Kinnock set to approve cash for Iberia

Date: 29/07/1999

By Renée Cordes

THE European Commission is set to clear the last tranche of a €120-million capital injection to Spanish flag-carrier Iberia, reflecting confidence that the airline has turned the corner.

Aides to Acting Transport Commis-sioner Neil Kinnock say a final decision to approve the aid should be taken next month, putting the state-owned airline on track to sell shares to the public later this year.

Iberia, which is 54% owned by the Spanish government, reported a net income of €350.6 million for 1998, more than three times higher than in 1997. Announcing the results last month, chairman Xabier de Irala boasted that his company was "the most profitable of all European airlines".

News that the Commission is on the verge of approving the aid comes hot on the heels of the institution's decision last week not to reopen a probe into state aid paid to Italian flag-carrier Alitalia two years ago. That case was dropped after Rome pledged to tackle alleged breaches of competition in the Italian aviation market.

Industry insiders say Iberia's recent success reflects the growing strength of many European airlines which were given fresh cash injections by their government owners to help them restructure and make up for past mistakes such as expanding too quickly and failing to keep costs under control.

"A number of airlines went through restructuring in the 1990s, and to some extent many still are," said David Henderson, a spokesman for the Assoc-iation of European Airlines. "For the most part, these airlines are now standing on their own feet."

The Commission's decision to clear the last slice of aid to Iberia will come as no surprise to the industry, as the institution implicitly recognised the airline's right to request more funds when it ruled, in January 1996, that the government could invest about €500 million in Iberia. It said then that Madrid could come back in 1997 with a fresh request based on the airline's financial performance over the previous two years.

The Spanish state holding company SEPI said the additional money was needed to wipe out some of the airline's bad debts. The move was part of a three-stage process aimed at privatising Iberia completely by the end of this year.

In 1994, Iberia was so short of cash that it was technically bankrupt, forcing the government to seek permission from the Commission for a new capital injection.

That came two years after then-Transport Commissioner Karel van Miert agreed to allow the airline to receive €722 million in state aid to settle significant debts, buy new aircraft and embark on an ambitious strategy of boosting services to South America by more than 13% a year. That headlong expansion into the Americas was one of the main factors which later almost proved the airline's undoing.

• Primary Source