Airline Rescue and Competition in Times of Covid - a Shift of Paradigm is Necessary in Brussels

Article by Prof. Dr. Wolf Müller-Rostin, Academic Coordinator, Professional MBA Aviation Management

10.06.2020

The tourism industry, and here in particular the aviation industry, is that particular industry that has probably been most hit by the outbreak of the Corona pandemic. National governments worldwide had to step in to provide financial support to airlines which previously had been operationally healthy and profitable. Without substantial state aid, most airlines would have no future. Air France for instance received a € 7 billion bailout and in return was faced by demands by the French government to become one of the world’s environmentally most sustainable airlines.  

In Germany Lufthansa required a financial package from the government as well. The € 9 billion package, which also includes payments by the respective national governments for Austrian, Swiss and Brussels Airlines, is split into a loan of € 3 bn provided by a semi-state owned bank for development (KfW), and a capital increase by the government’s Economic Stabilization Fund. As part of the restructuring program the state is becoming a 20% stakeholder of Lufthansa and this share could be increased to 25% in case of a hostile takeover attempt. Similar to Air France Lufthansa, too, is required to become more environmentally friendly. 

The Lufthansa package had to be approved by the EU Commission in Brussels. The “competition watchdogs” required Lufthansa to give up 24 slots at its Frankfurt and Munich hubs respectively “in order to eliminate distortions of competition due to the state aid.”      

It is hard to understand why the Commission sets up these hurdles for the Lufthansa package, whereas it consented over the years to the state aid packages provided to Alitalia by the Italian government. Even when the Italian government recently announced to re-nationalize Alitalia there were no signs of protest from the Commission. 

Prof. Dr. Wolf Müller-Rostin

„When the aim of the Commission is to avoid distortion of competition the Commission should not just focus on competition in Europe, but should take a broader perspective.“

Intended mergers of the train manufacturers Siemens and Alstom and the steel companies Tata and Thyssen Krupp were rejected by the “competition watchdogs” for fear of creating an uneven playing field. Lufthansa and other European airlines compete with state owned or state aided carriers located in the Middle East, in China or other parts of the world. Instead of creating European Champions and supporting them in their competition with other globally acting train manufacturers, steel companies or airlines the Commission should look beyond the perimeters of the EU and should not by its own actions distort global competition any further.   

 

Link to the Professional MBA Aviation Management program

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