Executive Summary:
- Undertakings suffering damage by a natural disaster or exceptional occurrence may receive compensation.
- Compensation may also be granted to undertakings in financial difficulty.
- There must be a direct causal relationship between the disaster or the occurrence and the damage.
- The compensation may never exceed the amount of the damage.
Table of Contents:
- Introduction
- Infringement of Article 107(2)(b) TFEU?
- Alleged failure to take account of the state aid granted to the Lufthansa Group
- Compensation for the damage suffered in 2021 and the methodology used to calculate that damage
- Conclusion
Introduction
On 8 July 2026, the General Court, in case T‑538/24, Ryanair v Commission, dismissed a case brought by Ryanair seeking the annulment of Commission decision SA.109677 concerning an amendment of a covid-19-related compensation scheme for airlines licensed in Italy.
Under that scheme, to be eligible for compensation for the damage they suffered as a result of the travel restrictions enforced during covid-19, airlines had to be licensed in Italy and had to pay remuneration to their employees that was not lower than the minimum wage agreed with labour unions. The Commission approved that scheme in decision SA.59029. Three airlines met the eligibility conditions: Blue Panorama Airlines, Air Dolomiti, and Neos. Subsequently, the Commission also approved an amendment of the compensation in decision SA.62152.
However, Ryanair contested the legality of the first Commission decision and in May 2023, the General Court, in case T-268/21, Ryanair v Commission, annulled that decision on the grounds that the Commission failed to verify thoroughly that the scheme did not infringe other provisions of EU law, in particular whether the minimum remuneration was contrary to Article 56 TFEU on free movement of services. Consequently, the Commission in March 2024, adopted a new decision providing more extensive explanation of the finding that no other provisions of EU law had been infringed. However, in January 2025, the Court of Justice set aside that judgment of the General Court [C‑490/23 P, Neos v Ryanair and Commission] and sent the case back to the General Court which also on 8 July 2026 issued a new ruling dismissing the appeal of Ryanair [T-268/21 RENV, Ryanair v Commission].
In the meantime, in April 2024, the Commission also approved, in the contested decision SA.109677, an extension and new amendment of the Italian compensation scheme. This is because the initial measure compensated for the closures and the damage in 2020, while the contested scheme compensated for the closures and damage in 2021.
Infringement of Article 107(2)(b) TFEU?
Ryanair claimed that the Commission was wrong in its assessment of the compliance of the Italian scheme with Article 107(2)(b), both in terms of the causal link between the travel restrictions and the damage and the proportionality of the aid.
First, the General Court observed that “(69) only damage caused directly by natural disasters or exceptional occurrences may be compensated under Article 107(2)(b) TFEU”.
“(70) The occurrence giving rise to the damage, as defined in the contested decision, must be the determining cause of the damage which the aid at issue is intended to remedy and must be directly responsible for causing it. A direct link exists only where the damage is the direct consequence of the occurrence in question without being dependent on the interposition of other causes. Accordingly, it is incumbent on the Commission to examine with particular care whether the occurrence was really the decisive cause of the damage suffered by the beneficiary of the aid concerned or, on the contrary, some of the damage suffered was due to the beneficiary’s pre-existing difficulties”.
“(71) That said, there is nothing to prevent the beneficiary of aid under Article 107(2)(b) TFEU from being a firm in difficulty”.
“(72) In the present case, …, the Commission described the methodology for calculating the damage that established an entitlement to compensation under the amended scheme at issue. In summary, it involved comparing, on each of the routes concerned, the actual results of the beneficiaries of the scheme during the periods of application of the travel restrictions at issue and also the results in a scenario excluding those travel restrictions. The total amount of the damage corresponded to the difference between those two results, calculated on the basis of the revenue and the fixed and variable costs of the beneficiaries on each of the routes concerned.”
In response to the argument of Ryanair that the Commission should have taken into account the particular situation of each beneficiary, the General Court held that “(74) in the specific case of an aid scheme, the Commission may merely study the characteristics of the scheme at issue in order to assess, in the grounds for its decision, whether, by reason of the arrangements provided for under the scheme, the latter gives an appreciable advantage to beneficiaries in relation to their competitors and is likely to benefit in particular undertakings engaged in trade between Member States. Accordingly, in a decision which concerns such a scheme, the Commission is not required to carry out an analysis of the aid granted in each particular case under the scheme. It is only at the stage of recovery of the aid that it is necessary to look at the individual situation of each undertaking concerned”.
“(75) Accordingly, in the case of such an aid scheme, a distinction must be drawn between the adoption of such a scheme, on the one hand, and the grant of aid on the basis of that scheme, on the other”.
“(76) Aid granted individually to undertakings on the basis of an aid scheme cannot have any bearing on the examination which the Commission is required to carry out as regards proof of the existence of an advantage under Article 107(1) TFEU, since that grant is merely the consequence of the automatic application of such an aid scheme”.
“(77) It is therefore apparent from that case-law that, since the amended scheme at issue is an aid scheme and not an individual aid measure, the Commission was not required to examine in the contested decision the specific risk that possible financial losses incurred by Blue Panorama could be compensated for by that amended scheme.”
“(79) In the second place, and in any event, it is apparent from the contested decision that the methodology used to calculate the damage suffered by the beneficiaries of the amended scheme at issue, as described in paragraph 72 above, took into consideration only the revenues and operating costs of those beneficiaries that were directly linked to their passenger air transport activities on the routes concerned during the periods of application of the travel restrictions at issue. That methodology in principle excluded any potential costs related to insolvency proceedings borne by a beneficiary”.
A comment is in order at this point concerning the methodology used by the Commission to determine the amount of damage. In principle, the damage is the reduction in net revenue as a result of the travel restrictions. In order to establish the impact of the travel restrictions, the Commission takes into account the net revenue in the corresponding period of the previous year. This is correct if we assume that nothing else but the travel restrictions changed during that period of time which is normally 12 months. This assumption is always wrong and contrary to the case law, as expressed in paragraph 70 above, which requires that no other event is interposed or interjected in between the exceptional occurrence and the damage. Although it is true that the Commission does not have to examine the merits of individual aid granted in the context of a scheme, in this case it should have required Italy to verify the direct causality between the travel restrictions and the damage.
Alleged failure to take account of the state aid granted to the Lufthansa Group
Ryanair also claimed that the aid granted to Air Dolomiti – one of the three beneficiaries – was likely to be disproportionate, because the Commission failed to take into account the aid that had been received by the Lufthansa Group, to which Air Dolomiti belonged.
The General Court reiterated that “(88) when examining the amended scheme at issue, which is an aid scheme and not an individual aid measure, the Commission was not required to examine the risk that any aid granted to a group to which one of the potential beneficiaries of the amended scheme at issue belonged could profit that beneficiary. Accordingly, the Commission was not obliged to assess the particular case of the application of the amended scheme at issue to Air Dolomiti and the specific risk of a cumulation of aid for the same eligible costs of that airline.”
The General Court also observed that “(90) the Italian authorities had committed to make a report to the Commission, within a year of the date of adoption of the contested decision, on the implementation of the amended scheme at issue, with the amounts received by each beneficiary, which is a safeguard against overcompensation. … the Commission stated that the Italian Republic had explained to it that the scheme at issue provided safeguards against the risk of overcompensation and a cumulation of aid. First, any damage already compensated for from other sources would be excluded from the damage eligible for compensation. Second, the draft law for the grant of aid under the scheme at issue prohibited the cumulation of aid and established an ex post mechanism to recover any unduly received aid. Third, the fact that the damage eligible for compensation had not already been compensated for by other sources would be certified by an independent auditor’s evaluation report.”
The safeguards itemised above are indeed necessary. However, they do not address the specific weakness of the adopted methodology explained above.
Compensation for the damage suffered in 2021 and the methodology used to calculate that damage
Ryanair complained that the Commission authorised compensation for the damage suffered by the beneficiaries of the amended scheme over the whole of 2021 and incorrectly calculated the damage.
In the contested decision “(98) the Commission explained that the damage giving rise to an entitlement to compensation under the amended scheme at issue corresponded to that suffered during the periods of application of the travel restrictions at issue for each route concerned.”
The methodology for calculating the damage “(99) was based on the difference between, first, the financial results achieved by the beneficiaries of the amended scheme at issue on the routes concerned during the periods of application of one or more of the travel restrictions at issue and, second, such financial results in a scenario without the travel restrictions at issue. That scenario made it possible to calculate the number of passengers that would have been carried, the revenues that would have been received and the costs that would have been paid by the beneficiaries on the routes concerned in the absence of the travel restrictions at issue, and was based on the results of the beneficiaries on the routes concerned during the corresponding period in 2019. In order to determine, in that scenario, the number of passengers on the routes concerned who would have travelled in the absence of the travel restrictions at issue, the methodology provided for the application of ‘retention rates’ to the 2019 data, which were calculated on the basis of the number of passengers who took domestic flights during periods when those flights were not subject to travel restrictions.”
Bearing in mind the comment I made earlier, the assumption of “nothing but travel restrictions” is even more tenuous for the comparison between 2021 and 2019 than for the period 2020 and 2019. In fact, the application of “retention rates” was an attempt to adjust the actual results of 2021 by taking into account factors other than the travel restrictions themselves. This is also revealed below in the next step in the reasoning of the General Court.
“(100) The Commission, when examining the proportionality of the amended scheme at issue, found that the methodology described in paragraph 99 above made it possible to calculate precisely the number of passengers who would have travelled on the routes concerned during the periods of application of the travel restrictions at issue in the absence of those restrictions and, consequently, to determine the amount of the damage.”
“(101) In that regard, in the first place, as regards the applicant’s argument alleging a lack of direct causal link between the decrease in demand for passenger air transport in the second half of 2021 and the COVID-19 pandemic, owing to the limited number or absence of the travel restrictions at issue, it should be borne in mind that the amended scheme at issue was intended to compensate only the damage suffered by the beneficiaries as a result of those travel restrictions. It is apparent from the contested decision that the damage eligible for compensation was solely that caused on the routes concerned during the periods of application of the travel restrictions at issue (see paragraphs 98 and 99 above). Any other loss of revenue suffered by the beneficiaries of the amended scheme at issue in 2021 was not compensated for by that scheme. That means that if, as the applicant claims, there were no travel restrictions at the end of 2021, no compensation was granted by the scheme at issue for that period. That is, moreover, confirmed by the arguments of Air Dolomiti, which asserts that it did not receive any aid linked to losses in revenue suffered during the second half of 2021. Accordingly, the applicant’s line of argument is not capable of challenging the direct causal link between the damage suffered by the beneficiaries of the amended scheme at issue and the COVID-19 pandemic.” The General Court here is not really addressing the issue of causality and the need for exclusion of other factors/events/changes that certainly impact on airline profitability. That would have required analysis of everything that affected the operations of the beneficiaries.
“(102) In the second place, as regards the applicant’s argument that the methodology for calculating the damage does not take any account of factors contributing to the decrease in the number of passengers other than the travel restrictions at issue, it must be stated, as the Commission has done, that the methodology used, as described in paragraph 99 above, was specifically designed to exclude from the damage eligible for compensation those passengers who would not have travelled, even in the absence of the travel restrictions at issue. Indeed, the methodology did not merely calculate the difference between operating income on the routes concerned between 2019 and the periods of application of the travel restrictions at issue in 2021. It provided for the application of a retention rate to that difference in order to determine the number of passengers who had not travelled because of the travel restrictions at issue. The methodology therefore took account of the fact that the number of passengers on the routes concerned would have been lower in 2021 than in 2019, even in the absence of the travel restrictions at issue, and sought to exclude the reduction in the number of passengers that was not attributable to those restrictions from the damage to be compensated for under the amended scheme at issue.” This reasoning is correct. But why is the adjustment limited only to the number of passengers. Of course, the number of passengers determines to a large extent revenue and costs. But there are factors that affect revenue and costs.
The General Court also considered a number of other pleas which it rejected. Therefore, the appeal was dismissed in its entirety.
Conclusion
The methodology for calculating the amount of compensation is faulty or at least weak. More elaborate and accurate calculations for sure will be more time consuming and possibly more vulnerable to legal challenges and the more factors are taken into account the greater the chance of disagreement among experts. Perhaps the current imperfect methodology should be preferred because it is simpler and the compensation can be calculated and granted without much delay.
