State Aid in Aviation Estonian Air and airbaltic case study. Elo Tamm Uģis Zeltiņš

Transcription

1 State Aid in Aviation Estonian Air and airbaltic case study Elo Tamm Uģis Zeltiņš

2 Background Between the Commission adopted several decisions concerning possible state aid to new member state s airline companies: Air Malta (2012), Malév (2012) Czech Airlines (2012), Adria Airways (2014), Air Baltic (2014), LOT (2014), Cyprus Airways (2015) and Estonian Air (2015) In Malév, Cyprus Airways and Estonian Air cases, the Commission found that the airlines had received unlawful state aid in breach of Article 108 (3) of TFEU The common feature of these cases is the question of legality of rescue or restructuring aid to a firm in difficulty under Article 107 (3) for regional, social and economic reasons

3 Basic principle of restructuring aid Article 107 (3): The following may be considered to be compatible with the internal market: (a) aid to promote the economic development of areas where the standard of living is abnormally low or where there is serious underemployment, and of the regions referred to in Article 349, in view of their structural, economic and social situation; (b) aid to promote the execution of an important project of common European interest or to remedy a serious disturbance in the economy of a Member State; (c) aid to facilitate the development of certain economic activities or of certain economic areas, where such aid does not adversely affect trading conditions to an extent contrary to the common interest Estonian territory is in its entirety covered with the regional aid exception provided under the Article 107 (3) (a) TFEU

4 R&R Guidelines Guidelines on State aid for rescuing and restructuring non-financial undertakings in difficulty (R&R Guidelines) 2004 & 2014 Undertaking is in difficulty where it is unable to stem losses which, without public money, will condemn it to going out of business in the short or medium term Rescue aid short term (up to 6 months) reversible (loan or loan guarantee) assistance to give the company in difficulty time to work out a restructuring or liquidation plan Restructuring aid based on a feasible, coherent and far-reaching plan to restore firm s long-term viability; cannot solely consist of financial support designed to cover past losses

5 airbaltic: no ordinary case Complaints by airbaltic s private shareholder (January 2012) and shareholder s board member (July 2012) Highly eccentric grievances The private investor: financed by Latvian subsidiary of Snoras and Vladimir Antonov October 2011 shareholders agreement on financing and governance: state unquestionably pari passu with private investor; first instalments duly paid November 2012: Antonov s banks fail, Latvian state left alone in further execution of the October 2011 agreement

6 Once the state is left alone it s state aid. To render it compatible with TFEU restructuring needed. To restructure restructuring plan must be drawn up.

7 Requirements for the plan Restoration of long-term viability. The restructuring plan must restore the long-term viability of the firm within a reasonable timescale and on the basis of realistic assumptions as to future operating conditions Own contribution. The beneficiary must make, from its own resources, a significant contribution to the restructuring costs Avoidance of undue distortions of competition. Compensatory measures must be taken in order to ensure that the adverse effects on competition are mitigated

8 Delivering results There must be a business case. reshape plan developed This strategy has already been implemented to a very significant extent by the new management of the company since October 2011 (airbaltic decision, para. 180) Most of the restructuring measures described in the preceding paragraphs have already been implemented (airbaltic decision, para. 184) [ ] in view of the significant restructuring measures undertaken and the progress made to date, the Commission considers that the restructuring plan will enable airbaltic to restore its long-term viability [ ] (airbaltic decision, para. 189)

9 Investigated measures comparison Estonian Air 2009 Feb shareholder s increased capital by 7,28 million in proportion of their shareholding (Measure 1) 2009 June Estonian Air sold its ground handling business to State owned Tallinn Airport (Measure 2) airbaltic 2010 State bought 42,47 million worth of 0% coupon bonds from airbaltic (Measure 4, no aid) 2011 Oct - State loan 22,65 million and BAS loan 19,82 million with interest rate 11-13%, later reduced to 2-4% (Measure 1, no aid) 2010 State injected 17,9 million in cash, State became 90% shareholder (Measure 3) 2011 State injected 30 million in cash, State became 97,34% shareholder; decisions were based on an enlargement business plan (Measure 4) 2011 Dec, State decided to provide a new convertible loan of 94,86 million with an 9-11% interest rate (Measure 2, compatible aid) 2011 Dec, increase of capital through conversion into capital of the first State loan, the BAS loan and first tranche of the second State loan (Measure 3, compatible aid)

10 Investigated measures comparison Estonian Air ,3 million rescue loan from the State with an 15% interest rate (Measure 5) ,7 million rescue loan from the State with an 15% interest rate (Measure 5) 2013 Estonia notified the Commission of the rescue loan and asked a permission to grant a further 40,7 million for restructuring aid. Estonia presented a restructuring plan. (Measure 6) airbaltic 2011 Nov execution of payment orders of from defunct Latvian subsidiary of Snoras (Measure 5, no aid) 2012 June State decided that a claim of 5 million towards airbaltic (out of a total 35 M) is to be assigned to airbaltic for a price of LVL 1 (Measure 6, compatible aid) 2012 airbaltic adopted a plan entitled reshape more efficient planes, closure of certain routes, additional need for million EUR financing 2014 Estonia presented the Commission a new restructuring plan

11 Investigated measures comparison Estonian Air Negative decision Measures 3, 4 and 5 constituted unlawful State aid because: Absence of a credible RS plan (plan foresaw expansion), No compensatory measures, Support was not given in the form of loan guarantees or loans, Support was given in several occasions over a period of 5 years without a positive outcome Support was used to expand airline routes The one time, last time principle of RS aid was exhausted airbaltic Positive decision Measures 2, 3 and 6 constituted State aid, but were deemed legal because the RS plan: enabled the airline to return to viability in 5 years; emphasises the change in commercial strategy and cutting costs: optimise costs and revenues, network reconfiguration, network and fleet optimisation Compensatory measures cancellation of 14 profitable routes, surrender of slot pairs at coordinated airports