State aid granted for airlines affected by the coronavirus pandemic declared compatible by the EU’s General Court

Yesterday, the EU’s General Court (“GC”) rejected two appeals brought by budget airline Ryanair, against the respective French and Swedish coronavirus pandemic aid packages for their domestic airline sector, which were notified and approved by the European Commission (the “EC”) in March/April 2020.

This is the first time the GC has examined the legality of State aid schemes adopted in order to address the consequences of the coronavirus pandemic under Articles 107(2)(b) and 107(3)(b) TFEU.

  • France: Here, Ryanair was appealing the EC’s approval of the French deferral of the payment of the taxes.  The aid scheme was subsequently approved in its decision of 31 March 2020, on the basis of provision listed under Article 107(2)(b) TFEU.  The latter provides a Member State may introduce “aid to make good the damage caused by natural disasters or exceptional occurrences is to be compatible with the internal market”.  Unsurprisingly, the GC confirmed “[t]he Covid-19 pandemic and the travel restrictions and lockdown measures adopted by France to deal with it, taken together, constitute an exceptional occurrence”.   The GC went on to underline, limiting the deferral of the payment of the taxes to airlines possessing a French license “is appropriate for achieving the objective of making good the damage caused by the exceptional occurrence” and “the extension of the aid scheme at issue to airlines not established in France would not have made it possible to achieve the objective of that scheme in so precise a manner and without a risk of overcompensation […]”.
  • Sweden: Here, Ryanair was appealing the EC’s approval of the Swedish loan guarantee scheme. The aid scheme was subsequently approved in its decision of 11 April 2020, on the basis of the Temporary State aid Framework rules (the “Temporary Framework”) introduced in March 2020 and enacted through the provision listed under Article 107(3)(b) TFEU.   The latter provides a Member State may introduce an aid scheme where it seeks “to remedy a serious disturbance in the economy of a Member State”.  Unsurprisingly again, the GC held the scheme “effectively seeks to remedy a serious disturbance in the Swedish economy caused by the Covid-19 pandemic.”  The GC also pointed out the limitation of the loan guarantee scheme to airlines in possession of a Swedish license “is appropriate for achieving the objective of remedying the serious disturbance in Sweden’s economy” and “[t]he extension of that aid scheme to airlines not established in Sweden, however, would not have made it possible to achieve that objective”.

The GC also held the aid schemes (restricted only to those airlines holding a national operating license) “did not go beyond what was necessary to achieve the stated objective” and therefore do not amount to discrimination prohibited under the first paragraph of Article 18 TFEU, as it does not apply to the “special provisions” invoked.

Importantly, the GC underlined a balancing exercise (i.e., the impact on competition) was not required where the measure was necessary, appropriate and proportionate, since it could be presumed to be in the EU interest given the ‘exceptional circumstances’.

Ryanair has publicly announced it will be appealing the Judgments to the Court of Justice of the European Union (the “CJEU”).  It will of course be interesting to see the arguments Ryanair will put forward to the CJEU in its appeals.

Notably, Ryanair is expecting Judgments from the GC in many other cases challenging State aid awarded by other Member States to their national flag carriers as a result of the coronavirus outbreak, including Latvia’s national flag carrier, airBaltic.  The Latvian aid scheme was notified and approved by the EC under Article 107(3)(b) TFEU.  Similar to the above, Ryanair is arguing, among other things, the EC failed to apply a balancing exercise (i.e., the impact on competition), discrimination, as well as an error of assessment by finding the aid addresses a serious disturbance in the Latvian economy.  It is expected the GC will follow through with similar reasoning as in its recent Judgments.

The airline industry has taken very heavy blows in recent months, and will continue to be the subject of hardships for the foreseeable future, until the global pandemic is brought under controllable levels.  Member States will continue to assist and support the airline industry in any way they possibly can, given its economic importance and value globally.  Many airlines have already announced, including airBaltic, they will likely need additional financial support in the near future.  On Monday, it was announced the Council of the EU adopted temporary measures to help the transport sector during the pandemic, including the relaxation of rules regarding airport slots.  These new rules aim at both protecting airlines and the environment (i.e., removing “ghost flights”).

by Charles Clarke, Expert Counsel, Latvia

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