O VOO DO CORVO

Stranded assets

By Mehreen Khan

April 6, 2020

Despite having thrown the “kitchen sink” at coronavirus, the EU is still under pressure to provide targeted help for Europe’s worst affected industries. The airline sector — which has been ravaged by the global lockdown — is leading the calls for help.

With scores of fleets grounded and tens of thousands of staff temporarily laid off, the woes of Europe’s airlines are difficult to overstate. The pandemic has already far outstripped the disruption caused by 9/11 or the financial crisis. Most post-virus projections expect demand for flights to remain depressed below pre-virus levels long after the end of the lockdown.

The travails of the sector put the European Commission in a bind. Transport and aviation policy — unlike other areas of EU law — remain a fiercely protected part of national government responsibilities. But the Covid-19 crisis has led to escalating demands for the EU to “act” to protect a strategic industry despite not always having powerful tools at its disposal.

“The European institutions must take all the necessary measures to ensure the short-term financial viability of the travel industry enterprises,” lobby group EU travel tech said last week, warning that aviation was facing an “unprecedented liquidity crisis”.

Brussels has responded. The commission has relaxed state aid rules to allow member states to prop up their carriers. France has been among the first to allow airlines operating in the country to defer payment of some taxes. The EU has also acted swiftly to suspend rules which oblige airlines to use at least 80 per cent of their landing and take-off “slots” or risk losing them for good.

But the sector still wants more. Brussels is now facing calls to relax rules in the more sensitive area of passenger compensation. Long before the pandemic, the topic of when and how you can demand refunds for cancelled and delayed flights has divided EU member states. A longstanding proposal to toughen up consumer rights has been stuck since 2013.

Line chart of Flights per day (7-day moving average) showing Global flight numbers have dropped

The virtual suspension of all global travel has triggered calls from the industry to soften the rules on payouts to help alleviate the sector’s credit crunch. For now, the commission is resisting. Brussels has told airlines they must abide by EU law and refund customers for cancelled flights or offer vouchers only if passengers agree to take them. “If the customer does not want a voucher or other proposed solutions, the company must reimburse,” said EU commissioner for transport Adina Valean.

Valean said the commission was exploring ways to help stricken airlines meet their compensation duties. “We are in the process of assessing the liquidity needs of the companies to make these repayments, to see how significant these amounts are and if it is necessary to take measures in this matter,” said the commissioner. “In the meantime, the law is clear.”

EU officials caution that any plans to grant leeway over compensation rules are still in their exploratory stage. There is also resistance inside the commission to the idea of giving business the upper hand over grounded consumers who want their money back.

Before the pandemic, Brussels’ green agenda posed big changes for airlines, including a touted kerosene tax and higher carbon prices. One EU official warned that those aims should not be abandoned because of the crisis: “This might be a moment to ask whether the EU needs so many airlines. I hope that question is asked before we start opening up our purse.”