Ryanair loses EU court clash with Aer Lingus over £100m aid

Ryanair yesterday lost its European legal challenge to £100 million in Aer Lingus state subsidies in 1994 and 1995, landing itself with a legal bill that could run to six figures.

The European Court of First Instance in Luxembourg ruled that the Commission was entitled to use its discretion in approving state aid to Aer Lingus even though the airline had not fully met the conditions previously set. Ryanair also contended unsuccessfully that the Commission's decision to overlook the fact Aer Lingus flights from Dublin to British provincial cities were run at a loss meant the aid was in breach of common market rules. But the court said, although the Government was under an obligation to ensure that loss-making routes were not subsidised, that did not mean that a group of Aer Lingus routes would never operate at a loss.

The total cost of the case is not clear yet but, at an earlier hearing, Ryanair's chief executive, Mr Michael O'Leary, conceded to reporters that the bill might run to £300,000.

In a statement, Ryanair said it was disappointed with the ruling, which it described as difficult to comprehend.

"In its decision, the court vindicated Ryanair's case, namely that Aer Lingus had not complied with the state aid conditions," the company added.

A spokeswoman said there were no plans to appeal the ruling.

For its part, Aer Lingus welcomed the decision and said the airline was glad the case was over.

"(I am) pleased that the verdict clearly supports the fact that Aer Lingus complied with all the conditions outlined by the EU in relation to the case," said the company's deputy chief executive, Mr Larry Stanley.

The case arose from the decision in 1993 by the Government to award Aer Lingus £175 million in state aid as part of the Cahill Plan restructuring of the airline. The aid was payable with European Commission approval in three tranches - £75 million in 1993 and two payments of £50 million in 1994 and 1995, the latter both being conditional on cost reductions in Aer Lingus of some £50 million.

In December 1994, the Commission noted that costs had been reduced by only £42.4 million but allowed the tranche to be paid because of the substantial progress that had already been made. Ryanair at that stage took the issue to the European Court of First Instance, the EU's lower court.

The court found that any variation of conditions imposed by the Commission could only be made by another formal decision of the Commission. But, in implementing its own decisions, the court found, the Commission also had a measure of discretion to manage and monitor aid payments.

Because the difference between £50 million and £42.4 million was relatively small and Aer Lingus had simply been given more time to meet the full obligation, the court found that the Commission had not departed from the framework of its original decision.

The court also noted that the failure to reduce costs in time had been due to circumstances not evident at the time of the original decision, notably a major industrial dispute in the Aer Lingus subsidiary, Team Aer Lingus.

Ryanair had also failed to show that the activities of Aer Lingus since that time had rendered the aid incompatible with the requirements of common market rules.

The court ordered Ryanair to pay the costs of Aer Lingus and the Commission, while the Government must bear its own costs. Ryanair has the right to appeal the decision to the European Court of Justice within two months.