Following in-depth investigations, the European Commission has formally concluded that the €100 million aid package granted to Czech Airlines and the €130 million aid package granted to Air Malta are in line with EU state aid rules.

The Czech authorities had notified their intention to restructure Czech Airlines with the help of state aid in May 2010. The Commission opened an in-depth investigation in to Czech Airlines in February 2011, because it had doubts whether the restructuring plan was suitable to restore the company’s viability and to offset the distortions of competition brought about by the aid.

The investigation found that the revised restructuring plan, covering a period of five years, is based on realistic assumptions, should enable Czech Airlines to become viable again within a reasonable timeframe, and concluded that the proposed capacity reduction, sale of aircraft, and surrender of landing slots at European airports will avoid any undue distortion of competition. The Commission also noted that Czech Airlines will contribute to the costs of its restructuring by selling some of its subsidiaries, aircraft and other assets, as well as securing a private loan for an aircraft lease.

Similarly, following an in-depth investigation announced by the Commission in January 2011 to assess whether the €130 million restructuring aid granted to state-owned Air Malta is in line with state aid rules, the Commission concluded that the restructuring plan, covering a period until 2015, which includes a significant capacity reduction and the sale of assets, is in fact in line with the EU state aid rules and should ensure the longterm viability of the airline without continued state support, while avoiding undue distortions in competition. The Commission also found that a previous capital injection in 2004 was carried out on market terms and therefore did not constitute state aid within the meaning of the EU rules.

These two instances of clearance of state aid packages are good news for airlines, following the recent Malev ruling (and its demise) and the Spanair complaint, but there remain over 60 ongoing state aid cases in the aviation sector, of which over 30 are in-depth investigations.

A number of rulings have also come through recently from the European Commission on their investigations into aid granted to airlines at EU regional airports, and investment aid granted to EU airports. The Commission concluded that financial arrangements between the airport of Tampere-Pirkkala in Finland and Ryanair do not constitute state aid within the meaning of the EU rules because they were concluded on terms that a private investor operating under market conditions would have accepted. The Commission also found state investment aid of €77.7 million granted in favour of Chania airport in Greece was in line with EU state aid rules (in particular because the aid was well targeted and proportionate to the objective pursued), and that loans made by public entities in 2000 to finance Munich’s airport terminal 2 were granted on market conditions, and therefore did not fall foul of state aid rules.

However, the Commission ordered Ireland to recover incompatible state aid that had been granted in the form of preferential air travel taxes for flights departing from Irish airports (€2 tax for destinations less than 300km from Dublin and €10 for all others), ruling that the lower rate of €2 favoured flights within Ireland and to nearby parts of the UK, giving airlines including Ryanair, Aer Lingus and Aer Arann an economic advantage over their competitors, was leading to a distortion of competition.

Competition Commissioner, Joaquin Almunia in announcing these decisions said:

“Our ultimate aim is to establish a level playing field for all airlines and airports regardless of their business model, from flag carriers to low-cost airlines. Today’s decisions further clarify the application of principles of EU state aid control to the sector. We will look at other cases of state aid to airports and airlines in the coming months, applying a consistent approach.”

Revision of the 2005 Aviation Guidelines on state aid

The current state aid rules are overly complex, lack legal certainty and transparency, create a significant administrative burden on airports, and do not reflect the realities of the aviation market. This has resulted in a number of EU Member States failing to comply with their obligations to notify instances of state aid packages granted, and an increasing number of complaints concerning both aid to airlines and airport operators.

The Commission has announced that it plans to adopt new guidelines on state aid in the aviation sector in 2013, which will cover both aid to airlines and the financing of airport infrastructure. The key issues that need to be addressed in the revised guidelines are as follows:

  •  Clearer definition of what is meant by the “private investor principle”
  •  Clear guidelines on what is legally acceptable in terms of the degree and duration of financial assistance to airlines
  •  Recognition that it is now common marketing practice for the majority of airports to offer airlines assistance in the establishment of new air services.

The new state aid guidelines will aim to protect all airlines and airports against discriminatory, unclear and distorting financial aid by regional governments or airports. The reality is that state aid for investments in airport infrastructure and start-up aid for airlines should only be available in strictly defined cases, be limited according to a prescribed period of time and intensity, and should only be granted in exceptional circumstances, having regard to the principles of transparency, equal treatment and non-discrimination. Ultimately it remains to be seen whether the proposed new guidelines will be able to achieve all of these objectives, and be implemented properly and enforced.