Since the Wright brothers, we have used the words ‘airlines’ and ‘aviation’ interchangeably. But there is much more to aviation than airlines. The big rhinos of aviation sometimes forget about the smaller animals vital to their survival. Airports, air navigation service providers, airframe manufacturers, caterers and many others are critical to the aviation industry. That sometimes comes as a shock to the airlines, which tend to think of these other industry players – if they think of them at all – merely as a life support system. Consequently, airlines like to talk about a ‘value chain’ of which, they complain, they are the least well performing and the most put-upon.
Wrong. The entire aviation industry cannot be healthy until all parts of it are healthy. It is not a value chain; it is an ecosystem. We need healthy airports and healthy air navigation service providers as well as healthy airlines. That point is lost at the best of times. These are the very worst of times.
Airlines around the world are queuing outside their government’s treasury, cap in hand, demanding help. For some, that is relief from charges, including overflight charges and airport charges; for some it is a waiver from taxes, including fuel tax and departure and passenger handling charges. For some, it is a grant; for some a loan without conditions, or interest.
There is a lot to unpack there. First, in many countries, airports, like airlines, are moving out of state control into private hands, meaning that a waiver of charges is not always possible. Overflight charges, on the other hand, are due to the air navigation service provider and in all but one and a half cases they are entirely state-owned. The exceptions are Italy, where half of ENAV is listed on the Milanese stock exchange, and NATS in the UK, which is owned by a combination of airline interests and private investors. Thus, this waiver is within the state’s gift – as disruptive as it will be.
Some, but by no means enough, states are demanding that in return for such largesse they be given a share of the airline’s equity, so that as business returns they can benefit from the upside. Some are looking at a total nationalisation. Top of that queue, of course, is Alitalia, which is living proof that cockroaches can take on the form of airlines. After the apocalypse, Alitalia will still be there, looking to be bailed out.
There are strong arguments that airlines should not be bailed out at all. In the US, they have survived bankruptcy. Showing industrial strength chutzpah, in the UK, easyJet has paid a huge dividend, even as it was queuing for help. Defending its move, easyJet claimed that the decision was taken before the crisis, but Air New Zealand was told to rescind its interim dividend before getting support. Airlines around the world have paid bonuses and dividends, as well as undertaken share buybacks that just about equal the amounts being requested in aid. We demand that banks – which perform a critical infrastructure role – be adequately capitalised to survive a crisis. Why not the airlines?
Equally importantly, we need to totally and completely reform and overhaul the regulatory structure, born in the midst of WWII and drafted in 1944. It is antediluvian now. The deluge in this case being deregulation of the industry; as well as the invention of the jet, the wheelie bag and just about every single thing we do or use in modern aviation. The system requires that airlines be substantially owned and effectively controlled by a state’s citizens. That will seriously hamper consolidation.
The next form of aid that governments have given is to waive the slot rules. The slot rules epitomize the clash between the antediluvian and the modern. They were written before deregulation by the incumbent airlines as a stopgap measure until new airport capacity was built. The rules continue to be biased in favor of the incumbents. After deregulation there have been only infinitesimal changes to them, on the grounds that change cannot happen as the industry is working 24/7. Look out the window.
Airport charges too are a throwback to a regulatory system that is now clearly unable to respond. There is a view, held steadfast and strong in 1944, and still today in the halls of ICAO, that airports, as an arm of the government, should be regulated. In 1944, maybe it was true that aviation was a value chain, but 75 years later, as we are learning, everything has changed.
The slot rules are literally where the rubber meets the road and, in Europe, where European regulators and national governments intersect. So the European airlines have also been queuing up outside the offices of the European Commission to demand a waiver from the current slot rules – which they wrote – so that they can preserve their priority position when operations recommence. The Commission is keen to oblige them, because the only lever they have is over slots. The grove of magic money trees is in national capitals.
Notwithstanding the ecosystem of interdependencies in aviation, it is the airlines that get the publicity. No one goes into air traffic control, or airports, for the glamour. So the airlines are now demanding relief on their terms. But in doing that, they are denying the reality of the entire industry ecosystem. To stretch the analogy, if we kill the little birds that plucks the fleas from the rhinoceros, we actually risk the rhinos.
But good regulators will want to save the entire ecosystem, not just the big rhinos. Instead, this week just gone, a week like no other in aviation history, the European Union’s Transport Council met to consider what could be done for aviation. Or, as far as the Council was concerned, falling for the classic confusion, what could be done for airlines. They spoke of slot waivers and nothing else. The Council is the European Unions’ member states. This is the transport ministers of the various countries of Europe meeting together. It does not get any higher than this. And their collective understanding of aviation dates directly from 1944.
Which given the trajectory of support we are now looking at, is appropriate. We are about to go back to a fully state-owned airline industry. How very 1944.
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