BMI Baby said it was forced to axe services because of big losses
Budget airline BMI Baby has been ordered to pay damages to Durham Tees Valley Airport after it withdrew services in 2006.
Appeal Court judges ruled in favour of the airport, which had estimated its losses at £12m.
The airport, near Darlington, claimed the carrier flouted a deal signed in 2003 to fly two of its planes out of the airport for a minimum of 10 years.
BMI Baby said it planned to lodge a formal appeal.
BMI Baby blamed its 2006 decision on mounting losses and said it could no longer justify operating services from the airport.
Durham Tees Valley lost an initial claim for damages in May 2009, but mounted an immediate appeal, which was heard in London on Wednesday.
Lord Justice Patten, sitting at the Civil Appeal Court with Lord Justice Mummery and Lord Justice Toulson, said BMI Baby were in "repudiatory breach" of the contract.
The airline now also faces legal cost bills likely to exceed £1m.
Hugh Lang, group airports director for Peel Airports Group, which owns Durham Tees Valley, said: "Today's judgement totally vindicates the action we have been pursuing.
"The action of BMI Baby was totally avoidable and while we found it regrettable to sue our former airline partner they had left us with no alternative."
A spokesman for the airline said it would be lodging an appeal as soon as practicable.
The case will now go back to the High Court for an assessment of the damages due from BMI Baby.