Irish budget airline Ryanair's financial agreement with the Belgian authorities is being investigated by the European Commission.

The inquiry centres on the contract struck when Ryanair opened a European hub in April 2000 at Belgium's Charleroi airport, which is part-owned by the Walloon regional authorities.

"We are probing what kind of financial arrangements there are between Ryanair and the Belgian government or the Walloon authorities," a spokesman for the European Commission said.

State aid to airlines is tightly restricted under European Union rules.

'No complaint'

Ryanair has denied there is anything improper in its contract to use Charleroi, saying the cost advantages of Charleroi are available to any airline.

"There is no complaint. [The EC in] Brussels has asked the Walloon region government for a copy of the contract with Ryanair - it does not involve us directly," company spokesman told the Observer newspaper.

Budget airlines like Ryanair and Easyjet have been outflanking long-established carriers in the battle for passenger numbers, a trend that has intensified since 11 September.

The use of secondary airports with much lower charges, as well as less congestion, has been an important part of their strategy.

'No frills' winners

Since the 11 September attacks sent passenger numbers plummeting, Belgian national carrier Sabena has been declared bankrupt and Swissair filed for bankruptcy protection.

The management of Swissair has been taken over by its more successful regional carrier, Crossair, while efforts are continuing to replace Sabena with a new company based on its regional subsidiary Delta Air Transport (DAT).

Meanwhile British Airways has confirmed it is conducting a radical review of its operations, which analysts believe centres on rationalising its European routes.

Ryanair, Europe's biggest 'no frills' airline, reported a 37% rise in passenger numbers to 5.3 million in the first half of 2001.

Ryanair's profits 39% jumped to 63.5m euros before tax.

Last month, it unveiled plans to open a second hub on mainland Europe, at Germany's Frankfurt-Hahn airport.

The airline also has bases at Dublin, London Stansted and Glasgow.

The EC spokesman said the inquiry into Ryanair is "at an early stage".