orbitmic

Essentially, the complaints are the same as those that AF as a company has voiced on a regular basis (low cost airlines as a whole are accused of cheating social and tax rules and of benefiting from unfair public subsidies, Gulf airlines are accused of benefiting from unfair competition either because their states protect them, they supposedly obtain traffic rights against large purchase contracts or airports are still supposedly only interested in their 'short term interest', VAT on domestic flights has doubled, and the 'Chirac tax' is only levied on plane tickets but not on TGV/train tickets).

http://www.lemonde.fr/economie/artic...9395_3234.html

My take - been there, heard that. There is a tendency to over-generalise from genuine individual griefs (e.g. the hidden subsidies FR used to get through advertising campaigns was an absolute scandal, but the vast majority of low cost airlines are perfectly 'clean' and still manage to be more profitable than AF through different models and lower personnel costs, there is the old complaint that not all other countries have the same social charges and protection systems than in France, but still no reason why said foreign countries should suddenly adopt French political decisions and make them their own, inequality of social and tax models is a given in international trade and those same unions tend to complain against too much EU meddling, notably on social and tax harmonisation. As for the VAT complaint, I find it profoundly idiotic in that the likely effect would be to call for VAT on all plane tickets and not only domestic, which would led to a worsening of the 'Chirac tax' effect that the letter is understandably criticising.

Anyway, interesting to see that for once, AF leadership and unions agree on something, and that something is that everyone else is very very mean.

GenevaFlyer

Hi,

I do like the fact that the unions are giving ideas to AF/KL:

In English:

I know it's not going to happen, but it goes to show that some of the woes of the company are of their own making.

Cheers,

GenevaFlyer

brunos

Interesting that there is a picture of an AZ plane in the forefront. It suggests the way for AF.

Sure that the government will like the idea of raising taxes on TGV in the spirit of "equity". They need so much money.

Dieuwer

I believe "Fairness" is the word people are looking for.
If you raise taxes to 100%, and subsequently distribute equal amounts of pay to everyone, Fairness is guaranteed.

Maybe the unions should suggest France and the EU move to a Communist model. Would only take a small step.

nicolas75

It is clear that the difference in competitiveness of Air France is not only due to questions of tax differentials.

However the argument must be heard, especially in the medium haul segment where margins are very low (and often negative), and where it is questionable that some actors are in a more favourable position because of exogenous causes to their operational performance.

These is just basic law of competition principles.

nicolas75

The European Commission has doubts about the conformity with European law of certain participation of Etihad in European companies

Brussels has launched a preliminary to the German authorities, to verify that 29.2% stake owned by the Abu Dhabi company in Air Berlin, does not mask an effective takeover of the company, contrary to European legislation.

European law limits to 49.9% share of foreign investment in an airline, but it also requires the effective management of the company is ensured by nationals of the European Union.

If it appeared that the real decisions about the future of Air Berlin, as the choice of partners or its strategy, are taken in Abu Dhabi rather than in Berlin, the Commission would be entitled to require Etihad that it resells its participation.

The Abu Dhabi company isn't the only one covered by this survey. The Commission is also interested in the acquisition of 49% of Virgin Atlantic by the American company Delta Air Lines.

In the past, Brussels had yet found nothing against the redemption of these same 49% by Singapore Airlines. But this late Brussels initiative, two years after the entry of Etihad in Air Berlin, comes at the wrong moment for the German company, while it is in need of capital.

http://www.lesechos.fr/entreprises-s...lin-660659.php

San Gottardo

Sorry, I don't understand that sentence. Could you please re-phrase in simpler words for me? Do you mean to say that it is questionable that some airlines have advantages that are due not to their own decisions but to the fiscal/social/legal environment they operate in?

San Gottardo

I think the Commission is onto something here. Etihad seems to be trying to circumvent ownership limitation rules by using strawmen. It has been rumoured that a capital injection of several hundred million EUR will come from Joachim Hunold, the "founding father" of the current Air Berlin (the CEO who bought dba, LTU, and formed the current AB positioning). Hunold certainly doesn't have that money himself, so it seems likely that EY is behind it.

As much as the whining of AF and LH about the "unfair competition" from ME3 and LCC goes on my nerves when all these competitors do is smartly use the possibilities given by their legal/fiscal/social environment, I am just as much for respecting the limits of legal, fiscal and social rules. EY is at least rumoured to be looking for a way to cheat. They shouldn't be allowed to do that.

orbitmic

You are absolutely right about the Commission enquiries, but they have nothing to do with competition law nor social or tax advantages. This is simply in the context of limitations to non-European ownership of EU airlines in relation to the access of European airlines (and European airlines only) to a completely open European air space. In short, all EU airlines have the right to operate just any route within the EU, but this right is of course not extended to extra-Community airlines as defined by ownership. The Commission rightly wants to make sure that such a foreign airline (in those cases Etihad, Delta, etc) are not effectively accessing the free European air space through the backdoor by assuming a 'disguised' ownership of some ghost European partners.

As we all know, airlines -- like any other businesses -- have access to very obscure paths and through partial ownership of other companies could take effective control of airlines even though their 'main' parent only has a 49.9% of it. For example, foreign airline X may hold "only" 49.9% of European airline A, but if airline X also holds 10% of European airline B, which itself holds another 10% in European airline A, then airline X may in fact be a majority stakeholder in airline A when you count both its direct and indirect ownership. With airlines like EY having stakes in AB and EI and interest in AZ, etc. those problems are likely to become increasingly acute as cross-ownership situations are becoming increasingly obscure.

But again, this is not a competition enquiry.

orbitmic

I don't understand that bit either. Ultimately, EU law is pretty clear. Any EU airline can operate any route within the EU. And every EU airline must respect the legal (including social and tax) obligations of the country where it is located. That some such national obligations are more favourable than others is neither new nor illegal. There are some common social obligations across the EU already (which are relatively limited because of member states diversity), and many of us think that some level of tax harmonisation, but it is extremely minimal so far (essentially some regulations on VAT transparency and the use of VAT reduced rates). When it comes to further tax harmonisation, many member states including France have effectively refused to engage in that sort of dimension so far because they think that "their" system is best. Sooner or later this will have to change, but it would be inconceivable and absolutely unacceptable to look at it on the basis of a specific economic sector, it will be an overall agreement (with its limits) or none at all.

The Unions' overall argument makes absolutely no sense here, because they are fighting both to keep or reinforce costly social advantages and against its cost for the company. In other words, their conception of fairness is that every other airline and country should be obliged to adopt the measures and system that they support. I find it a very politically immature line on their part, and sadly not unprecedented when it comes to French unions.

Mokshu

Just to clarify : legally they can. But for that you need slots at departing/arrival airports, which can be difficult to obtain at some point

brunos

AZ deal with EY should close in a few days.
LH has been the driving force to oppose it. The recent EU interest is a clear sign of LH lobbying. An interesting aspect is that AF is probably in favor of the deal. AF probably hopes for closer tie-up with AB and EY. An interesting TV series.

orbitmic

Very true - although in a global perspective, I think that very few European airports are slot constrained enough that an airline could not freely operate from them (although you are very right that the few which do - like I believe LHR, ORY, LIN - are some of the most desirable airports to use in Europe!)

nicolas75

Indeed.
It simply leads to distortion of competition in the transport industry, and part of the financial performance has therefore nothing to do with operational excellence).

Exactly the same story when Ryanair gets financial help from regions which is part of its business model.

orbitmic

To be honest I don't think it is the same story at all. Regions financially helping Ryanair is a distortion of competition because some public authorities are giving what could be suspected of constituting 'hidden subsidies' to a private operator in exchange for the service of a given route (note, however, that the said regions claim that they are simply determining that some routes constitute a public service, and Ryanair would answer that the fact that Air France and Air Corsica that AF part-owns benefits from plane ticket subsidies in the name of the continuite territorial is not a fundamentally different case). By contrast, different national regulations, be they tax situations or social welfare systems are not in any way an attempt by anyone to distort competition but simply differences in regulatory and redistributive frameworks that are unavoidable outside of a unified tax and social framework. As mentioned above, France is among the countries which have actively resisted tax harmonisation, in part because left and right wing governments know perfectly well that harmonisation if it ever occured would most likely take place very, very far away from French tax preferences. As for social harmonisation, once again, it is already there to an extent but individual member states are free to go further than the common minimum and this is exactly what France has chosen to do. A perfectly understandable choice but really no reason why we should make other countries pay the price of our own national decisions. Finally, differences in external factors are hardly cause for regulation or compensation, otherwise, you would see BA asking for compensation because it pays more for headquarters in Greater London than AF does for its in Greater Paris, let alone LH in Frankfurt where real estate is only a fraction of London prices. Conversely, the 'Chirac tax' which affects AF's home market is only a drop in the ocean compared to the way the APD affects BA's home market and nobody would dream of suggesting that BA should get some sort of fantastic public compensation because of the political decisions taken by the British government.

As an aside, those different in tax and social circumstances is mirrored pretty much exactly within the US where different state regulations mean that AA, DL, and UA do not play on an equal footing in terms of social or tax contexts despite having full access to the same market. That's just life.