The effect of the European state aid rules on German regional airports

Table of Content

List of Figures

List of Tables

Abbreviations

Abstract

1. Introduction

2. State Aids within the European Union
2.1. Definition of State Aid
2.2. Types of State aid
2.2.1. Non-repayable grants
2.2.2. Loans
2.2.3. Guarantees
2.2.4. Favouring domestic companies - Realförderung
2.3. State aid control

3. State aids to airports
3.1. New guidelines to apply state aid to airports
3.2. Investment aid
3.3. Operating Aid

4. Definition of regional airport

5. General effect of the new guidelines

6. Potentially sustainable business models at selected airports
6.1. Koblenz-Winningen (EDRK)
6.2. Bamberg (ETEJ)
6.3. Leipzig/Halle (EDDP)

7. Potentially critical business models of selected airports
7.1. Dortmund-Wickede (EDLW)
7.2. Zweibrücken (EDRZ)

8. Recommendations for German Regional Airports
8.1. Recommendations for small Regional Airports (<1million passengers per annum)
8.2. Recommendations for large Regional Airports (1-5million passengers per annum)
8.3. General Recommendations

9. Conclusion

Bibliography

List of Figures

Figure 1: International Airports in Germany

Figure 2: German international and regional airports

Figure 3: International airports according to ADV

Figure 4: Location of Koblenz-Winningen airport

Figure 5: Dortmunds within the Rhein/Ruhr area with connection times to major destinations

Figure 6: Population Density in Germany

Figure 7: Global passenger volume trends

Figure 8: Selected airport business model illustration adopted from FEDERAL AGENCY FOR CARTOGRAPHY AND GEODESY

List of Tables

Table 1: Exemptions of prohibition of state aid; adopted from Art. 107 (2) TEU

Table 2: Possible exemptions on prohibition of state aid; adopted from Art. 107 (3) TEU

Table 3: Airport Passenger volume categories according state aid regulation

Table 4: Maximum permissible aid intensities

Table 5: Airports classification according to LuftVG & LuftVZO in Germany

Table 6: Criteria for international airports accroding to ADV

Table 7: Airport Categories adopted from Community Guidelines on financing of airports [...]

Table 8: Group Earnings Airport Nürnberg

Table 9: Investments of Airport Nürnberg

Abbreviations

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Abstract

State aid is an eligible instrument to support the local industrial and commercial development. While prohibited on the one hand, exemptions exist, which allow within tight constraints the support by the states. With the new guidelines on state aid, competition within the airport industry is less influenced by the governments and market disruption reduced. The regional airports, being supported by the state to a high extent, are challenged to reshape their business models in order to remain sustainable for the future. The pressure is high as the many regional airports within Germany are challenging themselves as well as larger and also smaller airports at the same time. Selected approaches with sustainable character are shown in this paper along with a brief overview on the situation of the regional airports within Germany along with the new guidelines.

1. Introduction

Regional airports act as counterparts of big and medium-sized hubs. They provide areas with lower density of population fast and easy access to main air travel routes. They facilitate the movement of the local population. Such small access points to the worldwide air travel network offer similar service to the surrounding area on a small scale compared to their major counterparts. Airports are recognized as job motors and infrastructural benefit.

While the main source of income for those airports passengers are and the number of flights connections by nature limited is, covering the costs is a challenge not easy to be addressed. Within Germany there are 103 airports ranging from A like Aachen till Z like Zweibrücken (ICAO, 2012) out of which 21 are called international airports. The others are regional or local airports (Arbeitsgemeinschaft Deutscher Verkehrsflughäfen (ADV) e.V., 2015).

In the past, airports within Germany had been established as public enterprises, seen as public nodes for air traffic. They did not have to act like companies exposed to the market. As the European aviation industry started restructuring and liberalizing, airports more and more became privatized (Forsyth et al., 2010). Airports are still seen as important traffic nodes and with the rising competition, the local authorities – even though they privatized airports in the first place – moved to protect the entities by state aids.

As such subsidies have an impact on the competition and therefore on the whole market structure, they are challenging the European Unions (EU) competition laws, that shall emphasis free and undistorted competition (European Commission, 2014).

In February 2014, the EU issued new guidelines for state aids that change the rules for issuing state aids to airports for a higher competition and to encourage them, to go for a sustainable business model (EUR-Lex, 2014).

This paper first shows the key elements of state aids in general followed by the new EU guidelines for airports. Within this part, the political relevance of state aids is described in order to show that social necessity over economic demand of state aids sometimes applies.

In order to describe the effects on regional airports within Germany, the various definitions of regional and international airports are stated in the next part. Following the definition, the current economic situation of several German regional airports is described to act as examples for different potential results of the new EU guidelines. This part is set up to show highly threatened airports and those, already being economically set up to cope with the changing situation.

The last part suggests exemplary development goals for selected airports in order to counter the new guidelines.

2. State Aids within the European Union

State aids are a legitimate tool of the fiscal policy in order to provide governmental support to specific sectors of the economy. It is commonly adopted within all counties of Europe. The underlying law is on the one hand the European Commission State Aid Law (European Union, 2014) and on the other hand the local state aid laws and guidelines – as for this paper – within Germany (Danwitz, 2008). One special case applies to Germany because of the division of Germany. The Treaty on European Union (EGV) states an exemption on the state aid rules especially for Germany called “Deutschlandklausel”. This describes an exemption on state aid for the compensation of the economic disadvantages caused by the former division of Germany. According to European law, they are seen compatible with the internal market and therefore granted according to Art. 107 (2) c AEUV (European Union, 2012, p.45).

2.1. Definition of State Aid

Within the existing law, no clear-cut definition of state aid available. The European Competition law states prohibition of any form of aid granted by the state that distorts or may distort competition between the member states (European Union, 2014). The German jurisdiction also does not define state aid in itself, but provides special case definitions of certain types of state aid within various wordings of the law such as donation or subsidy (Weigend, 2014) and (Hefermehl, 2015).

Combining the available information in the literature, state aid is seen as any type of grant, gift or gratuity of public authorities to any private person or entity without the referring return service to serve a public interest.

While the European Treaty article 107 is stating a general prohibition of state aid, it also provides three occasions in article 107 (2) that are considered to be approved and in article 107 (3) another five occasions, when it may be approved (European Union, 2012) as shown in the following two tables.

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Table 1: Exemptions of prohibition of state aid; adopted from Art. 107 (2) TEU (European Union, 2012)

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Table 2: Possible exemptions on prohibition of state aid; adopted from Art. 107 (3) TEU (European Union, 2012)

2.2. Types of State aid

State aid within Germany is seen in four different ways depending on the type of state aid. All have in common, that the receiving party is not obliged to repay or return any of the given grant and in addition, that any state aid is not permitted, as long as it is not subject to one of the previous mentioned exceptions.

2.2.1. Non-repayable grants

Non-repayable grants or straight grants are direct subsidies through paying cash money to the subsidized entity without a necessity to repay them (Maurer, 2011). Money is being transferred to the receiving party.

2.2.2. Loans

Although loans have to be repaid, they are eligible forms of state aid. The subsidy is not meant to be the loan itself, which would result in the grant becoming a non-repayable grant but the interest rates of the loan (Kreditanstalt für Wiederaufbau, 2015). The state issues loans with a below market average interest rate and the difference is covered by state funding.

2.2.3. Guarantees

In close connection to loans, the guarantees are another form of state aid. This type of aid relates to loans but not one, issued directly from state agencies. The state guarantees a third party – typically a bank – for the future repayment of a loan. As states like Germany have a high credibility, banks would offer any entity a lower interest rate, if a state guarantees for it (Reinicke & Tiedtke, 2008).

2.2.4. Favouring domestic companies - Realförderung

Favouring domestic companies is often referred to as nepotism in the news. This type of state aid materializes in various ways. One ways is, that the state calls for tender but only companies with their headquarters within the own state territory are allowed to apply or restrictions for non-local companies are set up. Another form is shareholding by the government in originally private companies. This type of state aid is on the one hand difficult to define and on the other hand against the background of general ban of state aid difficult to reason (Rodi, 2000).

2.3. State aid control

The EU controls state aid through the tool Market Economy Investor Principle (MEIP). This measure – introduced in 1984 (European Commission, 1984) – is up until today used as key test on state measures whether they would represent state aid in the sense of AEUV (Slocock, 2002). MEIP is promoted to be a neutral assessment tool on state measures. The basic principle is comparing investments by states against market prices. It is focussed on the analysis on a specific investment and its aid beneficiary. The efficiency of any state aid is assessed indirectly. An investment, non-governmental investors would undertake in the same way, is not considered to be state aid (Schmauch, 2012). The method itself is criticised to neglect the efficiency of any state aid within the assessment, which leads to a trend to issue state aid to undertakings, which could be more effectively supported by other means (Friederiszick & Tröge, 2006)& (Nicolaides, 2014).

3. State aids to airports

While state aid itself within the EU is a common instrument and applied in various ways, there are special sets of regulation for specific industry sectors such as the aviation industry. The principle of the European Commissions (EC) guidelines is to encourage sound use of public funding of private undertakings on the one hand and the guarantee of non distorted aviation markets through state aid. First publications on state aids have been published in 1994 and 2005. The legally binding final version was released on the 20th of February 2015 (European Union, 2014).

3.1. New guidelines to apply state aid to airports

The guidelines issued detail the issue of two possible ways to support an airport, namely operating and investment aid. The maximum allowance of aid to any airport is limited according to its annual passenger volume as seen in table 3.

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Table 3: Airport Passenger volume categories according state aid regulation (European Commission, 2014)

Along with that, the allowance of state aid is referred to as one of two options: Investment aid or Operating aid. The paramounting condition for any aid given is the presence of one or more out of three preconditions: (i) “increasing mobility by establishing access points for intra-EU flight; (ii) combating congestion at major hubs and (iii) facilitating regional development” (European Commission, 2014, p.29). Any duplication of airports or creation of capacity without reasonable forecast of utilization is seen incompatible with the guidelines. Any measure has to be proved best feasible against less distortive aid instruments as state intervention by definition is seen as highly market disruptive (Forsyth et al., 2010).

3.2. Investment aid

The guidelines set out several cumulative conditions to be met in order to be deemed compliant to the EU law. The investment aid is seen as public investment in airport infrastructure and equipment. Any costs for non-aeronautical activities are not legible fundable. The maximum aid intensity – how the amount of funds is called – is dependent on the passenger volume per year of the airport concerned. In table 4 the allowance percentage is shown. An airport like Dortmund with 1.9 million passengers in 2012 (Dortmund Airport GmbH, 2012), would be eligible for up to 50% aid to the total cost of an infrastructure measure i.e. terminal building.

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Table 4: Maximum permissible aid intensities (European Commission, 2014)

Airports in remote regions are eligible for an extra of 20% irrespective of their size and any airport above 5 million passengers can get investment aid as well, as long as a severe market failure is proven while at the same time taking into account any market disruption caused by the potential aid given.

3.3. Operating Aid

Operating aid is related to the funding gap of the airport operations. Any aid given under this topic directly funds losses on the operational side. It is only permissible for airports with less than 3 million passengers and also only for a period of ten years. After the transitional period of ten years, no more operating aid is allowed any more except if issued under horizontal rules, which are for one of three reasons: (i) aid for environmental protection; (ii) aid for research and development and (iii) aid for rescuing and restructuring firms in difficulty (European Union, 2015).

The aid intensity is limited to 50% of the initial average gap calculated from the 5 years that preceded the transitional period (2009-2013).

Only one exception applies to airports with less than 700.000 passengers per year. They are eligible to 80% of the initial average funding gap (European Commission, 2014).

4. Definition of regional airport

The term regional airport is not specifically defined within German law or literature. Opposed to that, the term international airport is at the same time – even so not specifically defined – used in the Luftverkehrsgesetz §27d (LuftVG) and issued as part of the airport license issued in the Luftverkehrszulassungsordnung (LuftVZO). The German LuftVG is the implementation of the International Commercial Aviation Organizations (IACO) Annex 14 – Aerodromes into federal law (ICAO, 2013).

The LuftVZO distinguishes between four basic types namely airports, airfields and gliding airfields depending on the licensing and equipment requirements. Regional airports and international airports are not used as specific terms within that document. Airports are subdivided in commercial airports and special airfield (Bundesministerium der Justiz und für Verbraucherschutz, 2015). Special airfields are furthermore specified in the LuftVG as airports or airfields that are not part of the general infrastructure of the country or only serve a specific purpose such as private helicopter landing pads or military airports (Giemulla & Schwenk, 2013).

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Table 5: Airports classification according to LuftVG & LuftVZO in Germany

Based on the available legislation a regional airport within Germany is an airport according to LuftVZO that has not been licensed as international according to §27d LuftVG.

The Deutsche Flugsicherung GmbH (DFS) as German air navigation service provider (ANSP) is obliged to provide air traffic control at every international airport within Germany, that has been stated according to §27 LuftVG. Therefore every tower unit of the DFS can be seen as location of an international airport. Following this definition, Germany has 16 international airports as shown in figure 1. Together with that, the Federal Agency for Cartography and Geodesy (BKG) issued a map showing German international (blue) and regional (red) airports according to §27d LuftVG as seen on figure 2.

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Figure 1: International Airports in Germany (DFS GmbH, 2015)

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Figure 2: German international and regional airports (Federal Agency for Cartography and Geodesy, 2013)

The ADV however states 22 international airports within Germany and sets up a different definition on which airport is to be considered as regional and which one as international as shown in figure 2. The big blue airport symbols refer to international airports within Germany.

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Figure 3: International airports according to ADV (ADV, 2015)

The ADV definition is based on their statutes, which state in §10 c different criteria for an international airport. Any airport with scheduled public air traffic, that is not international based on §10c ADV statutes is defined regional airport (Potulski, 2015). The specific criteria shown in table 6 reveal a precise definition for international airports and allow airports without the title in accordance with §27d LuftVG to be referred to as international. At the same time, this definition is the only one available, specifically stating regional airports.

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Table 6: Criteria for international airports accroding to ADV (Potulski, 2015)

Apart from that, another airport classification is available according to the EC, based upon Community guidelines on financing of airports and start-up aid to airlines departing from regional airports (European Commission, 2005), which differentiate between four airport categories according to passenger volume.

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Table 7: Airport Categories adopted from Community Guidelines on financing of airports [...] (European Commission, 2005)

Other institutions like the Frauenhofer Society or the Deutsche Bank Research use within their research documents own definitions for international and regional airports. They are, however, closely related to the already described versions and will not be shown into detail. The many various definitions show, the different perspectives on the airport industry of many different parties.

For the purpose of this paper, airports according to the definition of the European Commission with less than five million passengers per year will be seen as regional airports unless they have been granted the status of international airport as per §27d LuftVG.

5. General effect of the new guidelines

The new guidelines on state aid to airports have one major general effect. Until the publishing of the new guidelines, state aid has in principle been prohibited unless certain specific conditions prevailed (European Commission, 2005). If the condition on which grounds the state aid has been issued vanish, the aiding could be stopped right away.

With the new guidelines, rules have been implemented on how to gain state aid. Certain preconditions have to be met and proved in front of the European Commission in order to get the approval for issuing state aid. The process, while on the one hand more demanding for the petitioner, acts as a general approval for state aids to airports. With the EU resolution on a specific state aid, the petitioner receives a letter of approval. Even with the elimination of the basis for the state aid, a new process is necessary to prove the state aid null and void (Schmittdiel, 2015). The operating aid is at the same time only just available for a limited time now.

It is natural to conclude, that the new guidelines are an attractive new potential for financing airports and the main challenge for all petitioners is to clear cut separate the operations of an airport from the infrastructure. Operational aid is no longer available after the transitional period of ten years. The operational side of the airport in general needs to be at least into the black. The infrastructure side is also in future eligible for state aids and can be additionally supported by that.

As an example the small international airport of Nürnberg can act as a role model for regional airports. While the airport in general produces losses for many years as for example 3.87 million Euro in 2013, the operational part of the airport is just about profitable (Airport Nürnberg GmbH, 2014). Table 8 shows the annual result of 2012 and 2013 in comparison.

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Table 8: Group Earnings Airport Nürnberg (Airport Nürnberg GmbH, 2014, p.22)

In addition, infrastructure investments take place every year nonetheless as shown in Table 9.

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Table 9: Investments of Airport Nürnberg (Airport Nürnberg GmbH, 2014, p.22)

Investment, even in times of loss making, is an important strategy for companies to continue to grow and to send a signal to potential investors of upcoming positive results (Brealey et al., 2011). According to the new guidelines for state aids to airports, infrastructure aid is seen compatible with the rules if i.e. the airport is able to reason a benefit for the area it is located in. Nürnberg airport holds a development appraisal from 2013 verifying a high contribution to the regional development of the Nürnberg area (UNICONSULT GmbH, 2013).

6. Potentially sustainable business models at selected airports

In order to continue successful business operations in the future, any airport is in need of sustainable business models. The past allowed state aid even for non-sustainable operations of an airport or with only limited positive future perspective. The new guidelines put more pressure onto the airport market and especially onto the regional airports as smaller contributors to the German airport network. The possibilities for state aid, while still available, are restricted to certain parts of the airport business. Any airport needs to set up a sustainable business model, capable to cover the costs of the part of operations, that is no longer seen compatible with the state aid rules. At the same time, the infrastructure part of the business model, which is still eligible to receive state aid, needs to undergo a reshaping in order to transform into a sustainable model.

This chapter chose selected German airports to show different business models with the potential of being sustainable in accordance with the new guidelines. The airports have been selected by asking professionals on sustainable business models for smaller airports. The best performer according to the answers of the professionals has been selected as example for this paper (Schmittdiel, 2015).

6.1. Koblenz-Winningen (EDRK)

The airport of Koblenz is a very small one in terms of commercial aviation founded in 1970. With a runway length of 1.210m, Koblenz is able to serve all types of business jets such as the Learjet 45 (Flugplatz Koblenz, 2015). However, it has no scheduled passenger or cargo traffic. The owner of the airport is the public utility company of Koblenz. This airport benefits from its location in between Cologne and Frankfurt/Main.

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Figure 4: Location of Koblenz-Winningen airport (Google, 2009)

While on the one hand, this location results in a lot of potential competitors in terms of commercial aviation, the area has dense industry and commercial activities. Business jets, owned by companies, need to travel to this area. Major airports like the close by Frankfurt airport or Cologne are very expensive in terms of landing and handling charges. Koblenz offers especially those customers a cheap alternative with low charges within one hour driving time from either the Rhein/Main area or the area of Cologne to the north (Schmittdiel, 2015). With as much as one hundred aircraft parking positions, it serves as a small business hub for this area (Flugplatz Koblenz, 2015). To keep the fixed costs low, the airport only serves visual flight rules (VFR) approach and departure procedures, which do not need specific air traffic control equipment. Also no special air traffic control service other than information service is provided. This reduces the capabilities of low visibility procedures, but the weather in this area is predictable and the very low fares attract the business customers.

The additional success of the airport managers is to additionally place a police helicopter squadron on site, which can serve as reason for the benefit of this small airport to the region in terms of infrastructure. The basis for a petition for state aid is laid in the case, the airport gets into financial trouble.

6.2. Bamberg (ETEJ)

The former military airport of Bamberg is about to be transformed. Several companies stated their interest in the location. The area is at the moment served by the Aero Club Bamberg, which provides parachute jumps and glider activities. The concept is to locate major companies from the surrounding area on site such as Bosch (Schmittdiel, 2015), while at the same time attract companies from other cities in the area like Brose, an automotive company, which is at the moment using Coburg airfield for business purpose. Coburg however, had to reduce the length of their runway because of licencing issues and is no longer able to serve all types of business jets (Mediengruppe Oberfranken GmbH & Co. KG, 2013). In addition, the possible stationing of police helicopters at Bamberg is discussed.

Following a similar concept as Koblenz, the future perspective for this airport would be the transformation into a business area with high tech companies, an aero club for leisure customers and the possibility for business jets to use Bamberg as alternative to Nürnberg airport, which has higher landing and handling charges (Bayrischer Rundfunk, 2014).

At present, the development is facing difficulties as the operating license has been issued to the Aero Club Bamberg, which would have to accept cut backs in their operations in order to support the development of the airport site. The present state of the negotiations is not available.

The business model niche has promising outlook as it has been proven feasible in Koblenz already.

6.3. Leipzig/Halle (EDDP)

Leipzig airport with its DHL freight hub operations since 2008 has become the second largest air freight and air mail hub in Germany behind Frankfurt airport with 233.646 tons of freight in the first quarter of 2015 (ADV, 2015). With being located in a sparsely populated area, the airports strategy to focus on business, that does not rely on the tourism attractiveness of the surrounding area, allowed to attract DHL as freight forwarder. Freight is attracted by low cost of workforce and night flying capabilities of the airport, which Leipzig was able to offer. The competition on the cargo market is global, so Leipzig is able to face the competition with other airports within Europe. The annual report of Leipzig airport listed some 60 million Euro of losses, while 53 million Euro are stated as depreciations and around 10.8 million Euro of interest liabilities for infrastructure investments (Flughafen Leipzig/Halle GmbH, 2015).

Taking into account the possibility for state aid on infrastructure investments, which would include support for interest liabilities and the fact, that current operation is covering the costs, this business model proves sustainability. This airport is facing challenges at the same time as well. As Leipzig airport is subject to night flying ban, which only allows exceptions for express freight flights. It is openly questioned in the media and the local population, under which conditions a flight is meant to be express freight (Günther, 2013). The German Federal Administrative Court already justified the exceptions for DHL with the statement, that it is not explicitly necessary to have a certain percentage of freight on a plane of a certain kind (Case 24.07.2008 - 4 A 3001.07, 2008).

Another challenge from the operational side is DHL as a customer itself. To reduce ground handling costs, DHL performs any ground handling activity themselves, which reduces the potential income of the airport. At the same time, the investments in the cargo warehouse has been done by Leipzig in terms of infrastructure investments and is leased to DHL. The risk of a negative net present value of the investment project is high (Schmittdiel, 2015).

7. Potentially critical business models of selected airports

The new guidelines on state aid for airports forces especially the smaller airports onto the markets. The guidelines do not differ between regional international airports although the main change as a matter of fact, will take place within the regional airport market. This puts pressure on airports, which are especially not able to cover the costs of the operational business. This chapter shows selected airports, which face problems because of their business model.

7.1. Dortmund-Wickede (EDLW)

The airport of Dortmund is stated as regional airport and in its own catchment area already three international airports as competitors (Cologne, Düsseldorf, Münster/Osnabrück). Düsseldorf is located within the same public transport area. Any passenger within the Rhein/Ruhr area is able to reach within one hour driving time any of those three airports.

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Figure 5: Dortmunds within the Rhein/Ruhr area with connection times to major destinations (Regionalverband Ruhr, 2014)

Düsseldorf itself has a mainly tourism focussed business model. The operational business is on the one hand the main revenue driver and on the other hand because of the fierce competition loss making. 381.232 passengers compared to 4.353.103 passengers at Düsseldorf have been visiting Dortmund in the first quarter 2015 (ADV, 2015).

Dortmund is under the current situation not able to operate without state aid according to the operating aid statutes. The current shortfall is expected as high as 19.7 million Euro in 2014 (Dortmund Airport, 2014). At the same time Dortmund airport is already subject to EU investigation because of state aids, which have been risk assessed. The potential of impact is stated to be between 25%-50% and the severity is rated existential threat (Dortmund Airport, 2014, p.7).

The new EU guidelines are explicitly stated as major threat within the annual report and the main reasoning is focussed on justifying the current state aid receivings.

Dortmund lodged a complaint with the European Commission on parts of the new guidelines, namely the status of air traffic control charges (Schmittdiel, 2015). The guidelines allow state aid for public authority tasks (European Commission, 2014), however air traffic control charges do not hold that status, but are within Germany, stated as such.

7.2. Zweibrücken (EDRZ)

The small airport of Zweibrücken is located within close distance to Saarbrücken airport. By car, only about 33 kilometres distance and about 40 minutes driving time separate the two airports. The area surrounding the airport in the southwest of Frankfurt close to the French border is much less populated than the immediate catchment area of Saarbrücken as seen in figure 6. According to the ADV reports, Saarbrücken welcomed 54.531 passenger in the first quarter 2015 and it is ranked the second lowest passenger volume. The situation for an airport like Zweibrücken is tense.

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Figure 6: Population Density in Germany (MR Kartographie, 2007)

From the 3rd of November 2014 on, the airport of Zweibrücken had to shut down operations as the state aid has not longer been granted by the EC (Airliners.de, 2014). The airport afterwards has been sold to a private investor group lead by the company TRIWO AG. The future plans stated in an initial announcement state a different – business customer centric – business model for the airport. The airport has been degraded to the minimum amount necessary air traffic control equipment to reduce fixed costs and the runway is open for leas to car companies for testing purpose (Landesschau aktuell Rheinland Pfalz, 2015).

The airport has been stated international airport according to the ADV rating before it had to file for bankruptcy (ADV, 2015).

The challenge of the new guidelines has already become solid and faces the airport industry within Germany.

8. Recommendations for German Regional Airports

The current situation after implementation of the new guidelines is ambivalent. For sustainable operations focussing on passenger traffic, the large airports are in favour. The very small airports however either shut down their business or operated already in small niche markets successfully.

8.1. Recommendations for small Regional Airports (<1million passengers per annum)

The focus has to be on the catchment area of the airport. Except Kassel-Calden, every small regional airport within Germany operates for more than ten years and data on the behaviour of the catchment area is available to investigate precisely. Under the current market perspectives as seen on figure 7, the potential of future growth in passenger traffic is present. However at the same time, the airlines move from small aircraft, which are well suited for the small regional airports such as Embraer 190 with a maximum of 114 seats to larger aircraft with a better fuel efficiency such as the Airbus A320 neo for short and medium haul and even A321 neo for long haul flights (Aero Telegraph, 2014).

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Figure 7: Global passenger volume trends (amadeus, 2013)

This trend most likely will take place on large regional airports or large major airports only that already serve a high amount of landings per day. The main challenge for this category of regional airports is to attract new routes in order to stay competitive in the air travel segment. An increasing passenger volume in the trend might be misleading as it does not automatically refer to an increased amount of connections.

The recommendation is to look for the available niche markets and on the very small airports and airfields on the one hand and to look for a potential partnership with the large airports on the other hand.

A competition with the large airports in Germany is pointless from several perspectives, but challenging the even smaller airports and airfields and go for their business model is a way with future potential. While still being in the transitional period, the financial pressure can be still on a manageable level and the transformation of the business model is possible as ten years perspective is a meaningful planning horizon.

A partnership with a large airport can be an option, if the regional airport is located within the large airports catchment area such as Kassel-Calden to Frankfurt or Dortmund to Düsseldorf. Especially large airports suffer from the general aviation taking a lot of space and contributing only little to the overall revenue. A close by remote location, taking over all general aviation and related operations might relief the large airport to a great extent, while still fulfilling the legal requirements. A reliable and fast connection between the two airports is necessary, though in the Rhein/Ruhr region already available.

8.2. Recommendations for large Regional Airports (1-5million passengers per annum)

The large regional airports are serving a reasonable amount of passengers each year resulting in a variety of connections already available. Those airports can opt for further improvement of their route network and attractiveness for passengers to chose this airport over a major international one. As well those airports are on a level, international airports in Germany like Nürnberg already in terms of passenger volume. The potential to rearrange the business model in order to cover the operations solely by the air traffic seems eligible yet already proven feasible. The large regional airports can also increase their attractiveness by offering point-to-point hub operations for low cost carriers. Some routes will have to be redirected from small regional airports to larger ones and this might be a possibility to concentrate those.

Also an airport cluster with several smaller airports and division of responsibilities seems a possible way to go in future. Taking over part of the operations on smaller airports close by such as for example in Saarbrücken and Zweibrücken or Dortmund and Düsseldorf can relief the financial pressure on the smaller partner and at the same time increase the revenue of the larger one.

8.3. General Recommendations

In general the recommendation for all German regional airports, no matter under which definition they are named as such is to focus on three pillars: (i) Operations in the black, (ii) secondary business and (iii) infrastructure state aid.

Reduce the costs of the primary business operations – the air traffic – to be able to cover them by the revenue from the operations. This includes the reduction of air traffic control services as well. Most of the equipment for high runway capacities such as instrument landing systems are very expensive to maintain and not as necessary as it might seem.

The secondary business is everything related to revenue from other sources than air traffic. As the passenger volumes most likely will never reach amounts to be attractive, alternative business ideas are relevant such as shown in chapter 6. In this area, niche markets of the local area need to be developed and also public interest organizations can be an option such as police forces, that are willing to move not only their helicopters to the airport but also a lager police station. Especially those developments would increase the potential for the third measure, the infrastructure state aid. It will be also in future necessary for all smaller airports, to receiver state aid in order to continue operations. Any possibility to ratify state aid measure should be taken into account. Existing state aid measures – even so not questioned at the moment – should be carefully investigated and the business model adopted to substitute it with future measures, meeting the requirements of the new guidelines.

This is reflected also in the idea of a German master plan for airport development. The approach, promoted for example by the Bundesveband der Deutschen Luftverkehrswirtschaft (BDL), is to implement a nation wide plan for the future development of air traffic within Germany with a general plan for the future of all airports. It would take into account the specific aviation related frame conditions like catchment areas and would strengthen the airports with a prosperous perspective (BDL, 2006).

Finally, Figure 8 on the next page shows a map of the German international and regional airports with the information given in this paper. Airports marked green are already running promising business models, airports marked red most probably will face problems and airports marked yellow show according to the findings promising location for any adoption of the findings.

illustration not visible in this excerpt

Figure 8: Selected airport business model illustration adopted from (Federal Agency for Cartography and Geodesy, 2013)

9. Conclusion

Based on the findings of the research, the new guidelines on state aid show two sides of a medal. On the one hand, they offer potential for specific state aid linked to infrastructural development and at the same time officially allowing this type of state aid. This reflects the specific demand of a certain area for development, supported by the state authorities. On the other hand, it forces small regional airports onto the open market. This, while intended by the regulation guidelines, is of some conflict potential. State aid itself might seem market disruptive in the first place, but some regions apart from business considerations might need governmental support. Any airport regardless of his size is a contribution to its industrial and commercial surrounding. Even with an approval to grant state aid grounded on that, it is difficult to argue as a petitioner.

Going into detail, the effect of the state aid guidelines will challenge every airport and especially the small regional ones, that are not able to cover the operations solely through the passenger volume. A three stage approach in mixing the business model with non aviation related parts, integrating public authorities into the airport site and state aid for the various development programs is seen as the one way to go for future independent operation. If this is for some reason not possible, the fusion with other close by airports to an airports cluster or the integration into a close by bigger airport is able to secure the airports existence.

The situation for every regional airport though is tough, but the study revealed some promising approaches already, that show, niche markets for small airports exists and can be used sustainable. Not every today existing airport can exist within a niche, but it is not yet decided, which one.

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