The EU aviation market is like an ecosystem in which the different constituent parts – namely, airlines, airports and passengers – depend on each other. In particular, air traffic (ie, passengers) is the lifeblood of the aviation industry. It is the source of:
- aeronautical revenue (passenger-related taxes and aircraft related taxes), which is collected by aircraft operators; and
- non-aeronautical revenue (retail concessions, duty free, car parking and food and drink), which is collected by airports.
These relationships changed in light of the covid-19 pandemic, which saw the volume of European passenger traffic decrease by 58% in 2021 compared with 2019 as a result of factors such as:
- travel restrictions;
- reduced flight slots;
- low passenger demand;
- new health and safety requirements; and
- personnel redundancies.
This decrease in passenger numbers brought unprecedented challenges to the EU aviation market. Numerous airlines have become insolvent – including EU airlines Flybe, City Jet and Virgin Atlantic. To make matters worse, a report by the International Air Transport Association estimates that European air traffic will not reach 2019 levels until 2024 at the earliest.
Under these circumstances, and keeping in mind that the crisis has lasted beyond any expectations, state financial support to airlines was required and unavoidable. EU member states have stepped in to ensure the viability of their air carriers, while European institutions have taken appropriate action to facilitate national authorities in their effort to mitigate the consequences of the crisis.
On 13 March 2020, the European Commission adopted a legislative proposal to amend the EU Slot Regulation,(1) seeking to support airlines by temporarily suspending slot usage rules. The EU Slot Regulation states that an air carrier which has operated a particular slot series for at least 80% of the summer or winter scheduling period is entitled to the same slot series in the equivalent scheduling period of the following year (known as "grandfather rights"). The objective of the proposal adopted by the Commission was to suspend the "use it or lose it" rule for slot allocation, with retroactive effect.
Most recently, through the EU Commission Delegated Regulation 2022/255, which came into force on 23 February 2022, the application of the grandfather rights clause has been further suspended for the period between 28 March 2022 and 29 October 2022.
On 19 March 2020, the European Commission adopted a State Aid Temporary Framework to enable EU member states to use the full flexibility foreseen under EU state aid rules. As a result, state aid to airlines in the context of covid-19 has been issued under:
- article 107(2)(b) of the Treaty on the Functioning of the European Union (TFEU) ("aid to make good the damage caused by natural disasters or exceptional occurrences"). The prerequisites for such aid are:
- proportionality; and
- direct causal link between the damage and the exceptional occurrence.
Specific restrictive measures are required for such aid to be issued; or
- article 107(3)(b) of the TFEU ("aid to . . . remedy a serious disturbance in the economy of a Member State"). The type of aid conferred in respect of this article cannot be applied to undertakings that were facing financial difficulties before December 2019.
EU airlines that received state aid under article 107(2)(b) of the TFEU include the following, among others:
- TAP Portugal (Portugal) – €452 million;
- Finnair (Finland) – €350 million; and
- Alitalia (Italy) – €200 million.
EU airlines that received state aid under article 107(3)(b) of the TFEU include the following, among others:
- Lufthansa (Germany) – €6 billion;
- Air France (France) – €7 billion; and
- KLM (Netherlands) – €3.4 billion.
The covid-19 pandemic meant that the European Commission had to relax the state aid rules for airlines. While the Commission was generally praised for its flexibility, some reservations were expressed about the impact of such a relaxation of the rules on competition and the maintenance of a level playing field. The distribution of state aid has played and still plays a key role for the survival of airlines. This is especially the case in view of the foreseeable future development of the European market in the aviation industry, with large low-cost airlines growing further through acquisitions of smaller companies and so-called legacy airlines being called upon to reconsider their business strategies, especially for medium-haul flights.
For further information on this topic please contact Laura Pierallini at Studio Legale Pierallini e Associati by telephone (+39 06 88 41 713) or email ([email protected]). The Studio Legale Pierallini e Associati website can be accessed at www.studiopierallini.it.