Covid-19 implications: the EU initiatives in support of the aviation sector

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Anna Masutti, Partner at R&P Legal Law Firm, Italy

anna.masutti@replegal.it

The potential impact of the Covid-19 pandemic has been determined by the IATA as a US$252bn loss of passenger revenue in 2020, which is 44 per cent below 2019’s figure, and a threat for 2.7 million airline employees. While the ICAO estimated an impact on scheduled international passenger traffic during the first half of 2020 equal to an overall reduction of 41 to 51 per cent of seats offered by airlines, which equates to a reduction of 443 to 561 million passengers  and a potential loss of gross operating revenues of airlines of US$98–124bn. On 27 April 2020, air traffic in the Eurocontrol area was down 86.9 per centon the same date in 2019[1].

With particular regard to Italy, the ICAO estimated the impact of a Covid-19 outbreak on scheduled international passenger traffic to and from Italy during first half of 2020 would be a 54–64 per cent seat capacity reduction, a 36–42 million passenger reduction and a loss of gross operating revenues of airlines from/to the country equal toUS$4.3–5.1 bn.

But what is the European Union's response to this data? Over the past months, the EU implemented broad measures regarding:

1. Air cargo operations

2. Slot allocation

3. State aid

In addition to these measures, the European Commission, in its Work Programme 2020, indicated that initiatives for the amendment of ownership and control rulesas well as of those on PSOs should be taken.

Air cargo operations

In light of the strategic importance of air cargo – which plays a vital role in the quick delivery of medicines, medical equipment and supplies needed to combat the current pandemic – the European Commission, through the issuance of Guidelines[2], requested Member States to implement appropriate operational measures to facilitate air cargo transport and reduce its additional costs.

The measures listed in the Commission Guidelines include:

• for transport from outside the EU, granting without delay all necessary authorisations and permits, including, where legally possible, temporary traffic rights for additional air cargo operations, even when conducted with passenger aircraft;

• temporarily removing, or applying flexibly, night curfews or slot restrictions at airports for essential air cargo operations;

• facilitating the use of passenger aircraft for cargo-only operations;

• ensuring that air cargo crew as well as handling and maintenance personnel are qualified as critical staff in cases of lockdown or curfew;

• exemption from travel restrictions for asymptomatic transport personnel, including aircrew, engaged in the transport of goods.

The Commission stresses that the containment measures adopted for the Covid-19 emergency should be limited to the movement of passengers and they are not deemed to limit the movement of aircraft. Thus, restricting the movement of travellers rather than flights will prevent the disruption of air cargo.

Slot allocation

The Parliament and the Council of the EU issued Regulation (EU) No. 2020/459 aiming at ensuring airlines the access to slots for the 2020 summer season and reducing the risk of ‘ghost flights’ that would have been operated only to maintain slots.

The Regulation provides for a suspension of the airport slot requirements until 24 October 2020. Until then, airlines are not, therefore, required to use at least 80 per cent of their take-off and landing slots in order to keep them the following year. More specifically, the waiver applies from 1 March 2020 to 24 October 2020 and it has also retroactive effects – from 23 January 2020 to 29 February 2020 – for flights between the European Union and China or Hong Kong.

Regarding the above-mentioned period, the EU Council specified that the measures can be extended if the Covid-19 situation persists, by means of a European Commission delegated act. The European Commission will monitor the situation and report back by 15 September 2020.

State aid

Based on Article 107(3)(b) of the TFUE[3], the Commission adopted a Temporary Frameworkfor State aid measures[4] in order to support companies during the Covid-19 outbreak.

The Temporary Framework allows member states to set up schemes to direct grants, selective tax advantages and advance payments of up to €800,000s. Furthermore, it allows member states to provide state guarantees on bank loans, subsidised public loans to companies, safeguards for banks that channel state aid to the real economy, and to grant short-term credit insurance.

Based on the exception provided for in Article 107(2)(b) TFEU, the Commission enables member states to compensate companies for the damage directly caused by exceptional occurrences even if they have received rescue aid in the last ten years.

To date, several European airlines such as Lufthansa group, EasyJet, Virgin Atlantic and Air France-KLM, have requested state aid from their respective governments. The Italian government announced its decision to re-nationalise Alitalia – which is currently undergoing a restructuring procedure – through the establishment of a new company entirely owned by the Ministry of Economy and Finance. In 2020, the new company will receive up to €500m for the fulfilment of the financial commitments, and until the completion of the sale procedure.

EC Work Programme 2020: ownership and control rules and PSOs

Besides the specific measures implemented in order to face the Covid-19 pandemic, it is worth noting that, among the initiatives to be taken –within the aviation services package's policy objective (ie revision of airport charges and of the provision of air services) –listed in the EC Work Programme 2020, there is the necessity to revise ownership and control rules in order to help air carriers to mitigate the economic impact of the crisis on the air transport sector. The current rules related to ownership and control are provided for in Regulation (EC) No 1008/2008, which establishes that acommunity carrier must be more than 50 per cent owned and effectively controlled by member states and/or nationals of member states. It precisely regarding this strict rule, which ensures the preservation of the majority of shares and the exercise of the control by EU nationals, that the EC aims to adopt a ‘more relaxed approach’. This is an important objective that the EU would like to pursue in order to ensure an increased globalisation of the airlines based in Europe.  

The same ‘more relaxed approach’ has been shown by the EC regarding the PSOs rules. It is worth noting that in 2017 the EC issued a Communication (C-194/1) laying down PSOs requirements in order not to affect the free market (in many cases served by low cost carriers) and with the aim of preserving the principle of competitiveness. Considering the current situation and the huge difficulties that airlines are facing, it would be desirable that the EU adopts a less stringent approach in full awareness of the fact that the principles governing public services, like air transport, must be ensured by national governments.

Regarding airport charges, it should be highlighted that Directive (EC) No 12/2009 already aimed to tackle the existence of diverging charging systems in the member states that lack clear transparency in the way in which they are built up. Nevertheless, the Commission, in its evaluation of the Directive, noted that diverging charging systems and lack of transparency are rather problem drivers and this is among the reasons why the EC wishes to take action to ensure more transparency and a more competitive market.  

EUROCONTROL measures

Lastly, I would like to reference the  €1.1bn fee deferral measures[5] for aircraft route charges.  These  are significant operational costs and always a worry for lessors because of the notorious fleet lien that applies in the UK. Charges for most areas are revised as follows with other provision for France and certain European countries.

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