Airport tax may fund rescue package

By Ben Webster, Transport Correspondent and Carl Mortished, International Business
Copyright 2001 Times Newspapers Limited
Article date: September 19, 2001
 

The Government is preparing a rescue package for Britain's airlines and is considering using the £1 billion paid by air passengers annually in departure tax.

British Airways is about to follow Virgin Atlantic by announcing big job losses as bookings slump on flights between Britain and North America.

BA was priced by the stock market yesterday at £1.8 billion, a third of its value in January. Britain's flag carrier is now worth almost £100 million less than Ryanair, the Irish budget airline. The heads of Britain's three airlines that fly to the United States called on ministers yesterday to match any aid granted by America to its airlines. The US Government said last night that it hoped to approve financial assistance for the industry by early next week.

Stephen Byers, the Transport Secretary, pledged to preserve the competitive position of British airlines and set up a working group to study ways of helping the industry with the huge financial burden of extra security measures. The airlines are also facing a big increase in the cost of insuring their aircraft.

Virgin Atlantic said that Air Passenger Duty (APD) paid by passengers leaving UK airports could be abolished or reinvested in the industry. By helping the airlines through reforms to APD, the Government could avoid a challenge under European competition rules, which prohibit the granting of direct state aid to private companies.

Sir Richard Branson, the Virgin chairman, said that he was not seeking government help to run half-empty planes. "We made clear that we want the Government to look at the cost implications of the events last week. Without a healthy aviation industry, the UK economy will be severely affected," a spokesman for Sir Richard said.

Sir Michael Bishop, chairman of BMI British Midland, said: "Relief from APD for a period of time would certainly be a step in the right direction. More of the security charges could also be picked up by the Government."

Rod Eddington, chief executive of British Airways, said he was still considering how much capacity would have to be cut on BA's global network. "When we've got some clarity on that, we will be working with our people to ensure we adjust our people-numbers appropriately," he said.

He added: "We are very conscious that other airlines around the world will get support, airlines who are competitors of ours both individually and collectively, and we want to compete on a level playing field."

In a statement after the meeting, the Department of Transport said: "There was agreement about the need to ensure that the competitive position of British airlines would be maintained." A source close to Mr Byers said that concessions on APD were being considered.

The British Air Line Pilots' Association (Balpa) said that thousands of jobs could be saved if the Government agreed to use revenue from APD to help airlines. Christopher Darke, its general secretary, said: "Redirecting the Airline Passenger Duty tax is the most immediate help the Government can give. It would be short term, but would bring long-term benefits. UK airlines would not lose their share of what everyone agrees will be, for a time, a smaller market."

Economy class passengers pay £5 on flights to Europe and £20 when travelling further afield. Business and first class passengers pay £10 on departures to Europe and £40 elsewhere.

Ministers are also planning to hold meetings with charter and low-cost airlines, but Ryanair, Europe's largest budget airline, said yesterday that it was confident that its prospects had not been materially harmed by the turmoil. Michael O'Leary, Ryanair's chief executive, said that bookings on the company's network of flights to Europe were already back to 90 per cent of the levels before the attacks.

"We do not expect last week's events in the US to have any significant impact on short-haul domestic or intra-European air travel, which is Ryanair's trading sector," Mr O'Leary said.

He added that his company had written to the European Commission urging it not to alter its policy on state aid to flag-carrying airlines. He said: "State aid to selected state airlines that were loss-making before last week's events cannot be justified by the impact of last week's events."

Bob Ayling, the former BA chief executive, also urged the Government not to give grants to airlines. "The solution here is to face the fact that there have been too many airlines, particularly in Europe, for too long and to consolidate or liquidate," he wrote in a newspaper article.

Sir Richard urged Mr Byers to impose only "sensible and practical security measures". Mr Byers suggested at the weekend that UK airlines might be obliged to follow El Al, Israel's national airline, and post armed guards on flights. Such a move could cost the industry hundreds of millions of pounds each year.

Any government help for the airlines would have to be approved by the European Commission. Other EU countries, including France and Switzerland, are already considering granting state aid to their airlines.

Jean-Claude Gayssot, the French Transport Minister, said: "I will intervene at the European level to take measures if necessary so that the air transport sector and the aeronautic industry in general don't suffer repercussions which would lead to major difficulties."

US airline executives met Norman Mineta, the US Transport Secretary, yesterday to press for up to $24 billion (£16 billion) in aid.

A spokesman for Mario Monti, the EU's competition commissioner, said that the Commission was unlikely to approve tit-for-tat subsidies. "We cannot tell the Americans what to do," he said.

The Commission said that any claim for unfair competition should be brought to the World Trade Organisation. "It is too early to put a bill on this," he said. "Air traffic was completely closed in the US. That was not the case here."
 

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