On Wednesday 10 May, the General Court of the European Union annulled two decisions approving State aid to two airlines in the context of the Covid-19 pandemic: - the €6 billion recapitalisation of Lufthansa by Germany (Cases T-34/21 & T-87/21); - the €1 billion recapitalisation of SAS by Denmark and Sweden (Case T-238/21).
In June 2020, the European Commission found Germany’s €6 billion State aid to the airline Deutsche Lufthansa AG (see EUROPE 12514/6) compatible with the internal market and the Temporary Framework for State aid during a pandemic.
The measure in question comprised three distinct elements: - an equity participation of approximately €300 million; - a silent participation not convertible into shares of approximately €4.7 billion; - a silent participation of €1 billion with the characteristics of a convertible debt instrument.
However, in adopting the contested decision, the Commission disregarded several conditions and requirements set out in the Temporary Framework for State aid in force at the time, according to the General Court.
First, to be eligible for a recapitalisation measure, the beneficiary must be unable to obtain financing on the markets at affordable terms (paragraph 49(c) of the Temporary Framework). However, the General Court is of the opinion that the Commission did not examine whether Lufthansa could have raised a significant part of the necessary financing on the capital markets.
The General Court then rejects the Commission’s argument that, by acquiring the Lufthansa shares at a substantial discount, the German State received a higher remuneration than that which would have resulted from the application of a step-up mechanism. This mechanism is intended to encourage the aid recipient to buy back the State’s shareholding.
While the European Court rejected Ryanair’s complaints about the Commission’s ‘airport-by-airport’ approach to defining relevant markets, it found that the Commission had made a manifest error of assessment by finding that Lufthansa had significant market power only at Frankfurt and Munich and not at the other relevant airports (Berlin Tegel, Brussels, Düsseldorf, Hamburg, Palma de Mallorca, Stuttgart, Vienna and Hannover). In particular, it cites the examples of Düsseldorf and Vienna airports.
The General Court then examines the remedies taken by the State to ensure effective competition at Frankfurt and Munich airports. In particular, the contested decision provided for the divestiture by Lufthansa of 24 daily slots at Frankfurt and Munich airports. According to the General Court, the Commission failed to examine the appropriateness of the slot divestiture procedure, which excluded, in the first stage, competing airlines already based in Frankfurt and Munich. However, Lufthansa’s weight in the market structure of the two airports concerned was several times greater than that of its competitors that had a base there. Here again, the General Court found that the Commission committed an error of assessment.
Finally, the Commission should have given reasons why it considered that the slot divestiture should be remunerated and not free of charge and why such a requirement did not reduce the attractiveness of the slots and thus the effectiveness of Lufthansa’s commitments.
Noting the judgment, the Commission will examine it to consider possible next steps, bearing in mind that it can appeal to the EU Court of Justice. It recalls that it has won around 80% of the State aid cases brought before the European Court since 2020, including Ryanair’s appeal regarding State aid granted to Air France (see EUROPE 12660/3).
See the General Court’s judgment: https://aeur.eu/f/6tc
SAS case. In a similar case, on Wednesday the General Court also annulled the Commission’s decision (C(2020)5750) of August 2020 approving State aid from Denmark and Sweden to the airline SAS amounting to €1 billion (see EUROPE 12544/3).
In particular, the European Court found that the Commission had breached the Temporary Framework on State aid in times of pandemic by not requiring the inclusion of a mechanism tor increasing remuneration on publicly held equity.
See the General Court’s judgment: https://aeur.eu/f/6te (Original version in French by Mathieu Bion)