Olympic aid still in the air

Date: 21/11/1996

By Chris Johnstone

GREEK flag-carrier Olympic Airways is facing fresh problems in winning European Commission clearance for 76 million ecu in suspended government aid.

Officials in the Commission's Directorate-General for transport (DGVII) have launched an investigation into claims that Olympic has broken a promise to end its groundhandling monopoly at the country's main airports. That promise influenced the Commission's decision to clear an overall state aid package worth 1.8 billion ecu in 1994.

The Commission froze the payment of 76 million ecu - the second of three subsidy hand-outs - in April this year because Greece had failed to deliver on other pledges.

The latest complaint over airport handling will be added to the Commission's list of conditions which must be met if the 76 million ecu and further cash payments are to be cleared.

Rival airlines and smaller Greek carriers have written to DGVII pointing out that they are not able to deal with passengers and baggage at airports themselves, and must still rely on Olympic Airway's services. Industry insiders complain that the airline's handling facilities are expensive and inefficient.

The continuing monopoly flies in the face of promises made to the Commission two years ago. “It was specifically understood at the time of the 1994 decision that self-handling was not a problem,” said an official.

No Commission verdict on whether to unfreeze the 76 million ecu is expected now before the end of this year. A further slice of 39 million ecu, the last portion of Olympic's agreed aid programme, has still to be examined.

The Greek government has promised a hands-off approach to the day-to-day management of the airline in answer to one of the Commission's April criticisms. But, this pledge still has to be given legal form.

The Commission's decision to block the aid in April followed hard on the heels of the Greek government's sacking of Rigas Doganis, the man brought in to oversee the airline's restructuring and who delivered its first profit in 20 years.

Other issues which remain unresolved include payment by the Greek government of an extra 36 million ecu without Commission authorisation. Athens said the extra aid was to compensate Olympic for the impact of legislative decisions outside its control.

These included over-generous incentives to encourage a targeted 1,750 Olympic employees to leave the company. Pay-offs amounted to 35&percent; more than the normal rate for workers under Greek law, with redundancy payments 25&percent; above usual levels and an extra two months' salary added on.

However, the law was implemented nine months late, and 1,200 employees stayed on the payroll long after they were supposed to have left.

Meanwhile, high-placed officials say reports of French government pressure on Air France to buy European Airbus aircraft, instead of the company's preferred choice of US Boeings, are unlikely to be examined by the Commission.

They say it would be politically explosive to query a buy-Europe preference at the same time as the Commission is questioning the level of US support for its aerospace industry.

Air France, which has bought no new aircraft since 1993, is now ready to order new long-haul planes. Company sources say it would like to opt for the Boeing 777 for some of its routes, despite government claims that this would be a gift to the US manufacturer. Air France sources say the Boeing aircraft would be less expensive to run and maintain than the rival Airbus A340.

The French government, like the Greek, is supposed to steer clear of involvement in the management of Air France as one of the conditions for Commission clearance in 1994 of a 3-billion-ecu capital injection by the state.

The Commission still has to clear 154 million ecu from the final tranche of the injection. The amount was frozen by Transport Commissioner Neil Kinnock in July in order to ensure that Air France delivered fully on its restructuring programme.

The Commission will decide next March whether or not the cash can be paid.