Union to target national airline ownership rules under scrutiny

Date: 30/07/1998

By Tim Jones

INTERNAL market regulators are becoming increasingly alarmed at systematic national curbs on cross-European ownership of flag-carrying airlines as five carriers head for partial privatisation.

European Commission staff tasked with policing infringements of the EU's single market rules are trying to persuade air transport officials to join them in bringing an end to guaranteed national ownership of airlines. They argue that ownership by EU citizens or companies should be enough.

However, officials working under Transport Commissioner Neil Kinnock are sceptical about such an approach, fearing that it could undermine their attempts to cajole member states into signing a pan-EU 'open skies' agreement with Washington.

They point out that international aviation is governed by agreements, such as the Chicago Convention, which only grant landing rights to carriers owned or controlled by nationals of the country with which the bilateral deal is signed. If an airline were unable to prove that it had a genuine link with a particular country, it could lose the right to fly to another nation.

The big three airline privatisations - British Airways, Deutsche Lufthansa and KLM Royal Dutch Airlines - have all included guarantees that the carrier would stay in the hands of its nationals.

When the German government completed the sale of shares in Lufthansa in October last year, it constructed the sell-off so that 50.97% of the shares remained in domestic hands. The make-up of the banking consortium which managed the sale was designed to keep majority German ownership.

In a fortnight, KLM will complete its purchase of the Dutch government's remaining holding in the company for 550 million ecu. However, the state retains the right to regain control of the carrier by subscribing to specially issued 'B' shares which, in the words of the company, "will guarantee KLM's position as Dutch flag-carrier in the future".

Four state-owned airlines, Air France, TAP Air Portugal, Alitalia and Iberia, which are due to sell off part of their capital before the end of this year, are expected to issue the same kinds of guarantees.

Since every government in the Union has signed aviation agreements with other countries, all of them take action to safeguard national ownership during and after privatisations.

Yet on the face of it, these clauses could threaten the provisions of the Treaty of Rome and the Single European Act guaranteeing free movement of capital within the Union.

While Kinnock is hoping to end this problem by signing all international aviation agreements at Union-level, internal market officials fear this will take so long that curbs on the free movement of capital - a basic tenet of the EU - will become entrenched.