Regional airports: State aid and airports

Regional airports represent not only important points of access to remote locations and parts of country with limited or lengthy ground access but also have significant economic impact on the surrounding region. On the other hand, every public airport with commercial operations must fulfil strict requirements with respect to international safety and security requirements, including operational readiness of the airport infrastructure and airport personnel qualifications. These requirements, which are virtually the same for small and large airports results in high operational costs. Small airports have problem to break even not only due to low throughput volumes but also limited other resources of income, e.g. non-aeronautical services, car park fees; which are substantial part of middle and large airport revenues. It is considered that a small airport with annual throughput under 200 000 passengers is not able to cover its operational costs and needs to be subsidized. At the same time, airports are important stimulators and catalysts of regional economic growth and development. Determining whether the indirect, induced and catalytic impact of an airport on a region outweigh the cost of regional airport subsidies would contribute to informed regional development policy and decision-making.

The topic of this study is State aid and Services of General Economic Interest. The objective of the study is to answer the following questions: are EU Member States allowed to publicly support the operation of small regional airports? Does the same apply for the EFTA States? More specifically, the primary purpose is to see whether the operation of small unsustainable regional airports may rely on public support in order to ensure its existence and, in light of the different level of European integration provided by the EEA agreement, whether the same applies for the EFTA States.

The European Commission will strongly cap state aid to airports from 2024, putting at risk many smaller airports failing to break even. Based on literature research and empirical cases, we assess public funding options to increase traffic and revenues of airports which are unlikely to infringe state aid rules. There is some scope to declare several airport functions as areas of non-economic nature, which would allow public bodies to take over costs without violating European state aid rules. In addition, boosting the number of air services operated as public service obligations and providing incentives may constitute legitimate options to improve airport financials.

A lot of cases had arouse in the past decade about agreements between regional airports and low-cost carriers. These agreements are challenged on the basis of the State Aids European control as they rise concerns not only about competition distortions between airlines but also about fiscal competition risks among Member States or local governments. Such phenomena could be expected as regional airports are characterized by significant overcapacities and overlapping inducing a substitutability for airlines. Surprisingly, the new 2014 guidelines on State Aids granted to airlines open the way to transitory operating aid schemes, an option apparently at odds with the European longstanding principles. Our purpose in this paper is to demonstrate with the help of the development of a model, that such agreements can make sense from the economic point of view provided that the relationship between the carrier and the airport is no longer analyzed as a vertical chain, inducing an assessment in terms of economic dependence, but as a two-sided market. The favorable usage terms granted to low cost carriers generate additional flows on the other side, with commercial revenues from shops or parking. Consequently, subsidizing operating costs might be rational, even for a private investor in a market economy, and might be a perennial device.

Wasteful spending of public funds, leading to the creation of “ghost airports”, is often describ­ed as a regulatory failure and a major deficiency in European State aid control. It is pointed out that decisions to build or upgrade an airport are often ill-conceived, poorly implemented, and without economic justification. This raises the question whether European law, namely its State aid control system, contains inherent flaws or whether the European Commission’s decision-making process can be improved by increasing reliance on objective economic reasoning under the existing legal framework. This article provides an analysis of the decision-making problems leading to failed aid efforts; of the role of the economic approach in State aids; and of the standard of economic assessment required in State aid cases. The article concludes with de lege ferenda postulates.

State aid issues in the aviation and port sectors are growing, with an increasing number of high-profile cases. The introduction of the 2014 Aviation Guidelines has led to greater potential for sophisticated economic and financial analysis in state aid assessments. As this trend is mirrored in the ports sector, the evidence required to demonstrate compliance with the market economy operator principle or the compatibility of aid is now much greater. Given this backdrop, this article discusses a number of topical issues in state aid assessments in these sectors, illustrated by reference to key decisions from the European Commission.

This study aimed to assess whether the State aid rules on operating aid to regional airports set out in the 2014 Aviation Guidelines remain fit for purpose.