Dundee City Council has referred a proposed subsidy to Loganair to the Competition and Markets Authority's Subsidy Advice Unit (SAU), the first airline subsidy to be considered under the UK's new subsidy control regime introduced by the Subsidy Control Act 2022.
Special rules for support to operate air transport routes
The UK's post-Brexit subsidy control regime – which we have previously written about here, here, here and here – specifically prohibits subsidies from being given to air carriers to support air routes unless one of three conditions is met:
- Operation of the route is a public service obligation imposed on the air carrier by law;
- The granting authority is satisfied that the subsidy will provide benefits for society at large; or
- The subsidy is for opening a new route to a regional airport and the granting authority is satisfied that the new route will increase the mobility of citizens and stimulate regional development.
Even if one of those conditions is met, that only means that the subsidy is not prohibited – it will still be necessary for the subsidy to meet the ordinary requirement that the granting authority is satisfied that it is compliant with the subsidy control principles. Those concern whether the subsidy is a justifiable and proportionate means of achieving a legitimate public objective such as fixing a market failure or remedying a social inequity.
The referred subsidy
Dundee City Council proposes to award £6.2m to Loganair over the period from October 2023 to October 2025 to support it in providing a scheduled air service between Dundee Airport and any of the six airports serving London. The policy objective is to achieve economic and social benefits that the Council anticipates will be provided by a commercial air route between Dundee and London.
The route between Dundee and London has been subject to a public service obligation since 2019, so the proposed subsidy escapes the prohibition in section 28 of the 2022 Act. However, as it exceeds £5m it qualifies as a subsidy of interest and is therefore subject to a voluntary referral to the SAU.
The SAU's role is to review and comment on the Council's assessment of whether the subsidy control principles are being complied with. It cannot block the subsidy from proceeding, but an adverse report might undermine the Council's position in the event that the subsidy is challenged – and make a challenge more likely.
What happens next?
The SAU has until 25 October to prepare its report to Dundee City Council. The deadline for interested parties to make submissions to the SAU about the proposed subsidy is 5pm on Thursday 28 September.