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State aid for airlines ignores need for structural change in aviation – Fitch

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State aid for airlines ignores need for structural change in aviation – Fitch

Michael O’Leary will be pleased to hear that ratings agency Fitch has warned the recent bailout package for Lufthansa risks altering the playing field for European aviation and ignores the needs for structural change in the market.

“The Lufthansa bailout package approved by the European Commission will boost the airline's liquidity and ensure it avoids insolvency but, similar to other recent state-aid actions, risks altering the playing field in the European aviation industry, Fitch Ratings says. These rescue actions do not address the need for structural changes in the sector,” Fitch said in a statement.

Fitch noted that the Lufthansa aid deal means that airlines in Europe have received more than €25 billion in direct liquidity support since March 2020, of which €19 billion is targeted measures directly approved by the European Commission. The ratings agency said that differing levels of state support in Europe meant certain airlines could unfairly benefit.

“[The aviation] industry is cyclical, seasonal, capital intensive and among the worst hit by the coronavirus pandemic. States often choose to inject liquidity into national carriers to prevent their insolvency and liquidation as they are usually large employers are integral to domestic economies.

However, European governments' uneven capacity to provide support risks altering the industry landscape. Wealthier countries are more likely to provide support to their national carriers, sustaining them, even if their operations are otherwise less competitive.”

Ryanair’s chief executive Michael O’Leary has repeatedly hit out at state aid for European airlines, most recently attacking the Netherland’s government’s €3.4 billion bailout out for its share of the Dutch-French carrier Air France-KLM, calling it “a poor deal for the trading nation, which likes to lecture other EU countries about fiscal rules but has no problem breaking these rules when it comes to subsidising KLM.