State aid: Commission approves €525.3 million German aid in favour of airline Condor in context of coronavirus outbreak

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The European Commission has found an aid package by Germany in favour of the airline Condor to be in line with EU State aid rules. The approval of the aid package, based on three separate Commission’s decisions, relates to two measures to compensate Condor for damages suffered as a result of the coronavirus outbreak, worth in total €204.1 million, and €321.2 million of restructuring support to enable Condor’s return to viability.  

Executive Vice-President Margrethe Vestager, in charge of competition policy, said: “The aviation sector has been hit particularly hard by the various travel restrictions necessary to contain the spread of the coronavirus. The measures we approved today will enable Germany to compensate Condor for damages directly suffered as a result of such restrictions. At the same time, the restructuring plan for Condor, which we have also approved today, will ensure the airline’s path towards long-term viability.”

The German aid measures

Condor is a German charter airline, which provides air transport services to individual clients and tour operators from its hubs in Germany, with a focus on the leisure travel market. It serves 126 destinations all over the world. The restrictions put in place in Germany, as well as in other EU Member States and third countries, in order to limit the spread of the coronavirus have heavily affected Condor’s operations, in particular regarding international and intercontinental flights. As a result, Condor has been incurring significant losses since 17 March 2020.

Following the annulment by the General Court of a Commission decision of 26 April 2020, which had approved damage compensation in favour of Condor for the period 17 March to 31 December 2020 (in the form of two loans, with a nominal amount of €550 million and an aid amount of total €267.1 million, based on ex ante estimates of damages), the Commission has today adopted a new decision based on an ex post analysis of the actual damages incurred (”Condor I”) and taking into account the judgment by the General Court.

Between 17 March to 31 December 2020, Condor suffered an actual damage because of the coronavirus outbreak and the related travel restrictions below the initial estimated amount. In line with the claw-back commitment by Germany included in the Commission’s April 2020 decision, Condor will repay the advantage received in excess of the actual amount of damages calculated ex post, plus interest. In a first decision (Condor I), the Commission is therefore approving today €144.1 million of loans as damage compensation for the period between 17 March and 31 December 2020.

In a second decision, the Commission has furthermore approved additional damage compensation in an amount of €60 million for the period from 1 January to 31 May 2021 (“Condor II). This aid measure takes the form of a write off on part of the existing loans, which were initially approved under the annulled decision of April 2020 (the initial damage compensation measure covering the period from 17 March 2020 to 31 December 2020, described above).

Third, Germany also notified the Commission of its plans to grant restructuring aid to Condor. The aid would be granted by writing off additional €90 million of the existing loans and by restructuring the remaining amount of loans, as well as to write-off €20.2 million of interest. This interest relates to the temporary access to excess funds that Condor had on the basis of the amount of damages calculated ex ante. These measures support the restructuring plan of Condor, which started in October 2019 and is envisaged to end in September 2023, for a total of €321.2 million.

The Commission’s assessment

The Commission assessed the damage compensation measures 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.

• In the first compensation period, from 17 March to 30 June 2020, the notified measure will compensate Condor for the overall loss of income caused by the travel restrictions imposed in Germany, EU and non-EU countries to limit the spread of the virus.
• In the second compensation period from 1 July 2020 to 31 May 2021, the notified measure will compensate Condor for the losses caused by remaining or new travel restrictions affecting specific routes.

Therefore, the Commission found that the measures will compensate damages suffered by Condor that are directly linked to the coronavirus outbreak and the related travel restrictions.

The Commission also found that the measures are proportionate. In particular, the route-by-route quantitative analysis submitted by Germany for the compensation relating to the period from 1 July 2020 to 31 May 2021 appropriately identifies the damage attributable to the travel restrictions still applicable to specific routes, and therefore the compensation does not exceed what is necessary to make good the damage on those routes. The risk of the State aid exceeding the damage is therefore excluded.

For what concerns the restructuring aid notified by Germany, the Commission assessed the measures under its Guidelines on State aid for the rescue and restructuring of companies in difficulty   

The Commission found that, in line with the Guidelines, Condor is implementing a comprehensive package of restructuring measures that will ensure its return to long-term viability. Moreover, Condor and its new private investor Attestor are making a significant own contribution to the cost of restructuring, as they will fund over 70% of that cost. In particular, creditors have agreed to write-off over €630 million of claims. Moreover, Attestor has committed to inject €200 million of equity and provide further €250 million for Condor’s fleet renewal. The latter will also contribute to the Commission’s objectives specified in the Green Deal as it will replace Condor’s ageing fleet with new, efficient aircraft, which will lead to reductions of fossil fuel consumption and CO2 emissions. Finally, Condor has committed to a capacity cap of its fleet during the restructuring period (until September 2023) in order to limit the distortions of competition possibly created by the restructuring aid.

The Commission has therefore approved the restructuring plan presented by Germany and has concluded that the restructuring aid is in line with EU rules as it will bring Condor back on the path of long-term viability without unduly affecting completion and trade in the German leisure air travel market.

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 case of particularly severe economic situations, such as the one currently faced by all Member States due the coronavirus outbreak, EU State aid rules allow Member States to grant support to remedy a serious disturbance to their economy. This is foreseen by Article 107(3)(b) TFEU of the Treaty on the Functioning of the European Union.

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, as amended on 3 April, 8 May, 29 June, 13 October 2020 and 28 January 2021, 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; (ii) State guarantees for loans taken by companies; (iii) Subsidised public loans to companies, including subordinated loans; (iv) Safeguards for banks that channel State aid to the real economy; (v) Public short-term export credit insurance;(vi) Support for coronavirus related research and development (R&D); (vii) Support for the construction and upscaling of testing facilities; (viii) Support for the production of products relevant to tackle the coronavirus outbreak; (ix) Targeted support in the form of deferral of tax payments and/or suspensions of social security contributions; (x) Targeted support in the form of wage subsidies for employees; (xi) Targeted support in the form of equity and/or hybrid capital instruments; (xii) Support for uncovered fixed costs for companies facing a decline in turnover in the context of the coronavirus outbreak.

The Temporary Framework will be in place until the end of December 2021. With a view to ensuring legal certainty, the Commission will assess before this date if it needs to be extended. The Commission’s Guidelines on rescue and restructuring aid allow Member States to support the restructuring of companies in difficulties, provided, in particular, that the public support measures contribute to addressing the company’s problems and enable it to become viable without continued State support, while limiting the distortions of competition triggered by the aid.

In October 2019, the Commission approved €380 million rescue aid to Condor, as the company got into financial difficulties due to the liquidation of its parent company.

The non-confidential version of the decision will be made available under the case numbers SA.63203, SA. 63617 and SA. 56867 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 Competition 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.