Introduction
EU state aid
Amendments to state aid rules in light of covid-19 pandemic
Effects of EU state aid on competition
Foul play in aviation industry?
Appeals against Lufthansa aid brought by Ryanair and Condor
Comment
Shortly after the initial covid-19 outbreak in Europe and the subsequent shutdowns in March 2020, the European Commission (the Commission) adopted a temporary framework to enable EU member states to support their economies by taking advantage of the full flexibility of EU state aid rules. Given the limited size of the EU budget, this support largely came from, and will continue to come from, member states' national budgets. A temporary framework was designed to support the economy, while limiting negative consequences in order to maintain equality in the single market. This article looks at the background of EU state aid and explores the implications of the recent extension on competition in the European Union.
Generally, a company that receives government support gains an advantage over its competitors. Therefore, the EU competition rules generally prohibit government support (ie, state aid), unless it is justified by reasons of general economic development. To ensure that this prohibition under EU law is respected and exemptions are applied equally across the European Union, the Commission is in charge of ensuring that state aid complies with EU competition rules. The covid-19 outbreak is in fact a perfect example to grant state aid, as this pandemic represents an exceptional event, which has caused great damage in all member states.
Amendments to state aid rules in light of covid-19 pandemic
On 19 March 2020, the Commission adopted a Temporary Framework to enable EU member States to use European state aid rules to support the European economy throughout the covid-19 crisis (C(2020) 1863). Amendments to the Temporary Framework have been made six times since then.(1) With the last amendment, dated 18 November 2021, the Commission extended the state aid temporary framework to 30 June 2022, which was previously set to expire by 31 December 2021.(2)
The temporary framework recognises the fact that the entire EU economy is experiencing a serious disturbance. This framework is based on article 107(3)(b) of the Treaty on the Functioning of the European Union (TFEU) and complements other possibilities available to member states to mitigate the socio-economic impact of the coronavirus outbreak in line with EU state aid rules. One such possibility under article 107(2)b of the TFEU provides for the compensation for specific companies or sectors for the damages that are directly caused by exceptional occurrences, which would encompass the covid-19 pandemic.
Effects of EU state aid on competition
The temporary framework enabled all 27 EU member states to implement large state aid responses. All EU member states have used the potential and the flexibility of the European state aid rules to support their national economies to a certain extent. Some covid-19-related aid schemes have been designed to support specific companies, such as airlines, airports and train operators. Many other support schemes have also been designed to specific support industries and sectors.
The aid packages have varied in size. However, in certain cases, it is not possible to keep track of aid distribution, as many companies have received several different packages from different schemes.
Based on the available state aid data, competitors could fear damage to the level playing field, especially as the wealthier member states would have out-spent the other member states. Indeed, some competitors are paying close attention to which companies are taking what aid.
Foul play in aviation industry?
During the first months of the pandemic many large aviation companies (national carriers), received support out of deep pockets of their respective governments. State aid was granted not only directly but also in differing form, Italy for example funding a scheme to compensate airlines or France funding Air France's recapitalisation.
Ryanair was among the airlines that did not benefit from such subsidies, which prompted Ryanair to question the integrity of the economic level playing field within European aviation. Ryanair has since appealed against several occasions in which national governments have sought to stabilise and ultimately save their national carrier in face of the economic downturn caused by the pandemic.(3) Most significantly, these cases evolve around the matter of article 107 of the TFEU, aiming at the annulment of the decisions of the Commission that saw respective aid measures approved.
Article 107(2)(b) of the TFEU allows the Commission to approve state aid granted by member states to compensate specific companies or sectors for damage directly caused by exceptional occurrences. According to Ryanair's reasoning in its challenge of the Condor aid, such exceptional occurrence affected more than one undertaking. Granting state aid to a single company alone would therefore be insufficient to remedy such an occurrence and would hence constitute an unnecessary differential treatment. Ryanair maintains that they had fallen victim to misapplications of the balancing test and unjustifiable violations of the non-discrimination principle, infringing their freedom of establishment and free provision of services. Furthermore, the proportionality of the aid to the damage caused by the pandemic, as well as, in some cases, proper conditions regarding the exit of states were to have been missing in some cases, constituting a misapplication of article 107(2(b) of the TFEU.
Other challenges address the Commission's application of article 107(3)(b) and the State Aid Temporary Framework, contesting the finding that state aid addressed a serious disturbance in the respective economies. A reoccurring ground of appeal is based on the procedural argument that the Commission had failed to open formal investigation procedures and to state reasons therefore despite "serious difficulties". In any case, Ryanair claimed that the Commission was violating specific provisions of the TFEU and the general principles of European law "that have underpinned the liberalisation of air transport in the EU since the late 1980s".
10 Commission decisions have been handed down by the General Court (GC), seven of the appeals being rejected. In other Commission decisions against TAP, KLM and Condor, the GC found that the Commission failed to provide sufficient explanation in regard to the measures used. Since then the Commission has moved to re-adopt some of the amended decisions.
Appeals against Lufthansa aid brought by Ryanair and Condor
The appeal brought by Ryanair against the Lufthansa aid forms but one of the many challenges launched by Ryanair. In this particular case – apart from the aforementioned grounds of appeal – one of the issues raised is the alleged failure of the Commission to impose an effective ban on "aggressive expansion" by Lufthansa as well as to apply proper exit conditions of the state. Built around similar grounds of appeal, notably on the ground that the Commission misapplied article 107(3)(b) of the TFEU, Condor has likewise challenged(4) the state aid granted to Lufthansa.
The measures taken up to stabilise Lufthansa include a €6 billion recapitalisation fund on the basis of the state aid temporary framework, as well as a state guarantee on a €3 billion loan that Germany plans to grant to DLH, which is parent to Lufthansa Group.
So far, the GC in Luxembourg has backed the member states and the Commission that approved the aid that was given to the aforementioned airlines under the temporary framework. However, member states granted and the Commission indeed approved significant aid packages for national airlines, such as:
- Air France-KLM;
- Lufthansa;
- Alitalia;
- SAS;
- TAP;
- Finnair;
- Norwegian;
- LOT;
- Condor; and
- Air Europa.
Ryanair is taking aggressive action against this to prevent member states from writing "open-ended cheques to their inefficient zombie flag carriers in the name of faded national prestige".(5)
From the point of view of competition law, it is always welcome courts clarify questions as to whether, in certain cases, competition is being eaten up by excessive subsidies. However, it remains to be seen how certain state aid, some of which has already been repaid, will be assessed under competition law by the European courts.
For further information on this topic please contact Sebastian Jungermann or Daniel Bunsen at Arnecke Sibeth Dabelstein by telephone (+49 69 979885 465) or email ([email protected] or [email protected]). The Arnecke Sibeth Dabelstein website can be accessed at www.asd-law.com.
Endnotes
(1) The amendments to the temporary framework are dated:
- 3 April 2020 (IP/20/570);
- 8 May 2020 (IP/20/838);
- 29 June 2020 (IP/20/1221);
- 13 October 2020 (IP/20/1872);
- 28 January 2021 (IP/21/261); and
- 18 November 2021 (IP/21/6092).
(2) Further information is available here.
(3) Ryanair against Polish LOT (T-398/21 Ryanair and Ryanair Sun v Commission before the General Court); Ryanair and Laudamotion against Austrian aid (C-591/21 P Ryanair v Commission before the European Court of Justice); Ryanair against Air France, Portuguese TAP (T-499/21 Ryanair v Commission; T-743/21 Ryanair v Commission before the General Court; T-494/21 Ryanair and Malta Air v Commission before the General Court; T-216/21 Ryanair and Malta Air v Commission before the General Court); Ryanair against Spanish aid (C-441/21 P Ryanair v Commission before the European Court of Justice); Ryanair against Finnair aid (T-444/21 Ryanair v Commission before the General Court); Ryanair against SAS aid (C-320/21 P SAS Sweden, C-321/21 P SAS Denmark and C-353/21 P Finnair before the European Court of Justice); Ryanair against TAP aid (T-499/21 Ryanair v Commission before the General Court); Ryanair against Aegean aid (T-340/21 Ryanair v Commission before the General Court); Ryanair against second clearance of Alitalia aid (T-333/21 Ryanair v Commission before the General Court); Ryanair against Air France recapitalisation aid (T-494/21 Ryanair and Malta Air v Commission before the General Court); Ryanair against Italian aid (T-268/21 Ryanair v Commission before the General Court); Ryanair against SAS recapitalisation aid (T-238/21 Ryanair v Commission before the General Court); Ryanair against Alitalia aid (T-333/21 Ryanair v Commission before the General Court); Ryanair against Croatian Airlines aid (T-111/21 Ryanair v Commission before the General Court); Ryanair against Condor aid (T-665/20 Ryanair v Commission before the General Court); Ryanair against Lufthansa aid (T-34/21 Ryanair v Commission before the General Court).
(4) Condor against Lufthansa aid (T-87/21 Condor Flugdienst v Commission before the General Court).
(5) Further information is available here.