State aid: Commission approves €150 million Austrian subordinated loan to compensate Austrian Airlines for damages suffered due to coronavirus outbreak

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(Credit: Unsplash)

This article is brought to you in association with the European Commission.


The European Commission has found an Austrian €150 million subordinated loan (convertible into a grant) in favour of Austrian Airlines AG to be in line with EU State aid rules. The measure aims at partly compensating the airline for the damages suffered due to the coronavirus outbreak.

Executive Vice-President Margrethe Vestager, in charge of competition policy, said: The €150 million public support measure will enable Austria to partly compensate Austrian Airlines for the damage it directly suffered due to the travel restrictions implemented to limit the spread of the coronavirus. The aviation sector has been hit particularly hard by the coronavirus outbreak. We continue working with Member States to discuss possibilities and find workable solutions to preserve this important part of the economy in line with EU rules.”

Austrian Airlines, which is part of the Lufthansa Group, is a major network airline operating in Austria. With a fleet of over 82 planes, Austrian Airlines served 130 destinations all over the world in 2019, carrying about 14.7 million passengers from its main hub, Vienna, and other airports to various international destinations. Since the start of the coronavirus outbreak, Austrian Airlines has suffered a significant reduction of its services, resulting in high operating losses.

Austria notified to the Commission an aid measure to partly compensate Austrian Airlines for the damage suffered from 9 March 2020 to 14 June 2020 resulting from the containment measures and travel restrictions introduced by Austria and other destination countries to limit the spread of the coronavirus.

The Commission assessed the measure under Article 107(2)(b) of the Treaty on the Functioning of the European Union (TFEU), which enables the Commission to approve State aid measures granted by Member States to compensate specific companies or sectors for damage directly caused by exceptional occurrences.

The Commission considers that the coronavirus outbreak qualifies as such an exceptional occurrence, as it is an extraordinary, unforeseeable event having significant economic impact. As a result, exceptional interventions by the Member State to compensate for the damages linked to the outbreak are justified.

The support will take the form of a €150 million subordinated loan, which is lower than the estimated damage directly caused to the airline in the period from 9 March 2020 to 14 June 2020 due to the travel restrictions implemented to limit the spread of the coronavirus. It will be converted into a grant only after (and to the extent that) Austrian Airlines’ financial statements for the financial year 2020, audited by an independent external audit firm, confirm that the aid does not exceed the amount of damage suffered during the grounding period. Following the audit, any public support received by Austrian Airlines in excess of the actual damage suffered will have to be returned to Austria. The risk of overcompensation is therefore excluded.

For the purposes of assessing the proportionality of the measure under Article 107(2)(b) TFEU, the Commission also took into account other measures in favour of Austrian Airlines under the Temporary Framework and Article 107(3)(b) TFEU:

i.     a contribution of €150 million in equity by its indirect shareholder Deutsche Lufthansa AG (which may be drawn from the €6 billion German recapitalisation of Deutsche Lufthansa AG approved by the Commission on 25 June 2020), and

ii.     a €300 million loan by a consortium of commercial banks (subject to a State guarantee that will be granted under an aid scheme already approved by the Commission on 17 April 2020 under the Temporary Framework, as amended by decision of 9 June 2020).

These measures are separate from the measure approved today and aim at ensuring that Austrian Airlines has sufficient liquidity to continue its activities during and after the current crisis by restoring the capital structure of Austrian Airlines and ensure its viability. They are neither intended as compensation for nor covering damage (losses) suffered by Austrian Airlinesas a direct result of the travel restrictions and containment measures taken by Austria and other travel destination countries as a consequence of the coronavirus outbreak.

Therefore, the present measure only compensates damages that are not otherwise covered by other support.

On this basis, the Commission concluded that the Austrian damage compensation measure is in line with EU State aid rules.

Background

Financial support from EU or national funds granted to health services or other public services to tackle the coronavirus situation falls outside the scope of State aid control. The same applies to any public financial support given directly to citizens. Similarly, public support measures that are available to all companies such as for example wage subsidies and suspension of payments of corporate and value added taxes or social contributions do not fall under State aid control and do not require the Commission’s approval under EU State aid rules. In all these cases, Member States can act immediately.

When State aid rules are applicable, Member States can design ample aid measures to support specific companies or sectors suffering from the consequences of the coronavirus outbreak in line with the existing EU State aid framework. On 13 March 2020, the Commission adopted a Communication on a Coordinated economic response to the COVID-19 outbreak setting out these possibilities.

In this respect, for example:

  •  Member States can compensate specific companies or specific sectors (in the form of schemes) for the damage suffered due and directly caused by exceptional occurrences, such as those caused by the coronavirus outbreak. This is foreseen by Article 107(2)(b)TFEU.
  •  State aid rules based on Article 107(3)(c) TFEU enable Member States to help companies cope with liquidity shortages and needing urgent rescue aid.
  •  This can be complemented by a variety of additional measures, such as under the de minimis Regulation and the General Block Exemption Regulation, which can also be put in place by Member States immediately, without involvement of the Commission.

In addition to the existing possibilities already foreseen by existing EU State aid rules, on 19 March 2020, the Commission adopted a State aid Temporary Framework, based on Article 107(3)(b) TFEU, to enable Member States to use the full flexibility foreseen under State aid rules to support the economy in the context of the coronavirus outbreak. The Temporary Framework provides for the following types of aid, which can be granted by Member States:

(i) Direct grants, equity injections, selective tax advantages and advance payments of up to €100,000 to a company active in the primary agricultural sector, €120,000 to a company active in the fishery and aquaculture sector and €800,000 to a company active in all other sectors to address its urgent liquidity needs. Member States can also give, up to the nominal value of €800,000 per company zero-interest loans or guarantees on loans covering 100% of the risk, except in the primary agriculture sector and in the fishery and aquaculture sector, where the limits of €100,000 and €120,000 per company respectively, apply.

(ii) State guarantees for loans taken by companies to ensure banks keep providing loans to the customers who need them. These state guarantees can cover up to 90% of risk on loans to help businesses cover immediate working capital and investment needs.

(iii) Subsidised public loans to companies (senior and subordinated debt) with favourable interest rates to companies. These loans can help businesses cover immediate working capital and investment needs.

(iv) Safeguards for banks that channel State aid to the real economy that such aid is considered as direct aid to the banks’ customers, not to the banks themselves, and gives guidance on how to ensure minimal distortion of competition between banks.

(v) Public short-term export credit insurance for all countries, without the need for the Member State in question to demonstrate that the respective country is temporarily “non-marketable”.

(vi) Support for coronavirus related research and development (R&D) to address the current health crisis in the form of direct grants, repayable advances or tax advantages. A bonus may be granted for cross-border cooperation projects between Member States.

(vii) Support for the construction and upscaling of testing facilities to develop and test products (including vaccines, ventilators and protective clothing) useful to tackle the coronavirus outbreak, up to first industrial deployment. This can take the form of direct grants, tax advantages, repayable advances and no-loss guarantees. Companies may benefit from a bonus when their investment is supported by more than one Member State and when the investment is concluded within two months after the granting of the aid.

(viii)  Support for the production of products relevant to tackle the coronavirus outbreak in the form of direct grants, tax advantages, repayable advances and no-loss guarantees. Companies may benefit from a bonus when their investment is supported by more than one Member State and when the investment is concluded within two months after the granting of the aid.

(ix) Targeted support in the form of deferral of tax payments and/or suspensions of social security contributions for those sectors, regions or for types of companies that are hit the hardest by the outbreak.

(x) Targeted support in the form of wage subsidies for employees for those companies in sectors or regions that have suffered most from the coronavirus outbreak, and would otherwise have had to lay off personnel.

(xi) Targeted recapitalisation aid to non-financial companies, if no other appropriate solution is available. Safeguards are in place to avoid undue distortions of competition in the Single Market: conditions on the necessity, appropriateness and size of intervention; conditions on the State’s entry in the capital of companies and remuneration; conditions regarding the exit of the State from the capital of the companies concerned; conditions regarding governance including dividend ban and remuneration caps for senior management; prohibition of cross-subsidisation and acquisition ban and additional measures to limit competition distortions; transparency and reporting requirements. Recapitalisations above the threshold of €250 million are subject to separate notification and, if they benefit companies with significant market power on at least one of the relevant markets in which they operate, Member States must propose additional measures to preserve effective competition in those markets, in the form of structural or behavioural commitments.

The Temporary Framework enables Member States to combine all support measures with each other, except for loans and guarantees for the same loan and exceeding the thresholds foreseen by the Temporary Framework. It also enables Member States to combine all support measures granted under the Temporary Framework with existing possibilities to grant de minimis to a company of up to €25,000 over three fiscal years for companies active in the primary agricultural sector, €30,000 over three fiscal years for companies active in the fishery and aquaculture sector and €200,000 over three fiscal years for companies active in all other sectors. At the same time, Member States have to commit to avoid undue cumulation of support measures for the same companies to limit support to meet their actual needs.

Furthermore, the Temporary Framework complements the many other possibilities already available to Member States to mitigate the socio-economic impact of the coronavirus outbreak, in line with EU State aid rules. On 13 March 2020, the Commission adopted a Communication on a Coordinated economic response to the COVID-19 outbreak setting out these possibilities. For example, Member States can make generally applicable changes in favour of businesses (e.g. deferring taxes, or subsidising short-time work across all sectors), which fall outside State Aid rules. They can also grant compensation to companies for damage suffered due to and directly caused by the coronavirus outbreak.

The Temporary Framework will be in place until the end of December 2020. As solvency issues may materialise only at a later stage as this crisis evolves, for recapitalisation measures only the Commission has extended this period until the end of June 2021. With a view to ensuring legal certainty, the Commission will assess before those dates if it needs to be extended.

The non-confidential version of the decision will be made available under the case number SA.57539 in the State aid register on the Commission’s competition website once any confidentiality issues have been resolved. New publications of State aid decisions on the internet and in the Official Journal are listed in the State Aid Weekly e-News.

More information on the Temporary Framework and other action the Commission has taken to address the economic impact of the coronavirus pandemic can be found here.

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