Complaints may delay Air France aid payment

Date: 30/05/1996

COMPLAINTS lodged with the European Commission by Scandinavian airline SAS, Dutch carrier KLM and Germany's Lufthansa against Air France could well have their desired effect of holding up payment of 770 million ecu to France's national carrier.

“We may have to reopen proceedings like we did with Olympic Airways,” said a senior Commission official.

Earlier this month, the Commission stalled payment of the final tranche of aid to Greece's Olympic because of allegations that the conditions on which the aid was granted were breached, since a second subsidy appeared to have been paid without prior approval.

With Air France, which got the go-ahead in July 1994 to receive a mammoth 3-billion-ecu aid package, the Commission is keen to be seen as a strict adjudicator in ensuring that the conditions it attached to the decision are respected.

These included stipulations that certain non-core assets had to be sold and also that Air France's prices should not undercut those of its competitors. Lufthansa, SAS and KLM have complained that some of the cash has been used to cut fares on routes where they compete with Air France - so-called 'price-leading'.

“The complaints are about alleged price leadership and this is expressly prohibited,” said the official.

While the case would appear clear cut, proving the allegations is easier said than done. On any given routes on different days, there could be five, six or seven different tariffs operating on the same flight and the three complainants must prove that Air France's prices were the lowest.

Commission transport officials are quick to point out that different airline tariffs are governed by different conditions, making it nonsensical to compare Apex with ordinary fares. “You have to compare comparable things,” said one official.

KLM, for example, says Air France is undercutting its prices on the Marseilles to Hanover route. To prove this, its case must be able to stand up in court, so it will have to be able to supply every last detail on pricing by both it and Air France at any given time on that route.

“If you have a constant pattern, then you have evidence, but this involves painstaking, detailed work,” said the Commission official.

Each airline was expected to present its detailed complaints to the Commission for scrutiny by an outside consultancy, but this has yet to happen and one airline has failed to provide price information about the relevant period.

Everything points to a long and drawn-out investigation of the complaints by the Commission, which may take well over two months more, by which time the deadline for doling out the final tranche of aid to Air France will have come and gone.

If the complaints can be proven, the repercussions will be costly for both the Commission and the French carrier. The 3-billion-ecu bail-out plan was due to restore Air France to profitability. But the airline has been hard hit by increased competition from other French airlines since internal barriers were lifted last year and will be further hit in 1997 when other European airlines will be allowed unlimited access to the French market.

Company chairman Christian Blanc warned last month that Air France Europe would be insolvent in less than two years if no action was taken to improve its performance, while the company's management is talking about privatisation by the end of 1997 or early 1998.

For its part, if the Commission fails to prove that Air France did not use state money to undercut its competitors, its role as a fair umpire would be thrown into question.

Under increasing pressure from other European airlines to phase out aid to state-owned airlines altogether, Transport Commissioner Neil Kinnock's decision in this case will be closely watched.

Kinnock ran into considerable political flak in December after he cleared a capital injection for Spain's Iberia Airlines, and he is known privately to be highly suspicious of state carriers' requests for cash hand-outs. He will also want to avoid appearing a soft touch as Alitalia comes closer to requesting recapitalisation.

But his staff admit that proving the allegations may be impossible. “We get these complaints fairly often and it would be very unusual to establish the reality of the case,” said one, adding: “I cannot remember a time when we came up with a concrete result.”