In its judgment T-677/20 of 14 July 2021, the General Court of the EU confirmed, with regard to the annulment proceedings brought by Ryanair and Laudamotion, that the aid granted by Austria to Austrian Airlines was compatible with the internal market and did not lead to any overcompensation in favour of the Lufthansa group (of which the Austrian airline is part) for the damage suffered by the airline due to the pandemic.

Compensation for damage caused by the pandemic to Austrian Airlines, approved by the Commission

The European Commission approved, in its decision of 6 July 2020, State aid in the form of a subordinated loan convertible into a grant of EUR 150 million granted by Austria to Austrian Airlines.

The aid, notified under Article 107.2 b) TFEU, was to compensate the airline for the damage suffered as a result of cancelling or rescheduling its flights following the introduction of travel restrictions and other lockdown measures during the coronavirus crisis.

Indeed, this provision obliges the Commission to declare that aid intended to remedy damage caused by natural disasters or other exceptional occurrences is compatible with the internal market. The COVID-19 crisis was considered by the Commission as an “exceptional occurrence” within the meaning of Article 107.2 b) TFEU due to its exceptional and unpredictable nature and its major repercussions on the economy.

Therefore, since the start of the pandemic, the Commission has authorised compensation for many companies for damage caused directly by the COVID-19 crisis, whether in the air transport sector for airlines such as Finnair, SAS and Alitalia (see in particular our articles of 28 April 2020, 18 May 2020, 20 October 2020, 25 May 2021 and 2 July 2021), or in other sectors, including in particular the tourism sector (see our article of 26 May 2021 about aid for the Waterloo 1815 Memorial).

Ryanair and Laudamotion’s action for annulment On 13 November 2020, Ryanair and Laudamotion brought an action before the General Court of the EU seeking to annul the Commission decision of 6 July 2020 authorising aid for Austrian Airlines. Ryanair has in fact systematically challenged before the General Court all Commission decisions authorising individual aid for airlines or aid schemes limited to a state’s national airlines. Although the Court rejected the majority of these actions, Ryanair has recently secured victories in the KLM, TAP and Condor cases (see our articles of 1 June and 24 June 2021).

In support of their action, the applicants relied on five grounds for annulment. The first concerned the fact that the Commission had not examined Austria’s aid in the light of all the aid measures granted to companies in the Lufthansa group, nor the relationship between them.

Their second plea was based on the violation of the principles of non-discrimination, freedom to provide services and freedom of establishment. In their third plea, the applicants criticised the Commission for misapplying Article 107.2 b) TFEU and for a manifest error of assessment. The fourth plea argued that the Commission should have initiated the formal investigation procedure. The fifth plea invoked a breach of the obligation to state reasons.

The position of the General Court of the EU

In its judgment, the General Court examined the Commission’s decision in the light of the various pleas relied on.

As regards the first plea, the General Court observed that, in its decision, the Commission examined the measure in a global manner, specifying that it formed part of a larger financial package, made up of the concerned measure but also of a contribution in equity of the parent company Deutsche Lufthansa (totalling EUR 150 million).

In that regard, the General Court confirmed that, although that amount comes from aid which is the subject of an earlier decision relating to the Lufthansa group, it constitutes, in any event, aid already authorised under the decision of the Commission on the recapitalisation of the Lufthansa group (see our article of 30 June 2020).

The Commission also recalled that, in accordance with the said decision, the EUR 6 billion aid granted by Germany could be used to support other companies in the Lufthansa group which were not in difficulties on 31 December 2019, which is the case for Austrian Airlines.

In addition, the General Court emphasised that, in the above-mentioned decision, the Commission had already taken into account all the aid measures granted to companies in the Lufthansa group and the relationship between them. The General Court also recalled that the Commission had ruled out any risk of overcompensation in its decision on the recapitalisation of Lufthansa, which provided that financial support granted by other states to companies in the Lufthansa group would be deducted, either from the amount of aid under the recapitalisation decision or from the German loan.

In other words, by a deduction mechanism provided for in the decision, which applied to all the measures adopted in favour of companies in the group, the overall aid granted by Germany to the entire Lufthansa group would be reduced by the aid granted by other states to companies in that group, which would mean that the Lufthansa group’s total amount of aid would remain the same, thus avoiding any overcompensation.

In view of the above, the General Court rejected the first plea of Ryanair and Laudamotion and confirmed that the Commission had indeed examined the aid measure for Austrian Airlines in the light of all the aid measures granted to companies in the group and also the relationship between them.

In addition, the Court confirmed that the deduction mechanism provided for in the Lufthansa group’s recapitalisation decision, which applied to all the measures adopted in favour of companies in the group, ruled out any risk that the Austrian Airlines aid might benefit other companies in the Lufthansa group.

As regards the applicants' second plea, alleging first of all an infringement of the principle of non-discrimination, the General Court clarified that if the difference in treatment – caused by the granting of the aid – between Austrian Airlines and the other airlines operating in Austria constituted a discrimination, it was justified in the circumstances, in particular given the essential role that Austrian Airlines plays in providing air service to Austria. The Court also noted that this difference in treatment would be appropriate to remedy the damage suffered by the airline due to travel restrictions and other lockdown measures during the COVID-19 crisis and that the aid would not exceed what is necessary to achieve this objective.

The General Court also rejected the other two parts of the second plea, which alleged an infringement of the principles of the freedom to provide services and of the freedom of establishment. The General Court recalled that the transport sector is subject to a special legal regime and that, in their action, the applicants did not establish why the exclusive nature of the aid measure would prevent them from establishing themselves in Austria or from providing services from and to Austria.

As to the third plea, the General Court found that the Commission did not commit an error of assessment in examining the proportionality of the aid in terms of calculating the total amount of aid. In this regard, the Commission took into account the damage that had occurred as a result of cancellations and rescheduling imposed by Austria, which occurred before the airline’s fleet was grounded. In addition, the Commission took into account avoided costs (such as fuel, personnel, maintenance and airport tax costs), which should be excluded from the amount of damage caused to Austrian Airlines by the pandemic.

The General Court also recalled that the Commission had not failed to take into account all the aid measures likely to benefit the Lufthansa group when assessing the proportionality of the aid.

In its judgment, the General Court then rejected the applicants’ fourth and fifth pleas, namely the violation of procedural rights and the obligation to state reasons. The General Court noted that the fourth plea did not have independent content but merely repeated the arguments developed in the previous pleas, which the General Court had already examined.

In rejecting the fifth plea, the General Court first recalled that a decision adopted at the end of the preliminary examination phase and which is taken within a short period of time must simply state the reasons why the Commission does not see serious difficulties in assessing the compatibility of the aid at issue with the internal market. In this case, the General Court noted that the Commission had examined the aid measure, the context surrounding it and its relationship with other measures granted to the Lufthansa group. The Commission had in its decision explained in a sufficient, clear and precise manner the proportionality of the aid and the calculation of its amount, meaning that the obligation to state reasons for the decision had been met.

Therefore, the General Court concluded that the action for annulment should be dismissed in its entirety. The General Court must now rule on the actions brought by Ryanair in several cases relating to aid approved by the Commission for airlines such as Brussels Airlines (T-14/21), Croatia Airlines (T-111/21), Air France (T-216/21) and Alitalia (T-225/21).