France Pushes Back on EU Demand Air France Gives Up Slots

(Bloomberg) -- French Transport Minister Jean-Baptiste Djebbari pushed back against the idea that indebted Air France should give up slots at Paris-Orly airport to win European Commission approval for more state aid.

Any concessions should be tied to broader reforms to eliminate advantages that allow low-cost carriers to “distort the market,” Djebbari, a licensed pilot, said in an interview with Bloomberg Television on Thursday.

European Union regulators are asking Air France-KLM to yield slots at Paris Orly airport in exchange for a recapitalization of the struggling carrier. But President Emmanuel Macron’s government argues that abandoning some takeoff and landing rights at the hub closest to Paris would be a major competitive setback for the airline, which it considers a strategic asset.

On Wednesday, Margrethe Vestager, the EU’s antitrust chief, warned that Deutsche Lufthansa AG’s concessions in yielding slots at two airports in return for a German government stake now serve as a precedent for other cases. Under pressure from EU governments, Vestager has already relaxed rules to allow unprecedented subsidies help companies through the pandemic.

In the interview, Djebbari suggested Lufthansa’s slot reductions shouldn’t serve as a model, saying “we want something proportionate that addresses not only competition but the social reality of the sector.”

He declined to put a number on the recapitalization of Air France, which like other airlines has been battered during the pandemic, saying only, “we are talking about billions.” Full recovery in the aviation sector is only expected within “the two or three next years,” the minister added.

Coveted Slots

Orly slots are coveted and Air France holds about half of the airport’s total, with plans to increasingly use them for its low-cost arm Transavia. Budget carriers like EasyJet Plc and Wizz Air Holdings Plc would be eager to expand there. As would Ryanair Holdings Plc, which has complained about massive state help that favors some airlines over budget carriers. An EU court will rule next week on its legal challenge against French aid for airlines based only in France. Wizz Air has also called out France as a place where its faced struggles.

Djebbari has long advocated for a reform of EU competition rules around airlines. “During the last 10 years we didn’t regulate the aviation sector from a social point of view,” he said in the interview, taking a swipe at low-cost carriers taking advantage of labor rules in the EU.

“We still have some low-cost carriers well-positioned for recovery from the Covid era that use independent workers,” he added.

Election Politics

France’s position is also about scoring domestic points ahead of the 2022 presidential election, and rescuing a company that carries national pride as a symbol of the country both abroad and at home. At the beginning of the Covid-19 pandemic, the government mandated the airline to carry medical equipment and repatriate more than 300,000 nationals, with a cap on ticket prices.

Air France-KLM has been kept afloat by the French and Dutch governments who together hold a combined 28% of the company. While the French government says a full-fledged nationalization isn’t a good option, it is open to raising its 14% stake in case of a new bailout.

Dutch Finance Minister Wopke Hoekstra said last week that losing some slots looked inevitable, citing EU state aid rules. They prevent governments favoring one company with subsidies not offered to others across Europe’s single market. A company that gets illegal aid can be ordered to repay it.

The number of slots lost to Air France at Orly could be comparable to those that rival Lufthansa had to give up in Germany for its 9 billion euro ($10.8 billion) bailout last year. Lufthansa also had to offer landing slots at Munich and Frankfurt to smaller competitors last year in return for its recapitalization.

Referring to upcoming elections in the Netherlands and EU demands, Djebbari said, “we’re trying to engineer the whole package given these constraints.”

Also in charge of rail, Djebbari insisted it was that the U.K. government plays its part in rescuing what he called the “U.K.-based” Eurostar International Ltd., which links Paris to London through a passenger service through the Channel tunnel.

His comments come days after his U.K. counterpart said his government was ready to chip in, but France should take the leadership in the rescue as it owns a 55% stake in the company through national rail operator SNCF.

©2021 Bloomberg L.P.