Analysis of Financial Support to the Aviation Sector in Germany



Analysis of Financial Support to the Aviation Sector in Germany

Authors

L Stewart-Ladewig, R Hopf, H Link, DIW, DE

Description

Abstract

Analysis of Financial Support to the Aviation Sector in Germany Rainer Hopf, Heike Link and Louise Stewart-Ladewig : DIW Berlin

The paper will summarise results from a study on the external costs of aviation commissioned by the Federal Environmental Agency of Germany (Umweltbundesamt - UBA). The focus of the analysis, which represents only a part of the comprehensive study, is subsidisation to the German aviation sector and to the European Airbus industries. The full paper will describe both the methodology required to analyse subsidies to the aviation sector in general and quantitative results in a case study form for the major airline and airports in Germany and for the Airbus industries. Although the share of aviation in total transport performance in Germany is still low, aviation is one of the fastest growing modes in Germany. During the period between 1991 and 1998 air transport volume and transport performance for passenger transport both increased by approximately 60 %. In 1998, the base year of the study, aviation carried about 104 million passengers with a corresponding transport performance of 38 billion passenger kilometres. This amounts to 0.2 % of all passengers transported in Germany and to 4 % of all passenger kilometres.

In the United States, France, Great Britain and Germany the aerospace industry has always played a strategic role for the development of the national economy and with a constant growth rate of 5% yearly, is regarded to be a key industry. The R&D share in the aerospace industry is approximately 15% in relationship to the turnovers, which is much higher than in other sectors of industry.

The aviation sector itself acknowledges that air transport is coupled with considerable environmental damages but argues, that the industry, unlike other transport modes, covers its own infrastructure costs and states that this causes an intermodal distortion of competition between transport modes. This is of course, not the complete situation, there are obvious taxation advantages for air transport, such as the exemption from paying VAT on the price of tickets for international flights and the lack of kerosene taxation. Substantial direct financial aid to the European Airbus Industries were also documented within the study.

Scope of the Paper
After a description of the methodology used, the paper will examine subsidies granted to the following areas of the aviation sector:
1. Airports as infrastructure providers: a general analysis of German international airports is presented.
2. National air traffic control: Subsidies for Germany.
3. Airlines as air transport service suppliers: Subsidies to Lufthansa.
4. Aircraft industry as vehicle suppliers: Subsidies to Airbus Industries as a joint European venture are researched and documented.

Excluded from this study are for example travel agencies, hauliers and their associations, handling agents.

Summary of results For this abstract only a short summary of the major results is given. The full paper will provide comprehensive results.

German Aviation Sector The analysis of direct financial flows from several administrative levels to the aviation sector and the estimation of indirect financial support is summarised as follows:

* German airports on the whole do recover their infrastructure related costs (valued at a social cost basis) by revenues from landing fees, fees and charges for ground services, short-term and long-term aircraft parking and turnover/concession charges. However, they benefit from indirect subsidies of not paying land property taxes.
* German Air Navigation (DFS) was not subsidised in 1998. All costs are recovered by navigation charges and revenues from additional DFS services. It can be assumed that German Meteorological Services DWD was subsidised but the study was not able to quantify the amount of subsidies.
* Indirect subsidies were the major subsidies found within this study: indirect subsidies to airlines due to tax exemptions (kerosene tax, VAT on the price of tickets for international flights).
* There are several types of additional indirect support such as provision of land at lower costs, VAT exemptions on deliveries, construction work, maintenance activities and extraordinary depreciation of aircraft which could not be quantified in this study.

Airbus Industries According to U.S. sources Airbus Industry has received the equivalent of somewhat between $ 30 billion and $ 35 billion in subsidies, net of repayments to governments over the past three decades. This amounts to more than $ 1 billion p. a.. Using these assumptions, the subsidies given to Airbus manufacturers total up to a share of somewhat between 10 % and 15 % related to the accumulated turnovers of Airbus Industry during the past three decades. The overall subsidies to the Airbus Industry were found to be declining.

Publisher

Association for European Transport