Q&A: competition law and state aid for the aviation sector in Portugal

Competition law

Do sector-specific or general competition rules apply to aviation?

The aviation sector is subject to general competition rules established in the Portuguese Competition Act (19/2012), as well as EU competition rules.

Is there a sector-specific regulator, or are competition rules applied by the general competition authority?

The Portuguese Competition Act and the EU legislation on competition are applied by the Portuguese Competition Authority (PCA). Pursuant to the Portuguese Competition Act, the Civil Aviation Authority is entitled to issue opinions prior to the adoption of decisions by the PCA, in the fields of both antitrust and merger control, relating to the aviation sector.

How is the relevant market for the purposes of a competition assessment in the aviation sector defined by the competition authorities?

The PCA’s practice in the aviation sector is generally in line with the European Commission. The PCA has defined product and geographic markets that correspond to the airline routes – that is, to the pairs of origin or destination (O/D) in which the undertakings concerned have overlapping activities, and defined separate product markets for air transport of passengers and air transport of cargo or mail. These pairs of O/D include all airports at the same destination, as the PCA has not found the need to analyse and define markets more narrowly. The PCA has generally indicated that, in relation to the air transport of passengers, the assessment of whether direct and indirect flights form part of the same market or route should be done on a case-by-case basis. Separate markets have been identified for services relating to air transport, such as ground handling services and catering services.

How have the competition authorities regulated code-sharing and air-carrier joint ventures?

Although there are no specific rules regarding these arrangements, code-sharing and other air carrier agreements may fall under the scope of the general prohibition of agreements and concerted practices between undertakings that restrict competition by object or effect, under both Portuguese and EU law. So far, the PCA has not issued any decisions regarding anticompetitive practices in the airline sector.

As for air carrier joint ventures, these may be subject to the general Portuguese and EU rules on merger control and, therefore, subject to mandatory prior notification and clearance by the competent authority, provided they constitute full-function joint ventures and the notification thresholds (in terms of turnover or market share in the affected markets) are met.

What are the main standards for assessing the competitive effect of a transaction?

Pursuant to Portuguese Competition Act, the assessment of a transaction under merger control is based on the analysis of whether such concentration is likely to create significant impediments to effective competition in the domestic market or a substantial part of it, in particular if the impediments derive from the creation or reinforcement of a dominant position in a given relevant market. For the purposes of this assessment, the PCA will take into consideration several factors, such as:

• the structure of the relevant markets;
• the position of the undertakings concerned compared with those of their main competitors;
• potential competition; and
• the existence, in fact or in law, of barriers to entry into the market, among others.

In the airline sector, Concentration Procedure 12/2009 concerning TAP/SPdH was blocked by the PCA as it found that the transaction would reinforce a dominant position in the market for ground handling services in the airports of Lisbon, Porto, Faro, Funchal and Porto Santo, as well as in the related market for the air transport of passengers. As the merger had already taken place prior to notification, the PCA imposed several measures to revert it and re-establish effective competition between the parties.

What types of remedies have been imposed to remedy concerns identified by the competition authorities?

To remedy competition concerns, the PCA may subject the approval of a merger to the adoption of structural (ie, divestment of businesses or assets, or both) or behavioural commitments. The PCA has stated in its decision practice that structural commitments are considered preferable to behavioural commitments, as they generally allow the entry of new market players. In relation to divestment commitments, the acquirer of the divested business or asset is subject to prior approval by the PCA in order to constitute a viable and competitive alternative in the relevant market.

In the airline sector, the PCA has approved both structural and behavioural commitments in Concentration Procedure 57/2006 concerning TAP/Portugália, which were specifically aimed at permitting the entry of a new market player in the Lisbon–Porto route. The main commitments consisted of:

• providing slots at Lisbon and Porto Airports for a new entrant having an offer capacity at least equivalent to the target company;
• freezing the number of flights operated by the acquirer on the affected routes; and
• providing passenger fees equivalent to that of highly competitive routes.

Financial support and state aid

Are there sector-specific rules regulating direct or indirect financial support to companies by the government or government-controlled agencies or companies (state aid) in the aviation sector? Is state aid regulated generally?

Portugal has no specific rules regarding state aid: this is a matter dealt with only at EU level. Portugal follows the general rules established by article 107 of the Treaty on the Functioning of the European Union (TFEU), which contains a general prohibition on state aid, as well as the State Aid Block Exemption Regulation (994/98). As for the aviation sector, Portugal follows the European Commission Guidelines on State Aid to Airlines and Airports (2014/C 99/03), which establish the conditions under which EU member states can grant state aid to airlines and airports.

What are the main principles of the state aid rules applicable to the aviation sector?

The European Commission Guidelines on State Aid to Airlines and Airports are aimed at promoting the sound use of public resources to allow effective aid measures while minimising distortions of competition. In general terms, these guidelines allow:

• investment state aid for airport infrastructure if there is a genuine transport need and the public support is necessary to ensure the accessibility of a region. The guidelines define maximum permissible aid intensities depending on the size of an airport, allowing higher amounts for smaller airports than for larger ones;
• operating aid to regional airports (with fewer than three million passengers a year) for a transitional period of 10 years under certain conditions to give airports time to adjust their business model. To receive operating aid, airports need to work out a business plan paving the way towards full coverage of operating costs at the end of the transitional period; and
• start-up aid to airlines to launch a new air route, provided it remains limited in time. The compatibility conditions for start-up aid to airlines have been streamlined and adapted in the 2014 guidelines, considering recent market developments.

Are there exemptions from the state aid rules or situations in which they do not apply?

EU law establishes that de minimis aid, not exceeding €200,000 per undertaking over any period of three fiscal years, does not fall under the scope of the general state aid prohibition, pursuant to the De Minimis Aid Regulation (1407/2013). Furthermore, aid covered by a block exemption applicable to certain categories of state aid, under the General Block Exemption Regulation (651/2014) (GBER) are considered automatically approved and compatible with the internal market, without the need for scrutiny by the European Commission, provided the conditions established in the GBER are fulfilled.

Must clearance from the competition authorities be obtained before state aid may be granted? What are the main procedural steps for doing so?

EU state law subjects the adoption of any state measures to mandatory prior notification to the European Commission, except in the cases of exemptions referred to previously. Notification triggers a preliminary investigation and locks the member state to a standstill obligation. The European Commission has a two-month period to adopt a decision or open a formal investigation under article 108(2) of the TFEU where it has serious doubts about the aid's compatibility with EU state aid rules. Should the notification be deemed incomplete, the commission may submit requests for information to the notifying member state, in which case the deadline will restart. If the member state fails to reply to an information request in the prescribed period of time, the notification is deemed to be withdrawn. The preliminary or formal investigation phases are closed by:

• a positive decision, finding that the measure does not constitute state aid or is compatible with EU law;
• a conditional decision, imposing conditions to ensure compatibility of the measure; or
• a negative decision, blocking implementation of a measure deemed incompatible with EU law.

If no clearance is obtained, what procedures apply to recover unlawfully granted state aid?

Should the European Commission reach a decision that a state measure that has already been granted is incompatible with state aid law, it will open a recovery procedure to force the member state to recover the aid with interest from the beneficiary (unless such recovery would be contrary to a general principle of EU law). If the member state does not comply with the decision in due time, the European Commission may refer the procedure to the European Court of Justice by initiating an infringement procedure under article 258 of the TFEU. There is a limitation period of 10 years for recovery from the beneficiary.

Law stated date

Give the date on which the above content is accurate.

30 June 2020.