October 1, 2014 / 11:59 AM / 3 years ago

UPDATE 2-EU rules low cost carriers, airports given illegal state aid

* Charleroi, Zweibruecken airports ordered to pay back aid

* Some low cost airlines also told to return subsidies

* Brussels Airlines faces scrutiny (Recasts, adds comment from Belgian ministry, Brussels Airlines, Germanwings, Ryanair, details)

By Foo Yun Chee

BRUSSELS, Oct 1 (Reuters) - Two European airports and a number of budget airlines, including Ryanair and Lufthansa's carrier Germanwings, have been ordered to pay back millions of euros in illegal subsidies, EU regulators said on Wednesday.

The European Commission also warned Belgium that it may be giving unauthorised subsidies to Brussels Airlines.

The Commission rulings come amid a series of investigations in recent years into deals granted by regional authorities to attract budget airlines to secondary European airports.

Such agreements have played a key role in the explosive growth of low-cost carriers and their success in competing with traditional rivals such as Air France and British Airways.

The EU state aid regulator told Germany's Zweibruecken airport to recover 1.2 million euros ($1.5 million) in illegal marketing and airport services deals from Germanwings, 500,000 euros from Ryanair and 200,00 euros from TUIFly.

The airport, which is adjacent to France, will also have to pay back about 47 million euros itself in investment and operating aid to the German authorities because it had given the facility an unfair advantage over competitors.

Zweibruecken, which is in insolvency proceedings and is searching for an investor, declined immediate comment.

Ryanair, which stopped flying to Zweibruecken in 2009 having carried just 50,000 passengers, said it would appeal the ruling, while Germanwings said it was examining the decision.

The Commission said Italy's Alghero airport on the island of Sardinia would have to recover small amounts of illegal state aid given to Germanwings in 2007 and to Meridiana in 2010.

However it approved state aid granted by Italian authorities to the airport and by Germany to Saarbruecken and Frankfurt Hahn airports as well as clearing Swedish aid to the Vasteras Airport and several deals between the Swedish airport and Ryanair.

BELGIAN DEALS

By contrast, the EU executive ordered Belgium's regional airport at Charleroi, principally used by Ryanair, to pay back 6 million euros in illegal state aid.

The Commission also opened an investigation into 57 million euros of subsidies paid by Belgium, chiefly to Brussels Airlines, which is 45-percent owned by Lufthansa.

Jetairfly and Thomas Cook are also receiving smaller payments from an annual 19 million euro subsidy for the period 2013-2015.

Belgium's transport ministry said the aid was to create a more level playing field between Belgian and non-Belgian carriers.

Other airlines, such as Ryanair, operate in Belgium, but are not bound to pay higher Belgian employment tax and social security contributions, something the ministry said the Commission had recognised and was planning to end by 2020.

"The funds are designed to bridge this transition period and to avoid Belgian airlines going under," a ministry spokeswoman said. Brussels Airlines said it had parked the funds on its balance sheet, but had not so far used them. ($1 = 0.7933 euro) (Reporting by Foo Yun Chee; Additional reporting by Victoria Bryan in Berlin and Phil Blenkinsop in Brussels; editing by Crispian Balmer)

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