After a deadly summer for French low-costs, XL Airways is the last airline to be left out.
Of course, this has caused a legitimate stir, as is the case whenever a business disappears, and even more so in a sector such as the airline industry, which is both highly symbolic and where affect leads to violent reactions.
But it was necessary to find culprits and for our Minister of the Economy, Bruno Lemaire, they are all designated: it is Norwegian and more generally the low-cost airlines that benefit from government subsidies contrary to European law and thus compete unfairly with French airlines.
Norwegian a scarecrow…. with a micro fleet
It’s true that Norwegian has all the makings of a scarecrow given its size. But at the departure of Paris it is a dwarf. I was not able to find out exactly how many planes were based in Paris but many sources converge to say 3 to 4 full time. The Scandinavian low cost airline now serves 6 routes to the USA from Paris. A size equivalent to that of XL, but I doubt it will be enough to ruin the French airline industry in one go.
Well, this does not take away the question of public subsidies received by Norwegian – and other low cost airlines for that matter – which allow it to survive while it is largely loss-making.
Airlines helped by the French public authorities!
So yes, low cost companies in general live on subsidies that allow them to remain profitable by offering very low prices! This is a given. But there is a flaw in the reasoning.
From many French cities these subsidies come…from the French public authorities and more precisely from the local authorities who finance these airlines to maintain their services. Talk to Easyjet and Ryan Air!
Moreover, French airlines also benefit from this in other contexts, such as the policy of opening up the region and the so-called regional development routes!
A sovereign wealth fund is not a state!
It cannot be denied either that Norwegian was rescued by money from Norwegian institutions! And note that I say “institutions” and not states or public funds!
So yes, the Government Pension Fund-Norway (formerly Folketrygdfondet) is present in Norwegian’s capital. But before talking about public aid, we should ask ourselves what a sovereign wealth fund is!
The purpose of a sovereign wealth fund is to invest a country’s budget surpluses. Originally the Folketrygdfondet was created to invest the money from oil exploitation and thus use these petrodollars to support the local economy and the development of local businesses internationally. But this is not enough to say that it is a government investment.
Indeed, the Government Pension Fund-Norway is managed by the Central Bank of Norway which, like most central banks, has the particularity of being independent from the political power ! In other words, it has its own policy according to its objectives and does not take orders from the government. Furthermore, in the case of Government Pension Fund-Norway, Part of this management is delegated to about 50 Norwegian and foreign companies. And to conclude on the subject, the fund’s strategy is rather defensive with management as a good father and it is forbidden to own more than 5% of a business. In the case of Norwegian the fund holds only 4.9% of the airline (6,783,471 shares). When you see that the French State holds 14% of Air France-KLM, it is enough to make you laugh! Finally, the last “check” that the fund made to Norwegian did not help to increase the share of capital held, which happens when a state comes to the aid of a business, but simply to follow a global capital increase and not be diluted. Notable difference.
To compare with France, which does not have a sovereign wealth fund (no budget surpluses to invest) but a Public Investment Bank, the situation is totally different. One is the armed arm of a government, the other is not. One invests to help businesses, the other mainly to make money.
So no, an equity investment by a sovereign wealth fund is not state aid!
A public bank to help Norwegian?
A Norwegian bank also participated in the latest capital increase, DNB. A public bank? The State holds only 34.5% of the capital, so no! We are within the scope of “normal” operations of a private bank.
The only thing we can blame Norway for is the economic patriotism of its businesses but I doubt that this will help Mr. Lemaire to win his case in front of the European authorities, especially since France has no lesson to give to many people in this field, especially with the practice of double voting rights.
The Minister should do his job
However, instead of crying once the case is over, the French government could have acted in different ways.
First of all, the charges and taxes! As we said here, Ben Smith, the boss of Air France, put the subject in clear terms: “Air France’s margin in 2018 was only 2%, compared to 9% for KLM, 10% for Lufthansa, 12% for British Airways and 18% for Ryanair. A 2% margin at Air France is not satisfactory. Five points can be explained by the costs in France”. XL Airways and Azur have certainly suffered more from taxes than from the Norwegian sovereign wealth fund. When you think that air transport is the only sector to be totally financed (infrastructure, security, etc.) contrary to rail transport, that it already bears the Chirac tax and that nothing better will be found than to add an ecological tax which, instead of financing the greening of the sector, will finance its competitors, it is enough to cry.
Then the BPI (Investment Public Bank). Laurent Magnin, the president of XL Airways, is a loudmouth and some would even say a crybaby, but I readily believe him when he says that he called the BPI for help and nothing came of it ! He is also right to say that the American “Chapter 11” is another competitive factor for its US competitors without equivalent in France.
We also found the silence of Jean-Baptiste Djebbari, Secretary of State for Transport and yet a pilot, deafening on the subject.
When we see that Condor, the German subsidiary of Thomas Cook was saved thanks to a 380 million Euro bridging loan guaranteed by the German State, there might be something to do while remaining within the limits of European law.
The truth behind the end of XL Airways and Aigle Azure
The French low-cost companies have succumbed to three factors:
– Competitors who, in the absence of illegal aid, benefit from a more “patriotic” and “supportive” economic environment.
– A government that does nothing for this industry and has done nothing for these airlines. When it comes to transport, it’s only the SNCF that is the specialist in swallowing public funds. While we’re at it, we might as well rename the Secretary of State for Transport the Secretary of State for the SNCF.
– Notorious strategic errors as we said this week. So yes, the context does not help, but both airlines have also paid the consequences of their own decisions. We were already worried about XL Airways in 2016, there is no smoke without fire.
Photo : Airbus A330 XL Airways by GB-Photographie via Shutterstock
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