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28 Apr, 2010 07:01

Government looks at aviation support on volcanic ash

Russian air carriers may receive compensation for the volcanic eruption in Iceland. The government says it will consider support as soon as airlines calculate their losses.

$3.3 billion – that's approximately how much the closure of European airspace will cost the airline industry. According to HIS Global Insight calculations.

Air France lost an estimated $46 million dollars a day, Lufthansa around $33 million dollars, British Airways' daily losses were about $26 million dollars for each 24 hours flights were grounded, The numbers stand in vivid contrast with those from Transaero, the only Russian company that has calculated its losses so far. It lost around $660 thousand a day.

The eruption could not have come at a worse time for Europe’s already ailing airline industry. Analysts say as the sector has been acutely weakened, a number of companies would face bankruptcy if there were to be any further large shocks. The EU commission is asking member states to provide the airlines immediate relief with measures such as subsidized loans and deferring payments for air traffic control services. Under normal circumstances the measures would be considered illegal aid. Siim Kallas, EC Transport commissioner says that this doesn’t mean the focus is off a level competitive environment.

“State aid is not miracle, you must clearly understand it, there's no sack of money somewhere available, which is waiting for such type of crisis. You know the old practices of state aid how difficult it is and how important is the fair environment."

Russian aviation rode out the turbulence caused by the ash cloud in a slightly smoother fashion than its European competitors. This is mainly due to the fact the ash cloud took a while to come east. The Russian government, though, is considering paying compensation to help keep a key industry flying. Oleg Panteleev Editor in Chief of Aviaport Agency says this reflects the size of Russia’s aviation sector.

“Aviation industry is a fairly huge source of taxes, and if the government intends to support the sector that is so important for the economy, such measures would be reasonable.”

No final decision has been made on compensation, either here or in Europe. Certainly if the Russia government does decide to put its hand in its pocket, it's unlikely to be for all the losses incurred by the domestic industry.