The consequences for Europe's airlines of the terrorist attacks in New York and Washington are finally starting to crystalise. Many of the main national carriers are now in serious difficulty, including Aer Lingus, which is heading for losses of £70 million this year and £100 million next year. Already the two most vulnerable European carriers have had to be rescued from bankruptcy. The Swiss government injected €300 million into Swissair to get its national flag carrier back flying on Tuesday, while the Government of Belgium has lent Sabena €125 million. Yesterday KLM, the Dutch national airline became the latest European airline to announce jobs cuts and schedule cut backs.
The first indication of how the crisis will play out for Europe's carriers has also emerged. Belgium and Switzerland have made it clear that they do not intend to let their national airlines be forced under , even if it involves testing the European Union's rules on state aid to breaking point. Although it is not an EU member, Switzerland is bound by a competition accord with Europe. The Commission, which can allow loans at commercial rates provided they are repaid within six months, is examining both packages. It will outline its position on state-aid to airlines on October 16th at a meeting of transport ministers and is expected to allow compensation only for the direct effects of the terrorists attacks in the US. This compares with the £15 billion in general assistance being extended by the Bush administration to US airlines.
The Sabena and Swissair rescues are good news for Aer Lingus. They set a precedent for the Government to step in with short term financial assistance if necessary. Aer Lingus is still some way from needing to be bailed out. It has enough cash to see it through to the end of the year by which time it should have completed a restructuring plan, which will unfortunately include significant job losses. In the interim the Government seems happy to let other European countries make the running on state aid while painting an increasingly bleak picture of Aer Lingus's prospects. Yesterday the Minister for Public Enterprise, Mrs O'Rourke, told the Dβil that the airline's losses could top £170 million by 2002 but chose to skirt around the issue of state aid.
It is clearly not in the Government's interests to appear too willing to step in and rescue Aer Lingus. The prospect of fresh cash from the Government would ease the pressure on the company to address the fundamental problems that underlie its difficulties. Aer Lingus was in trouble long before the attacks on New York and Washington. Labour costs were spiralling upwards while revenues shrank in response to the global economic slowdown and the impact of the Foot and Mouth disease outbreak. Already there are signs that the crisis has wrought positive change on the industrial relations front at least, with cleaning and catering staff settling all outstanding claims last Friday. However the company has much work to do, if it is not to face the threat of collapse early next year when, on current projections, it will run out of cash.