Stella Michaelidou
The European Commission has opened a public consultation on a major revision of the rules governing state aid in the aviation sector.
The reform aims to modernise the 2014 Aviation Guidelines, reflecting new market conditions and the European Union’s broader priorities, including the energy crisis, the green transition, lower carbon emissions and the promotion of sustainable transport.
At the same time, the Commission is seeking tighter oversight of public funding to limit distortions of competition within the internal market.
The main proposed changes
The European Commission’s principal proposals include:
- A lower eligibility threshold for operating aid. The Commission believes larger airports should be able to cover their operating costs without state support. Operating aid would effectively be excluded for airports serving more than one million passengers, compared with the previous threshold of three million.
- The abolition of start-up aid for new routes. The Commission proposes removing this option entirely, arguing that airlines should assume the commercial risk involved in launching new services.
- Reduced access to investment aid. Investment support would be limited to airports serving up to three million passengers, compared with the previous ceiling of five million.
- A stronger link with the European Green Deal, through the incorporation of environmental criteria.
- Stricter assessment of the effects on competition, using a new methodology focused mainly on the “incentive effect” and the proportionality of the aid granted.
- A shorter transition period. This is the period during which an airport is expected to become viable and adjust its business plan without continuous state support. The Commission proposes reducing it to five years. The original period was 10 years, before being extended to 13 years during the COVID-19 pandemic.
Overall, the proposals represent a shift towards a stricter system governing state aid to airports and airlines. They also adopt a broader approach to assessing the economic advantages granted to aviation companies and airport operators.
The stronger examination of potential distortions of competition, the wider assessment of effects on neighbouring markets and the proposed abolition of start-up aid could mean that certain incentive arrangements, including those used in Cyprus, may face closer scrutiny under state aid rules.
This could apply even where such incentives arise through commercial contracts rather than direct state funding.
The Commission has already adopted a new framework for land and multimodal transport, significantly expanding the scope of state aid for sustainable transport, including railways, inland waterways and combined transport. Cyprus, however, is unable to benefit from many of these alternatives.
Cyprus has not used the existing state aid framework
Of particular importance to the Republic of Cyprus is that the existing incentives used to attract airlines have not been based on approved state aid schemes under the 2014 Aviation Guidelines.
Instead, they have largely been implemented through contractual and commercial arrangements under the concession agreement with the operator of Cyprus’ airports.
The Cypriot model relies on route-development mechanisms and incentive schemes implemented through the concessionaire. Until now, this has provided greater flexibility than conventional state aid schemes formally notified to the European Commission.
Cyprus’ failure to use the 2014 Aviation Guidelines may weaken its position when submitting proposals on the planned amendments. However, this should not prevent the Republic from participating actively in the consultation, particularly if it wishes to make use of the revised aviation guidelines in the future.
Cyprus’ geographical circumstances
Behind the Commission’s effort to rationalise the sector lies a critical question: can the same rules be applied in the same way to every member state?
For Cyprus, the answer is not necessarily yes.
Cyprus is not a typical EU member state. It is an island on the geographical edge of Europe, with no alternative physical connection to the rest of the Union beyond air and sea transport.
The new European approach, particularly the abolition of support for new routes, raises an important question regarding national incentive schemes that do not fall neatly within the conventional model of state aid.
For Cyprus, this is a practical rather than theoretical issue:
- Will these instruments continue to be considered compatible with EU law?
- Will the country’s ability to attract new flights be restricted?
- Could the country’s tourism prospects be affected?
In an economy where air connectivity is a necessity rather than a luxury, these questions carry particular weight.
Passenger numbers do not tell the full story
The proposed rules are based largely on one indicator: passenger numbers. The reality, however, is more complex.
A major airport in a mainland country does not play the same economic and social role as an airport on an island that depends heavily on air transport.
Applying uniform rules without taking geography into account risks:
- creating unequal conditions between member states;
- restricting countries facing permanent structural disadvantages;
- disproportionately affecting Europe’s peripheral regions.
The discussion should therefore not be confined to whether the rules are becoming stricter.
The central question is how Cyprus can adapt to a system in which traditional tools are being restricted while the new framework risks being overly rigid and unsuitable for small island states.
This may require a reassessment of existing incentives to ensure their compatibility with European law, combined with active Cypriot participation in the consultation so that the country’s circumstances are properly reflected.
Dependence on air transport
The proposed changes could create serious challenges for Cyprus because of its geography and heavy dependence on aviation.
Unlike member states with extensive railway networks or alternative land connections, the Republic of Cyprus depends almost entirely on air transport for tourism, business activity, social cohesion and access to the rest of the European Union.
Abolition of start-up aid
Although Cyprus has not used the 2014 state aid framework, the abolition of start-up aid could negatively affect the development of new air connections, particularly during the winter or to secondary European markets.
Cyprus has long used incentive mechanisms to attract low-cost airlines and strengthen tourism connectivity.
Should these mechanisms be considered incompatible with the new framework, the state’s ability to support the diversification and expansion of the tourism sector could be significantly restricted.
Stricter operating aid rules
Stricter operating aid rules could also indirectly affect the viability of smaller regional airports or services classified as Services of General Economic Interest, known as SGEI.
Although Larnaca and Paphos airports do not necessarily fall within the category of small regional airports, Cyprus faces permanent structural disadvantages arising from seasonality and its limited domestic population.
Environmental criteria
The Commission’s shift towards environmental criteria could impose additional investment requirements relating to sustainable aviation fuels, green infrastructure and environmental upgrades at airports.
Although these objectives are legitimate, their implementation involves higher costs for small island economies with limited economies of scale.
Special provisions for island member states
The changes could have significant consequences for Cyprus’ ability to retain instruments supporting aviation connectivity, particularly for seasonal routes, new markets and winter tourism incentives.
The Republic of Cyprus should therefore seek explicit clarification or special provisions for island member states.
It should ensure that commercial incentive schemes applied under market conditions and through concession agreements are not automatically treated as prohibited state aid.
Proposals for Cyprus
Cyprus could advance the following positions within the framework of the EU’s state aid rules:
1. Market Economy Operator Principle
Cyprus should argue that existing airport incentives operate on a commercial basis and are expected to generate reciprocal benefits for both the airport operator and the wider economy.
2. Flexibility for concession-based arrangements
Cyprus should seek explicit recognition that concession agreements involving private operators should not automatically be presumed to involve state resources.
This is legally significant for Cyprus and could represent one of its strongest arguments during the consultation.
3. An exemption based on island connectivity
Cyprus should seek a specific exemption for island states under Article 174 of the Treaty on the Functioning of the European Union, which addresses territorial cohesion and permanent geographical disadvantages.
The country should stress that, unlike many mainland European states, it has no alternative land transport links.
Connectivity for an island does not merely support economic activity. It is also an essential condition for economic and social cohesion.
4. Continuation of start-up aid schemes
Cyprus should seek the retention, or at least the limited continuation, of start-up aid schemes for island and remote regions.
The complete abolition of such support could reduce connectivity, increase ticket prices and lead to further market concentration among a small number of major airlines.
5. Greater flexibility on operating aid thresholds
More flexible operating aid thresholds should be introduced for member states without alternative transport connections.
Applying identical quantitative criteria to all member states disregards the objective differences between mainland and island economies.
6. Simplified assessment for green investments
Cyprus should support a special exemption or a simplified compatibility assessment for green-transition investments at airports in small island states.
Such investments should not be considered solely through the lens of competition. The EU’s strategic autonomy and green-transition objectives should also be taken into account.
7. Continued use of SGEI schemes
The possibility of using SGEI schemes to guarantee essential air connectivity should be preserved.
This could provide an alternative compatibility mechanism in cases where traditional operating aid is no longer permitted.
8. Building alliances
Cyprus should coordinate with other island and peripheral member states, including Malta, Greece, Portugal and Ireland, to promote a common position within the Council and during the Commission’s public consultation.
Protecting Cyprus’ existing incentive model
The proposed European framework represents a significant change in philosophy, moving away from support for regional connectivity and towards stricter controls combined with environmental conditions.
For Cyprus, this creates substantial risks for connectivity, tourism and economic competitiveness.
Early and well-documented intervention by the Republic of Cyprus during the Commission’s consultation will be essential to ensure that the circumstances of island member states are adequately reflected in the final regulatory framework.
This is particularly important because the Commission appears to be moving towards stricter treatment even of indirect advantages granted to airlines, especially where they are linked to route-development incentives or differentiated charges.
The risk for Cyprus is therefore not limited to the loss of conventional state aid under the new framework. The proposed rules could also affect the country’s existing incentive system.
Efforts to support and protect Cyprus’ connectivity should not focus solely on the final form of the new state aid rules. They should also seek to protect the compatibility of the existing incentive scheme and related commercial advantages, including:
- route-support mechanisms;
- marketing support arrangements;
- differentiated airport charges;
- traffic-development programmes.
This is especially important because of Cyprus’ particular operating model, under which the airports are managed by a private concessionaire while remaining subject to strong state oversight and strategic control.
The author is the Commissioner for State Aid Control.
