In the following article we would like to give you a short introduction about state aid in the aviation industry:
The European airline industry usually relies on (i) aid to make good the damage caused by natural disasters or exceptional occurrences (hereinafter referred to as "disaster aid") and (ii) rescue and restructuring aid.
What are disaster aid measures (Article 107(2)(b) TFEU)?
Article 107(2)(b) TFEU requires the European Commission ("Commission") to authorise aid to make good the damage caused by natural disasters or exceptional occurrences. The advantage of disaster aid is that compensation is in principle provided in the form of genuine financial aid which does not have to be repaid. The Commission allows compensation of up to 100% of the damage caused. There is therefore no need for the aid recipient to make an "own contribution". Disaster aid can compensate airlines relatively quickly for damage caused by an exceptional occurrence. Commission has already classified the COVID-19 outbreak as an exceptional occurrence.
However, disaster aid is usually associated with the following disadvantages: Firstly, all national airlines, usually determined on the basis of the Air Operator Certificate ("AOC"), must be able to benefit from these payments. On the other hand, there must be a direct causal link between the event and the damage, which in the current context raises the question as to when the "end of the corona crisis" will be reached.
Aid for disasters accounts for only a very small proportion, in terms of both number and volume, of the aid authorised in the aviation sector to date. These have so far been granted in connection with (i) the terrorist attacks on 11 September 2001, (ii) the volcanic eruption in Iceland in April 2010 and (iii) overflight bans in Turkish airspace. The maximum amount for insurance guarantees and compensation of losses for national airlines due to the terrorist attacks of September 11, 2001 (application period September 11, 2001 to September 14, 2001) was EUR 71 million (Germany). With regard to flight cancellations due to the volcanic eruption in Iceland in 2010, it amounted to EUR 1.99 million for Slovenian airlines and EUR 41.1 million for Cypriot airlines with regard to the temporary overflight bans in Turkish airspace (application period 16 years).
What is rescue and restructuring aid (Article 107(3)(c) TFEU)?
Special rules apply to state aid to ailing companies or so-called "firms in difficulty". Rescue and restructuring aid is one of the types of aid that distorts competition most. For this reason, the Commission is generally rather sceptical about rescue and restructuring aid. However, in the airline industry, rescue and restructuring aid to ailing airlines is of considerable practical importance.
Rescue and restructuring aid is usually granted on a company-by-company basis (to a specific airline). This has the advantage of allowing much higher levels of support, but also the disadvantage of strict approval criteria.
a) Rescue aid:
Rescue aid is urgent and temporary support measures. Rescue aid can only take the form of a loan or loan guarantee. In addition, rescue aid must be repaid at the latest after 6 months, with interest at market rates, or the company must be put into restructuring with a restructuring plan.
b) restructuring aid:
Restructuring aid involves permanent support and is designed to restore long-term viability. It is not limited to specific instruments. In the event of liquidity problems, loans will be given priority, whereas problems linked to the capital structure will be recapitalised. However, the Commission will only authorise restructuring aid if it is based on a comprehensive restructuring plan and if the company makes an adequate own contribution. When granting restructuring aid to large companies, the Commission requires that the company contributes at least 50% of the total restructuring costs (so-called own contribution).
Both forms of aid (both rescue and restructuring aid) require that the company (i.e. the airline) is in difficulty. In simple terms, this is when the company (an airline) will almost certainly be forced to close down its operations in the short or medium term if the State does not intervene (such as when half of the share capital is lost or when the conditions for insolvency are met). Rescue aid may also be granted when a company (not in difficulty) faces an acute need for liquidity due to exceptional and unforeseeable circumstances.
The "one time, last time" principle applies to aid under the rescue and restructuring guidelines. If less than ten years have elapsed since the rescue and restructuring aid was granted or the restructuring period was completed, the Commission will normally not authorise further aid on this basis.