Summary
With both European airlines and cross channel ferry companies seeking multi-billion Euro government financed assistance programmes in the face of COVID-19 related disruptions of passenger services, the debate is underway on the need to link such public financing to wider policy objectives (e.g. GHG emission reduction targets). In this context there is also a need to link such public assistance to other broader objectives such as a restoration of freight charges for essential goods to pre-COVID-19 levels and the maintenance of freight handling capacity at pre-COVID-19 levels. This would assist in restoring existing ACP-EU supply chains for fresh fruit and vegetable imports, in the face of the severe disruptions the COVID-19 pandemic has given rise to. This would aid economic recovery in those African and Caribbean countries whose export orientated horticultural sectors have been severely disrupted by the pandemic. It would in addition help secure fresh fruit and vegetable supplies to meet the surging consumer demand for healthy eating options in those European countries with a high import dependence for fresh fruit and vegetable supplies.
With revenue streams reduced dramatically by the movement restrictions introduced in response to the COVID-19 pandemic, European airlines are in discussions with governments over financial support packages to carry them through the current crisis. Requests for support have now reached the figure of around €12.8 billion. This is without taking into account the still ongoing discussion with ‘the biggest European airlines, including Air France, KLM, Lufthansa, British Airways and Alitalia’ (1).
This needs to be seen against the background of net profits for these major carriers over the past five years of over €24 billion. This includes: net profits of €9.37 billion for IAG, which owns British Airways, net profits of €8.17 billion for the Lufthansa group (€8.17bn), net profits of €3.09 billion for the Tui group (€3.09bn), net profits of €2.39 billion for easyJet (€2.39bn) and net profits of €1.05 billion for Air France-KLM (1).
On 27 April 2020 it was announced ‘Air France-KLM will get a state-backed bailout of around €10 billion in loans and guarantees.’ This consists of ‘€4bn state-backed bank loan and a €3bn direct loan’ from the French government and ‘€2-4bn’ in state aid from the Dutch government, ‘Schiphol airport and its main user KLM are vital to the Dutch economy and employment’. While the full details still need to be determined, the Dutch government is insisting there ‘should be no dividend pay-outs and top earners should take a pay-cut’, while ‘night flights should be reduced as part of a new sustainability drive’ (5).
Euractive reports the Dutch Greens are expecting ‘the European Commission to assess the bailout with its Green Deal policies firmly in mind’. MEPs on the transport Committee are insistent ‘if taxpayers are to bail out airlines, there must be a quid pro quo’ (5). There are thus growing calls for any state aid support to be linked to greater progress in greenhouse gas emission reductions by the airline industry. Greenpeace has argued ‘public bailouts must come with strict conditions to protect jobs and slash the aviation sector’s soaring contribution to climate breakdown’ and should ‘lay the foundation for a just and green transition for people and planet’ (1).
Similar public sector support is being sought by struggling cross channel ferry industry, whose commercial viability has been profoundly undermined by movement restrictions which have halted cross channel passenger traffic. It is maintained freight traffic alone ‘is not enough to turn a profit’ and that without the provision of government support in a matter of weeks, services will need to be reduced by up to 50% (2). This could serve to disrupt the current smooth flow of short shelf-life products along cross channel ferry routes.
This needs to be seen in a context where truck traffic through ‘ports such as Dover help keep supermarket shelves full, with 50% of the UK’s food being imported’. Overall ‘P&O – which transports 15% of all goods into and out of the UK – is understood to be seeking a £150m bailout from the taxpayer, and the wider industry is thought to be seeking about £450m in total’ (2).
Ironically, this call for financial support came only a week after P&O had committed to ‘strengthening its freight operations on the Calais-Dover crossing as part of its commitment to maintain the flow of goods during the Covid-19 crisis’. P&O describe the route as critical to both UK imports of food and medicine and ‘the economies of France, Ireland and the wider EU’ (3).
On 28th April 2020 a financial assistance package was announced by the UK government for ferry services linking Northern Ireland with the mainland UK worth up to £ 17 million. Discussions between the French and Irish governments on similar support packages for Franco-Irish ferry routes remain on-going as do trilateral discussions on suitable support measures involving the UK government (6).
| Comment and Analysis With passenger airline services carrying around 80% of all high value fresh fruit, vegetable and cut flowers cargoes from Africa to the EU, the collapse of passenger services has seen freight cargo rates for fresh fruit and vegetables from East Africa to Europe increase by as much as 200% (see companion epamonitoring.net articles, ‘Growing Covid19 Related Concerns Over Fresh Food Supply Chains Could Carry Longer Term Implications’, 23 April 2020 and ‘Covid-19 Related Cancellation of Commercial Flights Beginning to Bite for ACP Horticulture Exports’, 7 April 2020). There are concerns that a recovery of passenger airline services to pre-COVID-19 levels could take years to emerge, with this being dependent not solely on the lifting of the lock down and a relaxation of social distancing measures but also the development of effective treatment protocols for COVID-19 and the deployment of a reliable and effective vaccine.In this context there are fears high freight rates for fresh fruit and vegetables exports from Africa to Europe could remain around for many years to come. This could undermine the flow of fresh fruit and vegetables to EU markets at a time of a health driven rise in consumer demand.With airlines such as Air France/KLM, Lufthansa and British Airways all being important carriers of fresh fruit and vegetable exports from Africa, and with Virgin Atlantic and Tui also playing a role in imports form the Caribbean, there is a need for a link to be made between the provision of government financial support to the airline industry and a return to cargo freight rates and capacity availability for short shelf-life fresh products at pre-COVID 19 levels.This would not only help meet surging demand in Europe for healthy eating options but would also remove one of the commercial obstacles to the rehabilitation of existing export supply chain once the tide of COVID-19 infections begins to recede and movement restrictions and social distancing requirements are relaxed.However, there are important competition dimensions to this issue. As the East African Business Chamber (EABC) has pointed out regional airlines such as Kenyan Airways and Rwandair are finding it increasingly difficult to ‘compete with airlines that are receiving government subsidies’ (4). In this context there may be a need for the EIB and World Bank to work with regional governments in East Africa to provide financial support to regional airlines in the form of loans and corporate bond buying measures to even out the competitive playing field in the context of the COVID-19 pandemic. This could even be extended to include EU support to a reduction or waiving of landing fees for reconfigured passenger planes of African carriers delivering fresh fruit and vegetables to the EU market. Where programmes of support to the EU airport operators (whose revenues have also been severely impacted by the collapse of passenger services) are being set up, such a reduction or waiving of landing fees should form an integral part of such wider aviation industry support programmes. For ACP countries exporting short shelf-life products along triangular supply chains to the UK, similar considerations apply to any government support to cross channel ferry services. The extension of such support should be linked to requirements to maintain pre-COVID-19 freight rates and levels of freight services into 2021 and beyond. This needs to be seen in the context of the potential disruptions which will be faced to cross channel ferry services if the UK leaves the EU customs union on the 31st December 2020 without an alternative EU/UK trade agreement being in place which allows the continued smooth flow of goods along cross channel routes. |
Sources
(1) The Guardian, ‘Airlines seek 12 8bn in bailouts without environmental conditions attached’, 22 April 2020
https://www.theguardian.com/world/2020/apr/22/airlines-seek-128bn-in-coronavirus-bailouts-without-environmental-conditions-attached
(2) The Telegraph, ‘Vital ferry services at risk without state bailout, industry warns’, April 6, 2020
https://www.fpcfreshtalkdaily.co.uk/single-post/2020/04/06/Vital-ferry-services-at-risk-without-state-bailout-industry-warns
(3) handyshippingguide.com, ‘Ferry Group Steps Up Channel Crossings to Maximise Freight Carriage Across English Channel Boss Thanks Workforce for Going the Extra Mile’, 25 March 2020
https://www.handyshippingguide.com/shipping-news/ferry-group-steps-up-channel-crossings-to-maximise-freight-carriage-across-english-channel_12775
(4) EABC, ‘EABC position paper on facilitating air cargo operations in the EAC region during the COVID-19 outbreak’,
https://eabc-online.com/news/275-eabc-position-paper-on-facilitating-air-cargo-operations-in-the-eac-region-during-covid-19-outbreak
(5) Euractiv, ‘Air France-KLM gets virus bailout, green conditions still pending’, 27 April 2020
https://www.euractiv.com/section/aviation/news/air-france-klm-gets-virus-bailout-green-conditions-still-pending/
(6) Maritime Professional, ‘UK provides aid for ferry operators’, 28 April 2020
https://www.fpcfreshtalkdaily.co.uk/single-post/2020/04/28/UK-provides-aid-for-ferry-operators