses caused by legislative changes outside its control.

When the bill proposing the restructuring programme was presented to the Greek parliament in 1994, deputies voted to amend it to provide redundancy benefits to retiring workers substantially in excess of those required under national law.

Staff opting for early retirement were offered a 'golden handshake' amounting to an extra 25&percent; on top of what they would have received under the usual legislation plus an extra two months of salary, which added another 10&percent;. In effect, this amounted to a 35&percent; bonus for those accepting early retirement.

“While this is undoubtedly one of the reasons why Olympic has achieved its targeted workforce reduction well ahead of schedule, the negative financial implications for Olympic arising from this enhanced level of benefit are considerable,” said the consultants' report.

There was worse to come for the airline. Due to legislative delays, the law was approved and implemented nine months behind schedule, meaning that 1,200 employees who would otherwise have taken early retirement stayed on the firm's payroll.

Since neither of these events could have been foreseen by Olympic, the government compensated the company for the one-off losses incurred.

The Commission accepts that the Greek government acted in good faith in making the payment, but officials say this does not change the fact that it was never notified or authorised.