State aid: Commission approves €550 million German support to compensate Deutsche Bahn for damages suffered by its subsidiary DB Fernverkehr due to the coronavirus outbreak

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

The European Commission has found a €550 million German support measure in favor of Deutsche Bahn AG (“Deutsche Bahn”) to be in line with EU State aid rules. The measure, which will take the form of an equity injection, aims at compensating Deutsche Bahn for damages suffered by its subsidiary DB Fernverkehr due to the coronavirus outbreak between 16 March and 7 June 2020 with respect to domestic travels and between 16 March and 30 June 2020 in relation to international travels.

Executive Vice-President Margrethe Vestager, in charge of competition policy, said: ” With this measure, Germany will compensate Deutsche Bahn for damages suffered by its subsidiary DB Fernverkehr between March and June 2020 due to restrictions imposed to contain the coronavirus outbreak. We continue working closely with Germany and all other Member States to ensure that national measures to support all sectors that were hit by the crisis, including the rail sector, can be implemented as quickly as possible, in line with EU rules.”

DB Fernverkehr, a subsidiary of Deutsche Bahn, is a German rail services operator, which provides national and international long distance rail passenger services in Germany. DB Fernverkehr, as other companies active in the rail sector, experienced a significant drop in the number of long distance rail passengers, due to the measures that Germany and other Member States had to implement to limit the spread of the coronavirus. Between March and June 2020, the number of long distance rail passengers of DB Fernverkehr reached only approximately one third of the passenger numbers for the corresponding period in 2019. This resulted into high operating losses and a significant decline in revenues for the company  during that period. These losses were covered by the mother company Deutsche Bahn at the end of 2020 pursuant the profit and loss transfer agreement between Deutsche Bahn and DB Fernverkehr.

The German support measure

Gemany notified to the Commission, under Article 107(2)(b) of the Treaty on the Functioning of the European Union (TFEU), an equity injection of €550 million into  Deutsche Bahn to compensate the company for having covered the losses suffered by its subsidiary DB Fernverkehr in the period between 16 March and 7 June 2020 for domestic travels and between 16 March and 30 June 2020 for international travels due to the travel restrictions that were necessary to limit the spread of the virus.

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

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

The Commission found that the German measure will compensate damages, which are directly linked to the coronavirus outbreak. It also found that the measure is proportionate, as the foreseen compensation does not exceed what is necessary to make good the damage.

In estimating the amount of damage to be compensated, the measure also takes into account of track access reductions for long-distance passenger transportation that DB Fernverkher is expected to receive on the basis of a German scheme that the Commission approved on 30 July 2021 (SA.63635).  

Furthermore, should the German public support exceed the damage actually suffered due to the coronavirus outbreak, a claw-back mechanism will be activated. In other words, the public support received by Deutsche Bahn in excess of the actual damage suffered will have to be returned to Germany. The risk of the State aid exceeding the damage is therefore excluded.

The Commission therefore concluded that the 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 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 non-confidential version of the decision will be made available under the case number SA.63846 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.