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Eu commission to get power to counter foreign airline subsidies

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EU Commission to Get Power to Counter Foreign Airline Subsidies
March 10 (Bloomberg) -- European Union regulators will get the power to impose sanctions on foreign airlines receiving subsidies, an action that might intensify EU-U.S. trade tensions, in a proposal headed toward EU Parliament approval.

The parliament plans to vote tomorrow in Strasbourg, France, on a measure authorizing the European Commission to investigate complaints by EU airlines. The commission, the EU's executive arm, may impose tariffs if it decides foreign competitors are getting an advantage over EU carriers such as British Airways Plc, Air France SA and Deutsche Lufthansa AG.

The initiative gives the EU some clout in a fight over billions of dollars of U.S. funding for airlines that racked up losses after terrorist attacks, a weakening economy and war in Iraq. U.S. critics call it protectionism as the EU airline industry seeks to reverse five straight years of its own losses.

``This subsidy issue masks real fears in Europe about introducing higher levels of airline competition,'' Doug Wills, spokesman for the Air Transport Association in Washington, said in an e-mail response to questions.

The Washington-based group, which represents major U.S. carriers such as AMR Corp.'s American Airlines, UAL Corp.'s United Airlines and Delta Air Lines Inc., estimates U.S. airlines have received $8.6 billion in government cash and loan guarantees since the Sept. 11, 2001, attacks that grounded air travel for about three days.

The estimate excludes $197 million in U.S. aid to help cover the cost of replacing cockpit doors with stronger models after the attacks.

U.S. Support

U.S. carriers also got a four-month break from a security fee last year, adding about $300 million in revenue, analysts estimated. A second tax break saved carriers about $100 million, according to the air transport group.

In addition, the U.S. government lets carriers buy war-risk insurance at below-market costs. That saved an estimated $600 million to $1 billion a year, according to congressional and analyst estimates.

The aid and tax breaks have let U.S. airlines undercut fares on trans-Atlantic routes, said Nicholas Clegg, the U.K. Liberal sponsoring the legislation in the EU parliament, in an e-mailed statement. ``This has hit competing European airlines hard, especially since they have to comply with stringent EU state aid rules.''

The parliament's vote will clear the way for the proposal to become law after EU governments agreed to it last October.

European Guarantees

``This is a very important tool to protect EU airlines against possible unfair practices by third countries,'' said Gilles Gantelet, the commission's spokesman for transport.

European airlines, many previously owned by government, receive support such as revenue guarantees for serving certain destinations, said Wills of the Washington airlines' lobby. The big EU carriers also have complained of subsidies for European low-fare competitors such as Ryanair Holdings Plc, EasyJet Plc and Virgin Express Holdings Plc, he said.

Officials of the U.S. mission to the EU in Brussels declined immediate comment on the legislation.

The law, which won backing of the EU parliament's transport committee last month on a 42-0 vote, won't apply to countries that have aviation agreements with the EU, such as Switzerland. The EU is seeking an accord with the U.S., replacing existing treaties between the U.S. and individual EU countries, to boost competition in the $18 billion trans-Atlantic aviation market.

Negotiations on the EU-U.S. ``open skies'' plan have been snagged over a EU push for, and U.S. opposition to, giving European airlines the ability to carry passengers and cargo from point to point within the U.S.

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