British airlines challenge aid for Air France

BRITISH airlines promised last night to fight the French government's proposed injection of a Fr20bn ( pounds 2.3bn) subsidy into the ailing state-owned carrier Air France.

The pledge came as Edouard Balladur, the French prime minister, formally announced details of the new state support, linked to a restructuring plan involving 5,000 voluntary job cuts by 1996, a three- year wage freeze and cuts in Air France's aircraft fleet.

The chairman, Christian Blanc, brought in to staunch losses estimated at Fr7.5bn for 1993, said he would be consulting the unions, whose support is vital.

The European Commission said it would take up to six months to decide whether such aid breached EU competition rules. The proposed cash injection is one of the largest and most politically sensitive Brussels has had to consider and is certain to cause friction between the protectionist and free market wings of the EU.

A commission report earlier this year recommended that national carriers be allowed to receive one last injection of state support provided it was linked to a thorough- going restructuring and did not harm competition.

British Airways, which has already lodged a formal objection to an earlier Fr1.5bn state subsidy for Air France, said it was almost certain to oppose the latest subsidies.

British Midland warned that if it could not block the subsidy it would press for the most stringent conditions to be attached and for the restructuring to be monitored to ensure that Air France did not cross-subsidise lossmaking routes.

A Commission spokeswoman said: 'We have not yet formally seen Air France's proposals and our verdict must be thoroughly researched so that the process of how we came to our decision is transparent to all parties concerned.'

The competition commissioner, Karel van Miert, a Belgian socialist broadly sympathetic to the concept of state subsidy for industry, has been tough on state aid.

Heavy losses threaten to put some carriers operating in a deregulated market out of business. Yesterday the Commission announced it had opened parallel inquiries into state-aid demands from the Portuguese carrier Tap and the Greek airline Olympic Airways.

Tap wants government aid to increase its capital by pounds 721m and guarantee borrowings. The inquiry into Olympic concerns loan guarantees that the Greek authorities have been granting since 1986 and new measures planned as part of a restructuring and recapitalisation.