Maastricht Aachen Airport

Bezwaren staatssteun Maastricht Aachen Airport

Mijn bezwaren tegen staatssteun verleend aan Maastricht Aachen Airport door de Provincie Limburg, zoals aangetekend bij de Europese Commissie.
2 september 2015

Key findings

  • The total amount of state aid granted could add up to €65,7 million for a ten-year period of which:
    – €6 million will be provided by four municipalities
    – €15 million is earmarked for future investment to improve the competitiveness of the airport
    – €7 million will be used to cover historic losses
    – €23 million is used for generic services like those provided by the fire department (which might be allowed under European rules, even though I question this)
    – €15,5 million is earmarked for deferred maintenance (for which a request for approval has been submitted to the European Commission)
    – €0,8 million will be returned as ‘profits’
  • each major town in the Province of Limburg is surrounded by at least two airports within a one-hour drive (three with Maastricht Aachen Airport included)
  • when attributed proportionally the freight business will receive nearly €50 million of the aid, while its role is solely commercial. It has no public function nor is the airport’s specific location of any relevance to it
  • the airport competes head-on with Liege Airport, which is located nearly 40 kilometres from Maastricht Aachen Airport
  • the airport has been loss-making for decades and is not expected to become economically viable at any time in the future

Facts

Introduction

I am writing to you to object to state aid granted to Maastricht Aachen Airport (MAA) by the Province of Limburg, the Netherlands on 16 May 2014. According to documents issued by the Province of Limburg you will have received a (pre-notification of a) request for approval of economic aid of €15.535.000 benefiting the airport for a ten year period. The total amount of state aid granted, though, goes significantly beyond this figure.

I am well aware that from a legal point of view I am not an interested party and as such cannot formally object to the aid granted. But as an economist I would like to weigh in, as I have also done in the debate that took place locally. The objections I raise in this document should be seen as a contribution to the public interest as opposed to serving a self interest. I am neither personally involved nor will I – as an aviation enthusiast – gain anything from the downsizing or closing of the airport. But, when evaluating the supposed benefits of state aid to the local economy, its costs for the wider aviation market, and considering the prospect of a structurally loss-making airport, it appears that state aid will only defer solving the problem that Maastricht Aachen Airport has been for decades, at the taxpayers’ expense.

Even if you were to discard my analysis you may still find the attachments in Appendix A. valuable. There you will find the original documents issued by the Province of Limburg substantiating the support for the airport. In this document I am providing you with a brief historic overview and details of the plan that was approved. I will also analyse the airport’s businesses and discuss their use to the region. I will use bullet points to indicate either the state aid [Aid] that I would like the European Commission (EC) to evaluate or objections that I would like you to consider, where [Competition] addresses competition concerns, [Economics] harm that might be done to the economy and [Other] addresses other issues.

Historic overview

The airport has existed since the second world war, but the earliest financial data available go back to the 1990s. In the period from 1991 to 2001 the Dutch State and the Province of Limburg spent €13,9 million to fund operational losses (attachment A., page 57).

In 2002 the Dutch State withdrew from Maastricht Aachen Airport to concentrate on airports that are of importance to the so-called network of international connections (Dutch: internationale verbindingennetwerk). The airport though is still of national importance (Dutch: nationale betekenis), which implies that the Dutch State ensures the airport can operate within a legal framework (think of opening hours, number of flights, noise pollution, air routes). Attachment D. describes the relationship between the Dutch State and the airport.

For the airport to be economically viable the Province of Limburg and Maastricht Aachen Airport made a decade long effort in the 1990s to add a new runway to the airport (the so-called Oost-Westbaan), to lobby for the opening of the airport during night time and to attract a parcel delivery company that would make the airport its base. In the end all these efforts turned out to be fruitless. Instead, TNT Airways started operating at neighbouring Liege Airport in 1998.

In order for the airport to be able to compete on a level playing field the Dutch State decided in 2001 to pay off future operational losses worth €2,7 million1 and promised to invest €32,3 million to upgrade the airport’s air side infrastructure (att. D., pg. 2). The latter was increased to €34,8 million to help fund a runway extension. About €10 million are reportedly still left.

The Province of Limburg also paid off future operational losses worth €2,7 million in 2001 and made €10,5 million available for investment in the airport’s infrastructure (compare att. A., pg 57 and att. D., pg. 2). In 2004 the airport was privatised and (eventually entirely) sold to Omniport, a British investment fund specialising in airport operations, for €5 million. The operator furthermore contributed €7,5 million in equity to the airport2.

Current situation

In 2009, due to deteriorating economic conditions Maastricht Aachen Airport requested an extension of the term limit attached to the funds available for infrastructure investments from 2010 to 2015. This extension was granted by both the Dutch State and the Province of Limburg. In 2012, due to continuing cash flow problems3 (Dutch: liquiditeitstekort) the Province of Limburg granted permission to the airport to use its part of the subsidy still remaining for infrastructure investments to cover (an undefined amount of) operational losses (att. E., pg. 3, paragraph 2).

In 2013 losses mounted and the airport made another request for operational aid. In June 2013 the Province of Limburg granted aid of €4,5 million for the period April 2013 – June 2014, of which €3,5 million was allocated for non-economic services and €1 million for investments (att. F., pg. 23, ‘Ad4’).

  • [Aid] I kindly ask the EC to evaluate the state aid granted by the Province of Limburg of €4,5 million for the period April 2013 – June 2014, of which €1 million was allocated for investments and €3,5 million for non-economic services, taking into account the objections raised in this document.

Omniport consequently offered the Province of Limburg the opportunity to buy Maastricht Aachen Airport for €1. In the period 2002-2014 operational losses amounted to: €7,5 million of equity (assuming the owners did not withdraw capital), €7 million that is now being attributed to that period as costs of non-economic services (see ‘Non-economic aid’ below), the €4,5 million mentioned under the bullet above and an undefined amount reserved for infrastructure investments.

The plan

Several variants of the same plan were considered. They all include the buying of the airport by the Province of Limburg. You will find them in attachment A., page 18-23. The plan that was approved goes by the name 2.A. 0-Variant – Preferred option (including passengers). The details can be found in a table in attachment A., page 15, third column. They include:

Economic aid – €15.535.000

This is the aid for which I believe a request has been filed with the EC. In attachment F., page 22, ‘Ad2’ you will find an overview of how the costs are distributed.

  • [Aid] I kindly ask the EC to evaluate the economic aid granted by the Province of Limburg of €15.535.000 for the period July 2014 – June 2024, taking into account the objections raised in this document.

Non-economic aid – €30.000.000

This aid covers the costs of security, the fire department and air traffic control. In attachment F., page 22, ‘Ad 1’ they are specified on a per year basis and amount to €23.000.000 for the ten year period of the plan. The remaining €7.000.000 are said to cover non-economic costs in the period before July 2014. Judging from the €4,5 million of aid granted for the April 2013 – June 2014 period I expect the €7 million to date back several years.

  • [Aid] I kindly ask the EC to evaluate the non-economic aid granted by the Province of Limburg of €30.000.000 for the period until June 2024, taking into account:
    – the objections raised in this document
    – that the airport is not expected at any time in the future to recover its costs (att. A., pg. 8, ‘bullet 3.’ / att. A., pg. 89, see table)
    – that the European regulations that allow for non-economic aid do so in light of connecting communities in remote areas, whereas Maastricht Aachen Airport is competing for passengers and freight with several airports nearby
    – that €7 million will be used to cover unspecified losses accrued over an undefined historic period, where state aid retrospectively funds the losses the private operator was unwilling to cover at the time.

Economic aid (municipal) – €6.000.000

The municipalities of Maastricht, Heerlen, Sittard-Geleen and Beek will contribute €6.000.000 during the ten year period (att. A., pg. 173/174). This aid will be granted under the condition of continued operation of the passenger business (att. A., pg. 19, paragraph 1). As this amount of aid is not further specified, it remains unclear what costs it will cover.

  • [Aid] I kindly ask the EC to evaluate the economic aid granted by the municipalities of Maastricht, Heerlen, Sittard-Geleen and Beek of €6.000.000 for the period July 2014 – June 2024, taking into account the objections raised in this document.

Economic aid (future investments) – €15.000.000

The Province of Limburg is reserving an amount of €15.000.000 for future investments. These investments will be used to expand the activity at and to reinforce the market position of the airport (att. A., pg. 9, ‘bullet 6’, Dutch: uitbreidingsinvesteringen om de marktpositie van Maastricht Aachen Airport verder te versterken).

  • [Aid] I kindly ask the EC to clarify its rules and / or position on future economic aid that might be granted by the Province of Limburg of €15.000.000 for the period July 2014 – June 2024, taking into account the a priori intent to gain a competitive advantage over other airports and the objections raised in this document.

If all funds were to be used the amount of state aid would add up to (15,535 + 30 + 6 – 0,8 =) €50.735.000 (att. C., pg. 2) plus the economic aid for future investments of €15.000.000. This would bring the grand total to €65.735.000 for a ten year period (€6.573.500 per year) without the expectancy of the airport returning to self-sufficiency (att. A., pg. 8, ‘bullet 3.’ / att. A., pg. 89, see table). It seems likely that state aid will have to be granted again in 2024.

There are three possible mitigating effects that might reduce the amount of state aid needed:

a.) the airport might close its passenger business by July 2016, reducing the contribution of the Province of Limburg by €2,2 million and halting the municipalities’ contribution of €6 million. This would then leave the airport with an uncovered loss of €4,21 million (att. C., pg. 2), for which the Province of Limburg would still pick up the bill (the initial reduction of €2,2 million would actually be an increase of (4,21 – 2,2 =) €2,01 million4). The total amount of state aid granted would be reduced to €62.545.0005

b.) the Province of Limburg will take over the real estate portfolio. Depending on market conditions the sale of assets might yield €8 million. These revenues could then be used to cover part of the future investments of €15 million

c.) if the airport finds a new operator all ‘profits’ (surplus) above the estimates underlying the 0-variant will be shared between the operator and the Province of Limburg using a predetermined allocation clause.6 For a better feeling of how these ‘profits’ could develop, I refer to MAA’s business plan in attachment A., page 89/90, where you can compare the 0-variant (pg. 89) with what Maastricht Aachen Airport expects might be realistic (pg. 90).

Analysis

I have written an analysis of the airport’s businesses and outlined its options in a document that I sent to the Province of Limburg’s executive branch (Dutch: Gedeputeerde Staten) and legislative branch (Dutch: Provinciale Staten) in January 2014. See attachment G. I also wrote a review of the plan for the airport (attachment A.) that was sent to both ‘Gedeputeerde Staten’ and ‘Provinciale Staten’ in April 2014. See attachment B. Below I will summarise the analysis per business and list the objections against state aid.

Passenger business

Annually between 150.000 and 400.000 passengers pass through the airport (att. A., pg. 85, see table). The passenger business has consisted of three types of services.

The most stable one is the holiday charter business, where during the summer season (end of March – end of October) aircraft fly to and from holiday destinations in the Mediterranean several times a week. The aircraft are not based at Maastricht Aachen Airport and the flights are shared with passengers originating from other Dutch airports (Amsterdam and Groningen).

Scheduled legacy / hub feeding passenger services have disappeared after KLM discontinued its service to Amsterdam Airport Schiphol. This type of service suffered from growth of low cost carriers at surrounding airports (eliminating the need for a feeder airline for travellers to European destinations) and competes with rail and road networks (it will take about the same time to travel between the city centres of Maastricht and Amsterdam by train, car and plane).

Low cost carriers came and went. Official figures and own calculations showed that load factors were mostly below company averages. The airlines (destinations) were: Easyjet (Berlin), Volareweb (Milan), Germanwings (Berlin) and Ryanair (London). Ryanair came back in 2011 and instated services to mainly Mediterranean cities. In 2012 Ryanair based one aircraft at the airport and added new destinations. In 2014 due to a change in Ryanair’s strategy the base was closed again, leaving the airport with the in 2011 instated destinations (more or less).

Due to its limited hinterland and a number of competing airports surrounding the Limburg area, lasting services by low cost carriers will most likely only be possible when the market for European air travel saturates (and airlines find no other destinations with higher load factors / profits). This, though, will also be dependent on the cost of labour, fuel and of aircraft financing. Inter-airport competition will probably not leave a significant margin for the airport to recover its costs.

In appendix B. you will find a list of airports that surround Maastricht Aachen Airport and the Limburg area and the time it takes to get there. The table shows that from each major town in Limburg at least two airports are situated within a one-hour drive (one within a 45-minutes drive). All airports, except for Liege Airport, have developed substantial low cost, point to point networks to destinations all over Europe. Liege Airport has been held back in this development due to competition from Maastricht Aachen Airport.7 MAA’s continued existence reduces the reach of all airports, spreading the revenues available in the market over more infrastructure (and thus costs that need covering).

  • [Competition] I would like to object to state aid for the passenger business on the ground that it distorts competition and as such reduces profitability of nearby airports, knowing that the local population can use at least two airports within a one-hour drive.
  • [Economics] I would like to object to state aid for the passenger business on the ground that it continues the perverse effect the oversupply of airports has on the market, where airlines make profits at the airports’ expense, whose subsidies in turn reduce disposable income of local taxpayers, who may not travel or use surrounding airports.

According to research by Maastricht Aachen Airport (att. A., pg. 127) only one third of the passengers originates from the Province of Limburg, while two thirds originate from Belgium, Germany and the rest of the Netherlands. The only parties contributing to state aid are located in the Province of Limburg though.

  • [Other] I would like to object to state aid for the passenger business on the ground that it disproportionally affects taxpayers from the Province of Limburg, while the airport shares its public role as a regional provider of air transport with several surrounding airports.

General aviation (GA) business

General aviation activity is modest and fairly typical for an airport of the size of Maastricht Aachen Airport, except for about 4-5 days a year, when affluent collectors heading for The European Fine Art Fair (TEFAF) pass through the airport. Public discussion has centred around the relevance of the fair for the region and the importance the airport consequently has for its continued existence. Maastricht Aachen Airport is located 15 minutes by car away from the fair’s location. That same location could be reached from Liege Airport in 29 minutes. This would be a 14-minute difference. I find it difficult to see how that this in itself merits state aid. Possibly a private helicopter service could be instated for a few days to bridge the distance in a shorter time (if wanted at all).

Freight business

The airport handles between 70.000 and 90.000 tons of freight annually (att. A., pg. 87, see table) and specialises in the transit of perishable goods and high-tech electronics. These goods, though, are neither intended for consumption in the region nor will they be used as intermediary goods in local industries. Goods are flown or trucked in from other airports, where MAA’s handling service prepares them for shipment to destinations outside of the Province of Limburg.8 The freight business’ reason to exist is therefore only commercial.

The amount of freight handled does not suffice to recover the costs over an entire business cycle, where operating results achieved during economic booms are insufficient to offset the losses. The airport is either unable to charge a price high enough for its services (due to competitive pressure), lacks a certain minimum amount of activity (to recoup the costs of an airport) and / or has a cost base that is too high. State aid will transfer the losses to taxpayers and surrounding airports, while the benefits are for the trucking companies and employees.

  • [Competition] I would like to object to state aid for the freight business on the ground that it artificially lowers prices and as such distorts competition with and reduces profitability of nearby airports.
  • [Economics] I would like to object to state aid for the freight business on the ground that it maintains an oversupply of airports, where activity is too low to recover the fixed costs and where some variable costs are either fixed in practice (ATC, security) or cannot be efficiently recouped due to invariable standby and working times (freight handling).
  • [Other] I would like to object to state aid for the freight business on the ground that in conjunction with the public ownership of the airport its services have no public function for the region.
  • [Other] I would like to object to state aid for the freight business on the ground that in conjunction with the buying of the airport by the provincial government its businesses and employees are enjoying a preferential treatment that is not given to other businesses that went bankrupt or to employees who became unemployed.

Maintenance, repair and overhaul (MRO) business

The airport hosts several companies that are active in the MRO business. These companies are not owned by the airport, but are otherwise privately held. They are said to be profitable and some intend to expand their business. Their contribution to the operating result of the airport is rather limited, as most activity takes place within their buildings. The number of flights per week is (very) modest and the airport does not gain a significant amount of revenues from them. It may earn additional fees for air side parking spaces and renting (the space of the) office buildings. There is also an aviation related technical school that trains students in the MRO area.

Due to their profitability, their specific, niche-like work and cross-fertilisation of education and business I think that that the MRO activities are the only type of activity that would merit infrastructural subsidies (as opposed to operational subsidies).9 The Province of Limburg would in that case revert to its traditional role as an infrastructure provider and maintain the airport as if it were an industrial area. In practice the Province of Limburg would provide the runway and the air side parking spaces. As it is an airport it would also provide the tower and the instrument landing system (ILS) on one side of the airport (instead of two). I have argued that customs, ATC, fire department would be manned on an ad-hoc or part-time basis, where aircraft are basically arriving or departing ‘by appointment’.

According to calculations by the Province of Limburg (att. C., pg. 3) a MRO-only airport would require about 80% of the state aid envisioned for an airport with all its functions. Subsidies would then amount to €39,292 million, excluding an undefined amount that might be necessary in the form of future investments (x% of €15 million). A significant amount of operational expenses would still be covered by the Province of Limburg.

From a competition perspective the MRO companies would not be directly competing with other airports. They service mainly regional jets and work for airlines that do not have their own MRO facilities. On the other hand, airlines have opened up their MRO facilities for contract work to other airlines. As such e.g. Brussels Airport (Brussels Airlines), Amsterdam Schiphol Airport (Air France–KLM) and Liege Airport (TNT Airways) have partially become competitors. And if not, synergies might be achieved when MRO companies would cluster at those airports, even if only to share the costs of the infrastructure in a more efficient way.

If we were to redraw the ‘aviation map’ of Europe the MRO business would not be allocated to Maastricht Aachen Airport. As a general (passengers and freight) airport it has insufficient reason to exist, while airport costs are too high for the limited amount of traffic the MRO business generates. The choice to be made is between two evils and a middle way that hardly makes any sense.

The evils: a.) continuing the entire business even though it has a perverse effect on the market. A compromise in the form of closing down the passenger business would not contribute much to the reduction of subsidies and would leave the anti-competitive and economically harmful aspects of the freight business. Furthermore, it might lead to other unwanted effects10; b.) the closing of the MRO business might possibly be a complicated operation of moving assets and personnel to a location that has yet to be found. The middle way would stop the perverse effect on the market, but still require a significant amount of aid to keep only the MRO business open. For the region that MRO business would be loss making, while the companies are profitable. If the MRO companies were to share these costs, they would most likely either go out of business or move elsewhere (anyway).11

Looking at the prospect of a structurally loss-making airport, the vast sums that taxpayers will contribute and that will harm surrounding airports, the limited extent to which the subsidies benefit local citizens and the advantages airport consolidation could bring (see ‘Airport consolidation’ below), the region would constrain itself if it kept the MRO business open.

Role of the airport

The Province of Limburg states that continued operation of the airport would serve the public interest because of its effects on employment, accessibility (of the region) and business climate (att. A., pg. 176, ‘stap 1’).

Judging from the lengthy research12 in the plan employment seems to be the most important determinant for keeping the airport open. If state aid would be allowed on this ground (only), it would create a precedent in which local governments could ‘buy’ employment as they see fit. The questions that come to mind then are to what size the involvement of a regional state in the economy could grow before this would be deemed to be overreaching and how fairness between workers will be maintained.

Research has shown that with the closing of the airport 700 FTEs would disappear.13 Based on this the airport offers employment to 0,16% of the labour force in the Province of Limburg (att. B., pg. 8, last paragraph). The same research notes that countrywide 60 – 68% of the unemployed will find new jobs within one year (att. A., pg. 145, ‘last bullet’). Even though these numbers might not be the same for the Province of Limburg nor for the kind of work (with specific skills) that is done at the airport, I think it safe to assume that the loss of employment will not be indefinite. Actually the contrary might be true: the closing or downsizing of the airport would provide the local economy with an opportunity to allocate its resources to undertakings that will be profitable in the long run.

I think that both other arguments (accessibility of the region and business climate) are actually more related to the prestige or image that comes with an airport14 than that they are of a real utilitarian value. For one, Appendix B. shows that each town in the area is no more than 45 minutes away from another airport. In practical terms, Eindhoven Airport could serve the northern part of the province, whereas Liege Airport could be doing the same for the southern part. Also, the Province of Limburg is well connected through a modern road and rail network, where congestion is virtually non-existent.

Use to the region

In appendix C. I have estimated how much state aid each airport business consumes. Below I am comparing these amounts with the use a business has to the region. The state aid figures are taken from the second column of the table in the appendix (scenario incl. passengers). In appendix D. I have quantified the effect of the state aid in employment terms.

MRO business

State aid: €1,0 million
Supports:
– services to the public: none
– employment: direct and indirect employment of 245 FTEs
– profitability: not (specifically) supported
– other: an aviation-related technical school (indirectly)15

General aviation business

State aid: € 1,0 million
Supports:
– services to the public: yes, see ‘Analysis’ > ‘General aviation business’
– employment: negligible, taken into account under MRO business
– profitability: not (specifically) supported

Freight business

State aid: €49,3 million
Supports:
– services to the public: none
– employment: direct and indirect employment of 470 FTEs
– profitability: external suppliers (e.g. trucking companies)

Passenger business

State aid: €14,4 million
Supports:
– services to the public: yes, see ‘Analysis’ > ‘Passenger business’
– employment: direct and indirect employment of 95 FTEs
– profitability: external suppliers (e.g. shop in the terminal)

The entire airport might be supporting the accessibility of the region and its business climate, but, as I argued before, their effects will be limited due to surrounding airports.

Note that if the airport were to close down employment would alternatively be supported by Dutch, national unemployment schemes, for which employees would be eligible. The benefits would reduce the effect on the local economy.

Airport consolidation

Instead of regions depleting capital at each others’ airports it would make sense to break the destructive cycle where one government grants state aid to one airport and the other a few years later to another. In order to stop sector-wide losses and to even potentially increase service levels it would help if capital were pooled and revenues shared in one facility. In case of Maastricht Aachen Airport there is actually a straightforward solution, as Liege Airport is located just across the border, not even 40 km away.

Liege Airport already has a modern passenger terminal that Maastricht Aachen Airport either plans to build or tries to create through refurbishments of the current building. It also has a 3,7 km runway, whereas Maastricht Aachen Airport finds its 2,5 km runway is too short for fully loaded Boeing B747 freighters (att. A., pg. 83, see ‘Weaknesses’ in SWOT analysis). Furthermore, Maastricht Aachen Airport has indicated that its opening hours (6-23h) are not helping its business16 (att. A., pg. 83, see ‘Weaknesses’ in SWOT analysis), while Liege Airport is open 24 hours per day.

Moreover, due to its experienced operator (it is supported by Aeroports de Paris) the airport has a stronger basis than Maastricht Aachen Airport17, whereas Maastricht Aachen Airport might not find an operator with that level of expertise or may not find one at all when the passenger business would be closed down (att. C., pg. 3, ‘third dash’). If no private operator will be found than the Province of Limburg will have to take over as the operator (att. A., pg. 10, ‘bullet 10.’).

Liege Airport is the 8th largest cargo airport in Europe and handles about 10x as much flown cargo as Maastricht Aachen Airport does (att. A., pg. 117). If TNT Airways were to reduce its operations at Liege Airport at some point, as could have happened if the merger between TNT and UPS would have gone ahead, it would have a significant impact on its financial results. The additional revenues from MAA would provide a more solid basis to the entire operation.

  • [Economics] I would like to object to state aid for the entire airport on the ground that it keeps locally competing airports in a continuously destructive cycle funded by taxpayers’ money. This not only leads to a suboptimal allocation of both capital (where no synergies are explored) and labour (where no cost reductions are achieved through more efficient use of workers), but also risks the continuation of services to consumers in the long term (bankruptcy). All of which goes against the spirit of a common European market.

Implications

If MAA were to close its passenger business then activity could be moved to other airports. Some would go to Eindhoven Airport (Weeze / Düsseldorf Airport), without requiring a lot of adjustments (airlines might need to increase capacity there). Liege Airport could concentrate on developing the Euregional market, which consists of Liege, Aachen, the southern part of Dutch Limburg (Maastricht, Sittard-Geleen, Heerlen), Belgian Limburg (Genk, Tongeren, Hasselt) and the Ardennes area. It would also handle general aviation for the region.

The freight business could be moved to either Liege or a bigger airport farther away that also specialises in handling freight (Amsterdam, Brussels, Cologne-Bonn possibly). If the activities were to be moved to Liege it would still support the economy in the Province of Limburg as workers and trucking companies would be able to continue working from that new location. Even if this were not structural, it would help bridge a transitional period and limit the effects on employment.

The MRO companies would have to relocate to another airport, possibly collectively, otherwise individually. This would be for the companies to decide. From an employment perspective it would be beneficial for the region if they would relocate to an airport nearby. As there is also a Dutch (aviation-related technical) school involved, a location within or close to the Netherlands might be preferred. A list of possible locations could include Eindhoven and Liege Airport.

The Province of Limburg could use the proceeds of the sale of real estate to support relocation and improve public transport links to Liege Airport.

Concluding

Judging from the vast range of activities that MAA undertakes (att. A., pg. 82/83), the airport seemingly needs to stretch itself in all aviation related businesses in order to stem its losses. If it were to remain open as it is now, considering its troubled history and lack of a clear purpose in its business plan, it will most likely require state aid again in ten years’ time. Then the arguments in favour of more support will also include the currently planned public and private (MRO) investments, which in turn would continue the endless cycle of losses and aid.

This cycle can only be broken when something happens outside of the control of the airport itself. Think of bankruptcy of another airport, a purpose that somehow ‘lands’ at the airport or the discontinuation of state aid for economic or regulatory reasons. Both the passenger and freight business are de facto bankrupt and are not expected to return to profitability again. If state aid were approved it would represent a bet with taxpayers’ money, and risking the profitability of surrounding airports, on something that would not deliver much to local citizens anyway. If, on the other hand, Liege Airport could put its advantages to use and develop as a true regional airport, then the people in the Province of Limburg might actually benefit from an airport nearby. And it would cost them tens of millions euro less.

Summary

State aid granted

  • [Aid] I kindly ask the EC to evaluate the state aid granted by the Province of Limburg of €4,5 million for the period April 2013 – June 2014, of which €1 million was allocated for investments and €3,5 million for non-economic services, taking into account the objections raised in this document.
  • [Aid] I kindly ask the EC to evaluate the economic aid granted by the Province of Limburg of €15.535.000 for the period July 2014 – June 2024, taking into account the objections raised in this document.
  • [Aid] I kindly ask the EC to evaluate the non-economic aid granted by the Province of Limburg of €30.000.000 for the period until June 2024, taking into account:
    – the objections raised in this document
    – that the airport is not expected at any time in the future to recover its costs (att. A., pg. 8, ‘bullet 3.’ / att. A., pg. 89, see table)
    – that the European regulations that allow for non-economic aid do so in light of connecting communities in remote areas, whereas MAA is competing for passengers and freight with several airports nearby
    – that €7 million will be used to cover unspecified losses accrued over an undefined historic period, where state aid retrospectively funds the losses the private operator was unwilling to cover at the time.
  • [Aid] I kindly ask the EC to evaluate the economic aid granted by the municipalities of Maastricht, Heerlen, Sittard-Geleen and Beek of €6.000.000 for the period July 2014 – June 2024, taking into account the objections raised in this document.
  • [Aid] I kindly ask the EC to clarify its rules and / or position on future economic aid that might be granted by the Province of Limburg of €15.000.000 for the period July 2014 – June 2024, taking into account the a priori intent to gain a competitive advantage over other airports and the objections raised in this document.

Objections

  • [Competition] I would like to object to state aid for the passenger business on the ground that it distorts competition and as such reduces profitability of nearby airports, knowing that the local population can use at least two airports within a one-hour drive.
  • [Economics] I would like to object to state aid for the passenger business on the ground that it continues the perverse effect the oversupply of airports has on the market, where airlines make profits at the airports’ expense, whose subsidies in turn reduce disposable income of local taxpayers, who may not travel or use surrounding airports.
  • [Other] I would like to object to state aid for the passenger business on the ground that it disproportionally affects taxpayers from the Province of Limburg, while the airport shares its public role as a regional provider of air transport with several surrounding airports.
  • [Competition] I would like to object to state aid for the freight business on the ground that it artificially lowers prices and as such distorts competition with and reduces profitability of nearby airports.
  • [Economics] I would like to object to state aid for the freight business on the ground that it maintains an oversupply of airports, where activity is too low to recover the fixed costs and where some variable costs are either fixed in practice (ATC, security) or cannot be efficiently recouped due to invariable standby and working times (freight handling).
  • [Other] I would like to object to state aid for the freight business on the ground that in conjunction with the public ownership of the airport its services have no public function for the region.
  • [Other] I would like to object to state aid for the freight business on the ground that in conjunction with the buying of the airport by the provincial government its businesses and employees are enjoying a preferential treatment that is not given to other businesses that went bankrupt or to employees who became unemployed.
  • [Economics] I would like to object to state aid for the entire airport on the ground that it keeps locally competing airports in a continuously destructive cycle funded by taxpayers’ money. This not only leads to a suboptimal allocation of both capital (where no synergies are explored) and labour (where no cost reductions are achieved through more efficient use of workers), but also risks the continuation of services to consumers in the long term (bankruptcy). All of which goes against the spirit of a common European market.

Appendices

Appendix A: list of attachments

The attachments below can be downloaded here. Please note that they are all in Dutch.

A. Statenvoorstel de toekomst van MAA.pdf – Document issued by the Province of Limburg containing the plan for public funding of the airport

B. MAA – Beoordeling Statenvoorstel.pdf – Review of the plan proposed by the Province of Limburg (see att. A.), which I sent to the Province of Limburg in April 2014

C. Financiele onderbouwing scenario’s.pdf – Summarising overview of several options considered, issued by ‘Gedeputeerde Staten’ at the request of ‘Provinciale Staten’

D. Toelichting Staatssecretaris Mansveld mei 2013.pdf – Document issued by the Dutch Ministry of Transport in which Transport Secretary Ms. Mansveld clarifies the relationship between the Dutch State and the airport

E. Uitstel investeringen en exploitatietekort.pdf – Document outlining the financial history of the airport, issued by ‘Gedeputeerde Staten’ at the request of ‘Provinciale Staten’

F. Uitsplitsing NEDAB.pdf – Document containing a response to questions posed by ‘Provinciale Staten’ and including a drill down of the non-economic costs (NEDAB)

G. MAA – Analyse en opties.pdf – Analysis of the airport’s business and its options, which I sent to the Province of Limburg in January 2014

H. Cargo en doorvoerluchthaven.pdf – Minutes of a commission meeting during which the plans for MAA were presented. Present were members of ‘Provinciale Staten’ and ‘Gedeputeerde Staten’ as well as the CEO of MAA and the director of the bureau that researched the effects of MAA’s operations on regional employment (E,til)

I. Interview MAA directeur Tindemans 25042014.pdf – Interview with MAA’s CEO Mr. Tindemans in regional newspaper Dagblad de Limburger / Limburgs Dagblad published on 25 April 2014 (the interview was taken after ‘Provinciale Staten’ indicated that a majority would be in favour of granting the state aid necessary, but before the official vote)

J. State aid per business.xlsx – Overview of estimated state aid per business

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Appendix B: distance to surrounding airports

The table below depicts the distance from all six major towns in the Province of Limburg to a surrounding airport. The distance was measured from the central train station of each city to the entrance of the airport. The numbers represent the time in hours and minutes (h:m) it takes to travel by car. Measurements were taken from the route planner in Google Maps.

Maastricht Aachen Airport: surrounding airports

MAA: surrounding airports

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Appendix C: state aid per business

In this appendix I am establishing how much state aid each airport business consumes. I will do so by using a business’ share in total revenues as an indicator of how much activity it generates and with that how intensively the infrastructure is used, which is assumed to be (1:1) proportional to the amount of aid required (i.e. a business with a 50% share in turnover is considered to be using 50% of state aid). Detailed calculations are provided in attachment J.

Calculating business shares

Maastricht Aachen Airport: activity per business

MAA: activity per business

For the freight business the input came from a newspaper article18, in which the CEO of Maastricht Aachen Airport states that the freight business generates 75% of turnover. That leaves 25% for the other three businesses. Using data available on the passenger numbers of both the general aviation and passenger business it can be established that the general aviation business makes up 9,9%19 of all passengers traffic.20 As there is no data available for the MRO business, I will assume here, based on the knowledge I have of the airport and presuming similarities in services demanded, that both businesses have an equal share in total revenues. This leads to the percentages in the table.

Establishing state aid

The table on the next page distinguishes between the scenarios that are summarised in att. C., pg. 2/3. It also breaks the aid down in three separate accounts, which are:

State aid for an unused, operational airport
Here I attempt to establish how much state aid an airport without any activity would require. In order to do so the total state aid for a GA/MRO-only airport was taken from att. C, pg. 3 (i.e. 39,292 million) and the revenues of both businesses were added to it (so that they no longer distort the picture). For each scenario we can then establish how much aid a business consumes, using the shares calculated above. The total amount of aid is the same for all three scenarios, as it is the minimum amount required to keep the airport operational. So, when businesses close down, the remaining ones will be consuming more aid (because the shares calculated above would change; take for example the GA & MRO-only airport, where both business originally had a 2,25% share, but are now using 50% of the aid each).

State aid delta scenarios and unused airport
In order to establish how much specific aid each business requires the amount of state aid for an unused, operational airport is subtracted from the grand totals of all three scenarios (see att. C., pg. 2/3, also listed in the table below under ‘State aid subtotal’). By comparing the delta between the excl. passengers and GA & MRO-only scenario the amount of specific state aid for the freight business can established. The amount of specific aid for the passenger business is established by comparing the incl. passengers and excl. passengers scenarios.

State aid for future investments
The state aid for future investments takes into account the percentage shares established before. The total amount of aid will automatically diminish as businesses are closed down.

State aid total
The total per business can be found by adding up the state aid mentioned under each account.

Maastricht Aachen Airport: state aid per business

MAA: state aid per business

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Appendix D: employment per business

In this appendix I am establishing the loss of employment per business21, were the airport to be closed down. Like this the effect of state aid can be quantified in employment terms. Att. A., pg. 102 and Att. C., pg. 2/3 will form the basis for the calculations.

Employment per business

MRO business: (350 + 500) / 2 = ~ 440 FTEs
Freight business: (1225 + 1350) / 2 = ~ 1290 – 440 = 850 FTEs
Passenger business: (1400 + 1525) / 2 = ~ 1460 – 440 – 850 = 170 FTEs
General aviation business: negligible, taken into account under MRO business

Total employment: 440 + 850 + 170 = 1460
Employment remaining after closing the airport: (625 + 675) / 2 = 650
Net effect airport on employment: 1460 – 650 = 81022

Loss of employment

As there are no data available for the direct employment per business23, I have to assume that all businesses employ the same share of direct and indirect workers (each business is assumed to support x% of direct employment and 1-x% of indirect employment, regardless of the absolute amount of FTEs).

Taking into account the relative shares in total employment, the effect of state aid on employment per business will be:
GA & MRO business: (440 / 1460) x 810 = ~ 245 FTEs
Freight business: (850 / 1460) x 810 = ~ 470 FTEs
Passenger business: (170 / 1460) x 810 = ~ 95 FTEs

I expect the figures for the GA & MRO business to be understated (more direct employment than indirect in practice) and those for the passenger business to be overstated (more indirect employment than direct). I consider the employment figure for the freight business to be the most accurate of the three (direct and indirect employment probably reflecting reality). To illustrate: if, in practice, all employment at the MRO business is direct, then the loss of FTEs would not be 245 but 440. The losses at the other two business would be at most 810 – 440 = 370, or 195 less than foreseen above.

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Footnotes

1. Note that there is a discrepancy between the figure mentioned in att. D, pg. 2 and att. A. pg. 57. — Back to text

2. Source: http://www.trouw.nl/tr/nl/4324/Nieuws/archief/article/detail/1732228/2004/06/11/Vliegveld-Maastricht-levert-vijf-miljoen-op.dhtml. — Back to text

3. The airport refers to its financial deficit as being a cash flow problem. Technically, it is a solvability issue. At no point will the revenues (so-called inflows) cover the costs (so-called outflows). — Back to text

4. Note that it has not been specified what costs the €2,01 million will cover. — Back to text

5. As the plan does not specify otherwise this assumes that the amount of economic aid for future investments remains unchanged at €15 million. — Back to text

6. Please note that in attachment F., page 5, last paragraph, the CEO of the airport, Mr. Tindemans, states that the new operator will pay a fee to the Province of Limburg for operating the airport. Depending on the kind of fee (fixed, variable) this could be consistent or inconsistent with a predetermined allocation clause. — Back to text

7. See following article in French: http://archives.sudpresse.be/bierset-liege-airport-interesse-le-patron-de-ryanair_t-20111104-H3G5V5.html. A Dutch article describing the same interview can be found here: http://www.dichtbij.nl/maastricht/regionaal-nieuws/artikel/2543137/liege-airport-snapt-niet-waarom-ryanair-kiest-voor-verouderd-maa.aspx. — Back to text

8. Mr. Heijmans, co-CEO of the airport, acknowledges in attachment H., page 8, paragraph 3 the transit role of the airport. — Back to text

9. I have argued so in attachment B., page 13-17. — Back to text

10. As pointed out by the CEO of the airport, Mr. Tindemans, who expects the airport to have difficulties recouping ATC costs without the passenger business (att. I., pg. 1, fifth column). — Back to text

11. Note that there are numerous practical problems when keeping only the MRO business open (att. C., pg. 4). — Back to text

12. Note that the research only consists of the slides in att. A., pg. 92-156; there is no written version available. — Back to text

13. Att. A., pg. 102, see table. 1375 – 675 = 700 FTEs; I have questioned this (and other) figure(s) in the document I sent to the Province of Limburg (att. B., pg 7/8). — Back to text

14. The CEO of the airport, Mr. Tindemans, holds this view (att. I., pg. 1, last column). — Back to text

15. Even though its presence nearby is practical, I do not believe it is critical. — Back to text

16. There is no intention to extend the opening hours. Judging from the long and unsuccessful effort to this end in the 1990s and the lack of support for it now, a new effort would most likely turn out to be fruitless. — Back to text

17. I would suggest comparing the business plans of MAA in attachment A. , page 82-91 with those of Liege Airport, which can be (a.o.) found here: http://www.liegeairport.com/en/mass-plan-evolution. For a better feel you could also study the surroundings of both airports in Google Earth. — Back to text

18. Source: http://www.nrc.nl/handelsblad/van/2013/mei/16/dit-vliegveld-kan-zo-dicht-1247363. A copy of the article can be found here: http://www.vole.nl/index.php?option=com_content&task=view&id=447&Itemid=45. Unfortunately this figure could only be established using indirect sources. — Back to text

19. Att. A., pg. 111, ‘Overig passagiersverkeer’. For detailed calculations, see att. J. — Back to text

20. Note that there is a difference between passenger numbers and turnover; the general aviation business might generate more or less revenue per passenger than the passenger business does (similar line of reasoning holds for the MRO business). As there are no other data available, the current methodology is the best available. — Back to text

21. Assuming that the data in the plan are indeed representative. I have questioned this in att. B., pg. 7/8. — Back to text

22. Note the discrepancy with the 700 FTEs calculated on page 11, paragraph 4 of this document. Differences are due to expected growth in employment between now and 2023. See also columns two and three of the table in att. A., pg. 102. — Back to text

23. The accuracy of these estimates could be greatly improved if figures for direct employment per business were made available by the airport or the Province of Limburg. — Back to text