German Agency Dive Bombs Aviation Subsidies

BERLIN, Germany, April 23, 2003 (ENS) - Germany's environment agency, Umweltbundesamt, has detailed subsidies enjoyed by air transport and repeated a call for higher taxes on the aviation industry to internalize its external environmental costs. The intervention comes at a particularly difficult time for the world aviation sector, which has been hit by the war in Iraq and the flu-like SARS epidemic.

Along with the benefits it provides to citizens and companies, air transport brings undesired side effects such as emissions and noise. Environmental impacts can lead to real economic costs, although these costs are generally not clearly visible in statistical and financial overviews. Examples include higher hospital bills, decreased productivity of people and land, and the costs of mitigating climate impacts caused by aircraft emissions known as contrails.

Most of these negative external effects are currently not priced or priced only to a limited degree, so the marketplace creates insufficient incentives for the aviation industry to reduce these external effects.

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Airbus A320 (Photo courtesy FreeFoto)
The agency's new report reveals extensive, mostly indirect subsidy of aviation in case studies on three European airlines and airports in France, Germany and the Netherlands. Aircraft manufacturer Airbus is shown to have received significant direct subsidies over three decades.

Reacting to the study, agency president Andreas Troge regretted that "the transport mode producing most pollution should be the most highly subsidized."

Troge repeated the agency's call, made also last October, for an end to the aviation industry's tax privileges and for aircraft landing charges to be related to pollution and greenhouse gas emissions. At that time he had urged action to make the price of flying more truly reflect its external environmental and social costs.

The agency's new report was released shortly after EU leaders reiterated a commitment to reform subsidies with "considerable negative effects" on the environment and "that are incompatible with sustainable development." At their spring summit in Brussels March 21, EU heads of government pledged to integrate environmental conservation into sectoral policies, and decouple economic growth from environmental degradation and resource use.

Produced by Dutch and German consultancies, the new study first proposes a model for defining aviation subsidies. It acknowledges that any such framework is going to be controversial.

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Lufthansa planes lined up at London's Heathrow Airport (Photo courtesy FreeFoto)
Using the model, the study concludes that the airlines KLM, Lufthansa and Air France receive indirect subsidies amounting to 20 percent of operating revenue. The sources of these subsidies are a value added tax exemption on international tickets, a fuel tax exemption, and duty free sales on board aircraft.

The study notes that Air France enjoyed additional substantial direct government support until at least 1996.

Airports receive indirect support at lower levels, the study shows, through duty free sales and a variety of other tax exemptions. For a range of German airports, overall subsidy is put at one percent of turnover or higher. Amsterdam's Schiphol airport, on the other hand, is reportedly enjoying indirect subsidies to the tune of nine percent of turnover.

Focusing on Airbus, Europe's flagship aircraft maker and chief competitor of America's Boeing, the study puts accumulated direct financial support over 30 years at US$30 billion (27.3bn), equivalent to 11 to 13 percent of turnover. Possible subsidy to the firm's 1,500 suppliers has not been taken into account, the report says. Final ticket and freight prices are about 1.5 percent lower due to the subsidies.

Political interest in air transport's external costs has recently skyrocketed in Germany following the arrival of low cost airlines. Environmental groups and the national railway operator have demanded unilateral action to begin taxing jet fuel.

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{Published in cooperation with ENDS Environment Daily, Europe's choice for environmental news. Environmental Data Services Ltd, London. Email: envdaily@ends.co.uk}