On 10 May 2023, the General Court of the Court of Justice of the European Union (Court) published its judgment in Cases T-34/21 Ryanair v Commission and T-87/21 Condor Flugdienst v Commission (Lufthansa; COVID-19). This judgment represents a rather abrupt change in the flight path of a number of judgments upholding decisions of the European Commission (Commission) that State aid granted to airlines during the Covid-19 pandemic were compatible with the Single Market.

The substantive issue giving rise to the judgment related to the European Commission's decision to give clearance to the German government to provide Lufthansa with a State Aid package which had a gross value of approximately €6bn. Ryanair (together with another German competitor – Condor Airlines) claimed that the Commission had erred in law in its original June 2020 decision to declare that this package was compatible with the Single Market under Article 108(2) TFEU.

The Court concluded that the Commission had not accurately assessed Lufthansa's original claim that when the pandemic first began that they had such limited means by which they could earn revenue that there was no alternative revenue stream available to Lufthansa bar the significant State Aid package they received in June 2020. The Court's criticism of the Commission's initial assessment focused around three primary analytical errors.

First, the Court highlighted that the Commission had in practise made limited effort to investigate the alternate revenue that could have been available to Lufthansa through their fleet of planes. The Court noted that Lufthansa own 86% of their fleet, and that 87% of the fleet they owned would not have been in commercial service in June 2020. Evidence provided to the Court indicated that this fleet would have had an approximate value of €10bn. The Court was persuaded by evidence given by economists that Lufthansa would have been able to leverage the fleet they owned as collateral as part of efforts to raise financing in the early months of the pandemic.

Secondly, the Court was persuaded that the Commission had erred in its approach to assessing the quantifiable relative value that could be induced by virtue of the size of Lufthansa's 'Significant Market Power' (SMP) at certain airports. The arguments raised by the parties in relation to evaluating SMP are complex, however the essential grievance concerned an inconsistency in the Commission's approach in relation to SMP. In particular, at certain airports the Commission's approach to SMP only concerned metrics such as take-off slots controlled by Lufthansa, however at other airports SMP was evaluated in conjunction with the amount of aircraft Lufthansa had stationed at the particular airport.

Thirdly, the Court found that the Commission had erred by facilitating a package of aid with terms that were disproportionately generous to Lufthansa. Lufthansa's State Aid package was issued shortly after the implementation of the Commission's Covid era Temporary Framework for State Aid. While the Temporary Framework introduced many measures which served to relax obligations concerning State Aid, the Court concluded that Lufthansa's package was still not proportionate to the terms of the Framework. One noted area where Lufthansa's package failed to align with the terms of the Temporary Framework related to what is described as a 'step up' mechanism' in the Framework. Appropriately constructed step up mechanisms should serve to ensure that interest payments on aid received would gradually increase over time in order to incentivise the beneficiaries of the aid to buy back State capital they had received. The Court concluded that Lufthansa's package had not included a step-up mechanism in line with the requirements of the Framework.

The judgment from the Court marks a change in the Courts jurisprudence upholding State aid granted to airlines arising from the Covid-19 pandemic. It also shows a divergence in the Court's approach to the deference it has shown to the Commission with regards to the implementation of the Framework. It is also worth noting that shortly after the decision, Ryanair had a similar victory in a case regarding State Aid packages granted to Italian airlines during the pandemic. These judgments may serve as an incentive to potential litigants to bring proceedings on claims that may still be lingering in relation to unlawful State Aid packages that were issued under the Temporary Framework.