India Law Journal’s Managing Editor Vikrant Pachnanda spoke with Prof. Stephan Hobe about the law revolving around subsidies in the aviation sector that is prevalent in the European Union.

  • Prof. Stephan Hobe
Ques: Can the subsidies be deemed valid if there is no direct effect on the prices of the tickets due to the subsidies?

Ans: Under European Union (EU) law, subsidies are handled under the rules relevant to ‘State Aid’. The Treaty on the Functioning of the European Union (TFEU) generally prohibits State Aid. Please see Article 107-109 of the TFEU for the overarching EUState Aid rules.

Ques: Can the future prospect of fleet upgradation because of the subsidy be considered to render the subsidies anti-competitive?

Ans: “State aid is defined as an advantage in any form whatsoever conferred on a selective basis to undertakings by national public authorities.”1 Therefore, not everything given by a State counts as ‘State Aid’. For example, “subsidies granted to individuals or general measures open to all enterprises are not covered by this prohibition and do not constitute State aid.”2

Ques: Can brokering the sale of an airline by a particular government be considered an act of subsidising the said airline?

Ans: The criteria for State Aid, as identified by the EU Commission, are:

  1. “there has been an intervention by the State or through State resources”. This can take a variety of forms: e.g. money, interest and tax reliefs, or providing goods and services on preferential terms;
  2. the intervention gives “the recipient an advantage on a selective basis”, for example to specific a company;
  3. “competition has been or may be distorted”; and
  4. the intervention is likely to “affect trade between Member States”.3
Ques:Can the subsidies to national carriers be considered valid as they are a major player in the market and their failure will have an adverse effect on the economy of the country?

Ans: “Despite the general prohibition of State aid, in some circumstances government intervention is necessary.” Therefore, the TFEU providesfor some“policy objectives for which State Aid can be considered compatible.” Thus, the aid must be individually assessed to see if it is compatible with the State Aid rules.Article 109 of the TFEU gives some exemptions and then there are EU Regulations that elaborate on this matter.

Ques: In what scenarios can the subsidies in this current day and age be allowed?

Ans: The following Regulations may be consulted, inter alia, for determining exceptions and assessing their scope:

  1. Compatibility of State Aid & transport - Commission Regulation (EU) No 651/2014 of 17 June 2014 declaring certain categories of aid compatible with the internal market in application of Articles 107 and 108 of the Treaty Text with EEA relevance.
  2. Block Exemptions - Council Regulation (EU) 2015/1588 of 13 July 2015 on the application of Articles 107 and 108 of the Treaty on the Functioning of the European Union to certain categories of horizontal State aid (Text with EEA relevance)
  3. External subsidies from the EU - Regulation (EU) 2016/1037 of the European Parliament and of the Council of 8 June 2016 on protection against subsidised imports from countries not members of the European Union