The general court annuls two commission decisions but supports the rescue fund for strategic

European Union

The General Court (“GC”) issued two judgments on May 19, 2021

The general court annuls two commission decisions but supports the rescue fund for strategic
October 26, 2021

The General Court (“GC”) issued two judgments on May 19, 2021 (cases T-465/20 and T-643/20) annulling the European Commission’s decisions declaring the state aid schemes granted by Portugal and the Netherlands to airlines based in their territory compatible with the internal market due to breach of the duty to state reasons.

These two judgments are a victory for Ryanair, albeit a hollow one as the GC decided to suspend the effects of these annulments until the Commission adopts a new decision.

The GC also handed down other judgment on the same date (case T-628/20) confirming the validity of the rescue fund for strategic Spanish companies temporarily struggling due to COVID-19, which had been appealed by Ryanair.

The Commission failed to state reasons for the aid granted

The GC annulled both Commission decisions because they lacked sufficient grounds, as it was not possible to prove that the purpose of the aid was to remedy a serious disturbance in a Member State's economy within the meaning of Article 107.3 of the Treaty on the Functioning of the European Union (“TFEU”).

The aid granted by Portugal to Transportes Aéreos Portugueses SGPS SA (“TAP”) consisted of a State loan or a combination of that loan and a State guarantee aiming to keep the beneficiary, the parent company and 100% shareholder of another company, which was operating between July and December 2020, in the middle of the pandemic.

In this case, the GC ruled that the Commission had failed to sufficiently verify that the aid granted by the Portuguese government under Article 107.3.c) of the TFEU met the three cumulative requirements to consider rescue aid granted to a company that is part of a group compatible with the internal market set out in paragraph 22 of the Guidelines on State aid for rescuing and restructuring non-financial undertakings in difficulty. The Commission failed to identify that the beneficiary was part of a business group, did not investigate whether the difficulties the company was experiencing were intrinsic and did not analyze whether those difficulties could be solved by the group itself.

In the case of the Netherlands, the aid consisted of a State guarantee for a loan granted by a consortium of banks and a State loan aiming to provide KLM with the temporary liquidity it needed to deal with the adverse effects of the COVID-19 pandemic. KLM is part of the Air France-KLM group, whose largest shareholders are the French and the Dutch States, and the holding company’s subsidiaries include Air France and KLM.

The GC also ruled that the Commission had failed to provide sufficient reasoning for authorizing this aid in accordance with Article 107.3.b), under which aid can be granted to solve a serious disturbance in a Member State’s economy. In particular, the GC believed that the Commission did not specify whether the aid granted to the Dutch company could be shared with the French airline, part of the same business group and that had already received aid from the French government.

As a result, the Commission failed to comply with the obligation to exercise special vigilance when examining possible accumulation of State aid within a group and to verify that the companies in question did not form a single economic unit and, therefore, a single beneficiary. On the contrary, the annulled Decision does not contain any information on the shareholder structure of these two companies or their functional, economic and organic links, or on the existence of a mechanism that would prevent the aid granted by the Dutch government from being used by the French airline.

A pyrrhic victory for Ryanair

Although the General Court upheld Ryanair’s arguments, the two victories are not overly significant in practical terms, since the effects of both annulments have been suspended under the judgments. The GC applied paragraph 2 of Article 264 of the TFEU, which authorizes EU courts to restrict the effects of the annulment when it is imperative for the sake of legal certainty.

         In particular, the GC decided that there were sufficient grounds to temporarily limit the effects of the annulment of the challenged decisions, among other matters, because of the damaging consequences of the COVID-19 pandemic for air transport connectivity and the economy of Portugal and the Netherlands.

If the Commission decides to adopt a new decision without opening a formal investigation under Article 108.2 of the TFEU, the annulment may only be suspended for up to two months from the date the judgment was published. If, however, the Commission decides to open a formal investigation, the suspension will remain in place for an additional reasonable period.

For its part, the Commission has indicated through a spokesperson that it “takes note” of these judgments, will analyze them “carefully” and “reflect on possible next steps.” No specific measures have been adopted for the moment.

The GC confirms that the Spanish aid is legal

At the same time as it annulled the two decisions discussed, the GC also ruled in relation to another Ryanair appeal that the aid granted under the Spanish fund, exclusively directed at companies based and with their main work centers in Spain is “both appropriate and necessary” to achieve the aim of remedying the serious disturbance to the Spanish economy caused by the pandemic. The GC has thus confirmed that this fund meets the requirements of Article 107.3.b) of the TFEU and does not breach the principle of non-discrimination recognized in Article 18.1. Furthermore, Ryanair failed to show how that aid could discourage it from setting up business or providing services in Spain.

The controversy on state aid granted to airlines in the context of the COVID-19 crisis rumbles on

The airline sector remains one of the worst hit by the COVID-19 pandemic, as the International Air Transport Association's (“IATA”) forecasts, predicting losses of up to 22.2 billion dollars for European airlines in 2021. One year after the onset of the pandemic, the controversy on the compatibility of the various schemes implemented by Member States to avoid the airline sector collapsing, under which multiple appeals have been filed against the European Commission’s decision authorizing such aid, rumbles on.

         For Ryanair, the main argument on which its appeals are based is that only airlines holding a license in the Member State granting the aid can benefit from it.

As discussed here, in February 2021, the GC dismissed two appeals filed by Ryanair and ruled that the aid granted by the French and Swedish governments to their national airlines was compatible with the internal market. These judgments set a precedent on state aid during the COVID-19 pandemic, as the GC clarified that granting subsidies to airlines based in a Member State is not discriminatory per se. On the contrary, it is the State’s responsibility to grant that aid, regardless of whether it is founded on section two or three of Article 107 of the TFEU if the grounds on which the aid is granted and the specific eligibility criteria are recorded.

For its part, Ryanair is still appealing the Commission’s new decisions authorizing State aid in other countries, such as Germany, Finland and Italy. In total, Ryanair has already appealed 21 similar decisions authorizing various aid schemes implemented by Member States in the airline sector since the pandemic struck. It remains to be seen whether the GC will change its position when it rules on those appeals.

October 26, 2021