Select Committee on European Scrutiny Seventh Report


COM(01) 574

Commission Communication: The repercussions of the terrorist attacks in the United States on the air transport industry.

Legal base:
Document originated: 10 October 2001
Forwarded to the Council: 12 October 2001
Deposited in Parliament: 31 October 2001
Department: Transport, Local Government and the Regions
Basis of consideration: EM of 6 November 2001
Previous Committee Report: None
Discussed in Council: 16 October 2001
Committee's assessment: Politically important
Committee's decision: Cleared


25.1  Even before the tragic events of 11 September 2001, the European air transport industry was in financial difficulties. The Commission describes the industry's underlying condition as chronically under-capitalised, excessively fragmented and heavily indebted with a permanent cash-flow problem. This vulnerable aviation industry was weakened further by the slowdown in economic growth and last year's increase in the cost of aviation fuel.

25.2  On 21 September, in the wake of the terrorist attacks, the US Congress adopted emergency measures as part of an overall package which, according to the Commission, may amount to $18 billion. The package consists of direct and immediate aid ($5 billion), federal credit instruments ($10 billion) and safety and security funding ($3 billion).

The document

25.3  The Communication sets out the situation in the airline industry in the European Community following the terrorist atrocities of 11 September and the subsequent US aid package.

25.4  The Communication, which was endorsed by European Community Transport Ministers on 16 October, reiterates the Commission's view that Member States must not depart from Community rules on state aid, and sets out how the Commission proposes to interpret the rules when dealing with the aftermath of 11 September 2001.

25.5  The document confirms that assistance from Member States to the air transport industry must be confined to the following:

    —providing compensation for losses incurred as a direct result of the four-day closure of US airspace following the attacks, with compensation being paid only to airlines;

    —underwriting of war­related third party risks where the insurance industry was not making cover available, and this aid should be time­limited — one month in the first instance — and harmonised between Member States;

    —providing funding for enhanced security measures introduced as a result of 11 September.

25.6  In addition, the Commission:

    —is taking a favourable view of requests for exemptions from the Competition Rules for agreements between airlines to co­operate on schedules and capacity; and

    —is suspending the "use­it­or­lose­it" rules for slots in Summer 2002, and is prepared to consider a suspension for Winter 2002/3, depending on developments this Winter.

25.7  The document also reports on the effect of US measures on competition between US and Community airlines and sets out the Commission's intention to propose a code of good conduct to the US authorities in order to avoid distortions of competition resulting from the aid received by American airlines.

The Government's view

25.8  In his Explanatory Memorandum of 6 November 2001, the Parliamentary Under-Secretary of State at the Department of Transport, Local Government and the Regions (Mr David Jamieson) says:

    "The UK has strongly supported the central thrust of the Commission's proposals. European airlines were at a crossroads before the events of 11 September, with several national carriers facing difficult commercial futures, and the key to a more efficient EU airline industry is consolidation. We support the Commission's position that state aid to airlines should be limited to measures designed to address losses arising directly from the events of 11 September, and should not become an obstacle to overdue rationalisation in the European industry.

    "The Government has moved quickly to underwrite, on a temporary basis, third party war risk insurance for UK airlines and service providers to the airline industry, an initiative which has subsequently been widely copied elsewhere. We are considering whether further aid should be paid to the UK airline industry, and will take the Commission's guidelines fully into account in any decision.

    "The UK strongly supports the Commission's proposal to open a dialogue with the US on possible market distortions, as UK carriers British Airways and Virgin Atlantic are more exposed than most EU airlines to predatory behaviour on North Atlantic routes. However, this support is without prejudice to our position on the Commission's desire for a full mandate for negotiations on a Transatlantic Common Aviation Area. The UK has so far withheld support for a mandate on the grounds that we are actively pursuing a bilateral agreement with the US, and that remains our position."


25.9  We welcome the general position taken by the Commission that Member States must not depart from the Community rules on state aid. We also welcome the special circumstances under which Member States may provide some temporary and conditional assistance to the airline industry, such as compensation for the four days when US airspace was closed, funding for extra security measures and underwriting third-party war risk insurance. But clearly the underlying structural weaknesses in the industry need to be addressed.

25.10  We have no questions and clear the document accordingly.

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Prepared 3 December 2001