Air Transport World

'Last time,' all the time: the EUC's approval of Iberia's second aid package confirms that politics beats competition every time. (European Union Commission)(includes related articles)

The EUC's approval of Iberia's second aid package confirms that politics beats competition every time

The EU Commission's unsurprising approval of the

Spanish government's latest handout to Iberia satisfied no one. Not the airline, which wanted 25% more and whose pilots have demonstrated against the lesser amount. Not those who hoped, past experience aside, the EUC would stick to its "one time, last time" promise on subsidies for Europe's sickly state-owned carriers. And definitely not those looking for consistency in state-aid cases.

However, the decision did represent the many problems EUC faces as it struggles to foster real competition.

The full commission's vote and public announcement of the deal in January simply rubber stamped what Transport Commissioner Nell Kinhock had announced in December. And before that, the leaky Brussels network had telegraphed the details of the deal. To recap: In return for 87 billion pesetas ($707 million) now and an additional 20 billion pesetas ($163 million) next year, if it behaves, Iberia had to "sell its holdings in Aerolineas Argentinas, the latter's subsidiary Austral and 13% of a 38% share of Chilean airline Ladeco. Iberia was allowed to retain its investment in Venezuela's Viasa. All of the companies are part of Iberia's strategy to establish itself as the premier link between Europe and Latin America.

Like so much that goes on in Brussels, Iberia's "sale" of the Latin holdings is less than it seems. A new, temporary company called Andes Holdings is the repository for the shares. Two U.S. firms, Merrill Lynch and Bankers Trust, with 58%, and Teneo, the government entity that is Iberia's parent company, with 42%, "own" Andes Holdings. EUC says Iberia can "repurchase" its Latin holdings in two years if it can attract private-sector investors and if the Latin carriers are in good enough shape that they won't drag it down again. The U.S. firms also must sell their Andes shares to third parties and Andes must be dissolved. But what if another airline offered a higher price to buy the Latin holdings? Would the Spanish government permit that?

While unsurprising, the Iberia decision was controversial. First, EUC said the vote was unanimous but it only became that for press-release purposes. …

Log in to your account to read this article – and millions more.