State aid: Commission approves €1 billion Danish and Swedish measure to recapitalise SAS

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


The European Commission has approved Danish and Swedish plans to contribute up to SEK 11 billion (approximately€1 billion) to the recapitalisation of SAS. The measure was approved under the State aid Temporary Framework. The recapitalisation measure is part of a larger recapitalisation package, which also foresees a significant participation of private investors, including the conversion of outstanding privately-held debt instruments into equity.

Executive Vice-President Margrethe Vestager, in charge of competition policy, said: SAS plays a key role for the connectivity and economy of Scandinavian countries. As many other companies active in the aviation sector, SAS has been severely hit by the current crisis. With this measure, Denmark and Sweden will contribute up to €1 billion to SAS’s recapitalisation and help the airline weather the current crisis. At the same time, the Member States will be sufficiently remunerated for the risk taxpayers assume, and the support will come with strings attached to limit distortions of competition. I welcome the participation by private investors to the plan, as it limits the need for State aid, while contributing to the recovery of companies affected by the coronavirus outbreak.”

The Danish and Swedish recapitalisation measure

Denmark and Sweden notified to the Commission, under the Temporary Framework, a State recapitalisation of SAS of up to SEK 11 billion (approximately €1 billion), of which about SEK 6 billion (approximately €583 million) will be provided by Denmark and SEK 5 billion (approximately €486 million) by Sweden. The recapitalisation by the two Member States comprises:

  • Around SEK 2 billion (approximately €194 million) equity participation through the subscription of new shares, shared between Denmark and Sweden;
  • Up to around SEK 3 billion (approximately €292 million) equity participation through the subscription and underwriting of new shares in a rights issue, shared between Denmark and Sweden; and
  • SEK 6 billion (approximately €583 million) newly issued State hybrid notes with the features of an equity instrument non-convertible into shares, of which SEK 2.5 billion (approximately €243 million) is allocated to Sweden and SEK 3.5 billion (approximately €340 million) is allocated to Denmark.

Following the recapitalisation, arevolving credit facility (on which Denmark and Sweden granted 90% public guarantees, which were approved by the Commission on 15 April 2020 and 24 April 2020) will be cancelled.

SAS is a major network airline operating in Denmark, Sweden and Norway. It has its main hub at Copenhagen airport and, under normal circumstances, provides two-thirds of intra- Scandinavian air connectivity. It also contributes to over 30% and 25% of Denmark’s and Sweden’s international traffic, respectively.

In the second quarter of 2020, SAS suffered substantial losses due to the coronavirus outbreak and the travel restrictions that Denmark, Sweden and other countries had to impose to limit the spread of the coronavirus. Despite the State aid already granted to the company by Denmark and Sweden (cases SA.56795, SA.57061 and SA.56774), the significant drop in travel demand and the measures implemented to limit the spread of the virus continue deteriorating the financial situation of the airline. As a result, SAS is currently facing a risk of default and insolvency.

The Commission found that measure notified by Denmark and Sweden is in line with Article 107(3)(b) TFEU and the conditions set out in the Temporary Framework. In particular, as regards:

  • Conditions on the necessity, appropriateness and size of the intervention: The measure will not exceed the minimum needed to ensure the viability of SAS and will not go beyond restoring its capital position before the coronavirus When assessing the proportionality of the recapitalisation measure, the Commission took also into account the other State aid measures in favour of the company in the context of the coronavirus outbreak.
  • Conditions on the States’ entry, remuneration and incentives to exit from the capital of the company: The recapitalisation aid will prevent an insolvency of SAS, which would have serious consequences on Danish and Swedish employment, connectivity and foreign trade Denmark and Sweden will receive an appropriate remuneration for the investment, and there are additional mechanisms to incentivise SAS to redeem the States’ equity participations and the new State hybrid notes obtained as a result of the recapitalisation. Denmark and Sweden submitted a business plan prepared by SAS to redeem, by fiscal year 2025, the recapitalisation instruments. They also committed to work out a credible exit strategy within 12 months after the aid is granted, unless the States’ intervention is reduced below the level of 25% of equity by then. If six years after receiving the recapitalisation aid the States’ intervention is not reduced below 15% of SAS’s overall equity, a restructuring plan for SAS will be notified to the Commission.
  • Conditions regarding governance: Until the States have exited in full, SAS and its subsidiaries are subject to bans on dividends and share buybacks, other than in relation to the Moreover, until at least 75% of the recapitalisation is redeemed, a strict limitation of the remuneration of SAS’s management, including a ban on bonus payments, is applied. These conditions aim at incentivising an exit of the two States as soon as the economic situation allows.
  • Prohibition of cross-subsidisation and acquisition ban: To ensure that SAS does not unduly benefit from the recapitalisation aid by the States to the detriment of fair competition in the Single Market, it cannot use the aid to support economic activities of integrated companies that were in economic difficulties already on 31 December Moreover, until at least 75% of the recapitalisation is redeemed, SAS is in principle prevented from acquiring a stake of more than 10% in competitors or other operators in the same line of business.
  • Public transparency and reporting: SAS will have to publish information on the use of the aid received, including on how the use of the aid received supports the company’s activities in line with EU and national obligations linked to the green and digital transformations.

The Commission concluded that the recapitalisation measure will contribute to manage the economic impact of the coronavirus outbreak in Denmark and Sweden: the measure aims at restoring the balance sheet position and liquidity of SAS in the exceptional situation caused by the coronavirus pandemic, while maintaining the necessary safeguards to limit competition distortions. It is necessary, appropriate and proportionate to remedy a serious disturbance in the economy of the two Member States, in line with Article 107(3)(b) TFEU and the general principles as set out in the Temporary Framework.

On this basis, the Commission approved the measure under EU State aid rules.

Background

The Commission has adopted a Temporary Framework 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, as amended on 3 April, 8 May and  29 June 2020, provides for the following types of aid, which can be granted by Member States:

  • 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.
  • State guarantees for loans taken by companies to ensure banks keep providing loans to the customers who need These state guarantees can cover up to 90% of risk on loans to help businesses cover immediate working capital and investment needs.
  • Subsidised public loans to companies (senior and subordinated debt) with favourable interest rates to These loans can help businesses cover immediate working capital and investment needs.
  • 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.
  • 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”.
  • 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 A bonus may be granted for cross-border cooperation projects between Member States.
  • 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 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.
  • 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 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.
  • 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.
  • 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.
  • Targeted recapitalisation aid to non-financial companies, if no other appropriate solution is 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 numbers SA.57543 and SA.58342 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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