State aid: Commission approves €453.25 million Portuguese restructuring aid in favour of SATA Group

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The European Commission has approved, under EU State aid rules, Portugal’s plans to grant air carrier SATA Air Açores (‘SATA’) restructuring aid for a total amount of €453.25 million. The measure will enable the company to finance its restructuring plan and restore its long-term viability.

Executive Vice-President Margrethe Vestager, in charge of competition policy, said: “The measure we approved today will ensure the territorial continuity of the Azores islands with mainland Portugal and the European Union, while allowing the return to viability of its regional air carrier SATA. At the same time, the aid will enable SATA to reorganise its activity, by improving operations and schedules, and by reducing operating costs. The public support comes with safeguards to make sure that possible distortions of competition are limited.”

SATA Group is a regional airline ultimately controlled by the Portuguese Autonomous Region of Azores. It provides air transport services on routes connecting the islands of the Azores, as well as to mainland Portugal, Madeira and a few North American destinations. SATA has been experiencing operating losses since at least 2014 and the effects of the coronavirus pandemic have aggravated its economic and financial situation.

The Portuguese measure

In April 2021, Portugal notified the Commission its intention to grant restructuring aid to support SATA’s restructuring plan for the period 2021-2025.

The support will take the form of (i) a direct loan of €144.5 million and a debt assumption of €173.8 million, totalling €318.25 million to be converted into equity, and (ii) a State guarantee of €135 million granted until 2028 for funding to be provided by banks and other financial institutions.

The restructuring plan sets out a package of measures aimed at improving SATA’s operations and schedules, as well as at reducing costs. In particular, the plan provides for: (i) efficiency-enhancing and cost-cutting measures, (ii) the divestment of a controlling shareholding (51%) in Azores Airlines, and (iii) the carve-out and divestment of the ground-handling activity. In addition, to ensure an effective implementation, the restructuring plan includes the reorganisation of SATA’s corporate structure, with a holding company replacing SATA Air Açores in controlling its operating subsidiaries (SATA Air Açores, Azores Airlines and SGA). Furthermore, SATA will be banned from any acquisitions and will have a cap on its fleet until the end of the restructuring plan.

Portugal’s notification followed the Commission decision on 18 August 2020 to open an in-depth investigation to assess whether certain past Portuguese public support measures in favour of SATA – in the form of three capital increases – were in line with EU State aid rules.

On 30 April 2021, the Commission extended its ongoing in-depth investigation to assess whether Portugal’s latest restructuring support measures in favour of SATA were in line with EU State aid rules.

The Commission’s assessment

The Commission assessed the Portuguese measure under EU State aid rules, in particular Article 107(3)(c) Treaty on the Functioning of the European Union (‘TFEU’) and the Guidelines on State aid for the rescue and restructuring of companies in difficulty. These Guidelines only allow a State intervention in a company in financial difficulty under specific conditions, requiring in particular that the company undertakes a sound restructuring plan to ensure its return to long-term viability, that the company contributes to the cost of its restructuring, that competition distortions are limited and that the measure contributes to an objective of common interest.

The Commission concluded that the restructuring aid is in line with EU State aid rules. In particular, the Commission found that:

•  The aid is necessary and appropriate to ensure that SATA, being a company in difficulty, will be viable long-term without the need of continued public support.
• The negative effects of the restructuring aid on the air transport sector are limited. In particular, the Commission found that the envisaged divestments would allow competitors to take-over or integrate part of the routes currently offered by SATA, beyond its remit of provider of a Service of General Economic Interest.
• The restructuring aid complies with Article 107(3)(c) TFEU as it facilitates the development of the regional air transport and related activities, in particular in the tourism sector, in the Azores and does not distort competition to an extent contrary to the common interest.

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

Furthermore, the Commission has also decided today to close its investigation, opened on 18 August 2020, into other Portugal’s public support measures in favour of SATA. In particular, the Commission has found that SATA reimbursed to Portugal the three capital increases, including interests.

Background

Given the urgent liquidity needs of SATA pending the formal investigation opened on 18 August 2020, as well as to ensure the territorial connection of an outermost region of the EU, the Commission approved liquidity support in the form of State guarantees or public loans in favour of SATA. In particular:

• On 18 August 2020, Commission approved, under EU State aid rules, €133 million in liquidity support to SATA, to ensure it continued to provide its public service obligations.

• On 30 April 2021, the Commission approved an additional €122.5 million to allow SATA to address its urgent and immediate liquidity needs, and to continue its public service operations until the end of 21 November 2021, or until the Commission takes a final decision on the ongoing investigations.
• On 5 November 2021, the Commission authorised Portugal to prolong the guarantees already granted on loans, or the replacement of such loans by shareholder loans directly provided to SATA.

EU State aid rules, more specifically the Commission’s Guidelines on rescue and restructuring aid, enable Member States to support companies in difficulty, under certain strict conditions. In particular, rescue aid may be granted for a period of up to six months. Beyond this period, either rescue aid must be reimbursed or Member States must notify a restructuring or a liquidation plan to the Commission, for assessment under the State aid rules. In order for restructuring aid to be approved, the plan must ensure that the viability of the company can be restored without continued State support, that the company contributes sufficiently to the costs of its restructuring and that distortions of competition created by the aid are addressed through compensatory measures, including in particular structural measures.

The non-confidential version of the decisions will be made available under the case numbers SA.58101 and SA.63402 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.