De Palacio may relent on state aid for airlines

The European Commission yesterday left the door open for further state assistance to Europe's struggling airline sector, saying governments might be allowed to help provide airlines with insurance cover next year.

It also indicated that it could approve a €125 million (£98.45 million) loan for Sabena, the stricken Belgian carrier.

On Wednesday, Brussels said European Union member-states would be allowed only until December to underwrite airlines' insurance policies.

This responsibility was taken on by member-states after insurers reduced cover in the wake of the September 11th attacks on New York and Washington.

But yesterday, Ms Loyola de Palacio, the EU Transport Commissioner, said: "We are allowing countries to take third-party risk due to terrorism until December . . . maybe we are going to allow this to continue later on."

But, in an interview with the Financial Times she warned: "We can no longer maintain in Europe 14 flag carriers plus a lot of regional carriers, as we do now.

"In 12 countries we are going to put together our currencies. We must overcome the logic of the national flag carrier, to think only of European flag carriers."

The move is seen as an effort by the commissioner to assert her authority over member states lobbying to stop national carriers going bankrupt.

This week, Mr Tony Blair, the British Prime Minister, has signalled that he would not let British Airways go bankrupt.

Meanwhile, the Irish Government has said it will lobby Brussels for the right to dispense the maximum possible aid to Aer Lingus as part of its restructuring plan.

Already, Sabena is surviving on the back of a loan provided by the Belgian government, which has yet to be approved by the Commission.

So far, only seven of the 15 EU countries have formally sought Brussels' approval for the emergency insurance plans they have put into action.

Germany, France, Spain and the Netherlands - home to some of Europe's most important airlines - have not sought approval.

Ms de Palacio said that a $15 billion (€16.5 billion) airline bailout in the US greatly added to the difficulties of her task of making sure the sector's consolidation was not put back by state aid for failing carriers.

"The question is not maintaining a level playing field within the EU, which is possible because we have the Commission capacities for guaranteeing this.

"The main difficulty at this moment is guaranteeing a level playing field with our competitors, the American airlines - especially in the transatlantic market."

However, the Commissioner signalled that she could approve Belgium's emergency €125 million month-long loan to Sabena under special rules for state aid for near-bankrupt companies.

"Sabena is in insolvency proceedings and what has been allowed is loans at commercial rates during a very short period, just allowing the Belgian government to get an outcome from the actual situation, which has only two exits: either the liquidation of the company or the emergence of private investors with a clear plan to buy the company."

She added that the Commission was still considering the issue and would not decide until next Wednesday.

Approval would be almost certain to lead other countries to ask for aid authorisation.

Ryanair, Lufthansa of Germany, Austrian airlines and SAS, the Scandinavian carrier, have already objected to the Belgian loan.

But Ms de Palacio insisted that she would turn down prime ministerial requests to bail out airlines. "What I am not ready to accept is that there is any special support for individual companies as long as there are not 15 member-states saying exactly the contrary and changing the rules."