The Problem of Multiple Awards of Aid to the Undertaking and to the Same Group

Multiple awards of aid to the same undertaking are allowed as long as they cover different costs.

Multiple awards of aid to the same group are allowed as long as aid does not leak from one undertaking in the group to another.

Introduction

In the first half of 2021, the General Court ruled in ten cases of appeal lodged by Ryanair against Commission decisions authorising State aid to other airlines in the context of the covid-19 pandemic. The General Court dismissed seven of them and annulled three Commission decisions on the grounds that they were not sufficiently reasoned. In July 2021, the Commission re-adopted those three decisions, again authorising the aid.

Also in July 2021, the General Court rendered its judgment in the tenth appeal of Ryanair in case T‑677/20, Ryanair v European Commission, which concerned Commission decision SA.57539 authorising State aid, in this instance granted by Austria to Austrian Airlines [AUA]. This appeal was the last in the seven that were dismissed.[1]

Austrian Airlines is part of the Lufthansa group which, in addition, includes Brussels Airlines, Swiss International Air Lines and Edelweiss Air.

The aid measure concerned an individual intervention in the form of a subordinated loan convertible into a grant of EUR 150 million. That measure was intended to compensate AUA on the basis of Article 107(2)(b) TFEU for the damage it suffered as a result of the cancellation or rescheduling of its flights after the imposition of travel restrictions to counter the pandemic.

In an earlier decision concerning individual aid of EUR 6 billion in the form of equity injection by Germany to Lufthansa [case SA.57153], the Commission pointed out that the Lufthansa group had benefited from several other aid measures:

SA.56714: Aid for liquidity purposes granted by Germany on the basis of Article 107(3)(b) TFEU. Lufthansa received a state guarantee of 80% on a loan of EUR 3 billion.

SA.56981 [amended by SA.57520]: Aid in the form of a guarantee scheme granted by Austria for the purpose of bridging loans on the basis of Article 107(3)(b) TFEU. AUA received a state guarantee of 90% on a loan of EUR 300 million.

In addition, Belgium provided EUR 250 million liquidity support and a EUR 40 million loan Brussels Airlines and Switzerland granted an 85% state guarantee on a loan of EUR 1.4 billion to Swiss International Air Lines and Edelweiss Air.

In the Lufthansa decision [SA.57153], the Commission also noted that the aid measures granted by other Member States to undertakings in the Lufthansa group would be deducted from the individual aid to Lufthansa.

Taking account of other State aid

In view of the multiple awards of aid to the Lufthansa group, not surprisingly Ryanair alleged that the Commission failed to consider other aid to or from Lufthansa that could indirectly benefit AUA.

The General Court disagreed on that grounds that “(29) the Commission noted, in that regard, that, although the measure at issue sought to remedy the damage caused to AUA as a result of the cancellation and rescheduling of its flights due to the imposition of travel restrictions and other containment measures linked to the COVID-19 pandemic, the other parts of that financial package in favour of AUA, for their part, were intended to guarantee its solvency and its adequate capitalisation in order to enable it to deal with the effects of the COVID-19 pandemic not covered by the measure at issue and with technical issues unrelated to the pandemic.”

Moreover, “(30) the Commission recalled, […], that the aid which was the subject of the Lufthansa decision could be used by DLH to support the other airlines of the Lufthansa group which were not experiencing financial difficulties on 31 December 2019, including AUA. In addition, the Commission explained, […], that, when it had examined the proportionality of the aid that was the subject of the Lufthansa decision, it had taken into account, in accordance with paragraph 54 of the Communication of 19 March 2020, entitled ‘Temporary Framework for State aid measures to support the economy in the current COVID-19 outbreak’ […], the additional aid measures granted or proposed, in the context of the COVID-19 pandemic, to companies in the Lufthansa group. In that regard, the Commission observed, […], including the measure at issue, as well as the Austrian aid scheme granted in favour of AUA, were limited to the minimum necessary to restore the capital structure of the Lufthansa group and to ensure its viability.”

“(31) It should also be noted that the Commission had already taken into account all the aid measures granted in favour of the airlines forming part of the Lufthansa group, including AUA, and the relationship between them in the Lufthansa decision, adopted two weeks before the contested decision, and to which the Commission refers several times in the contested decision.”

Ryanair also argued that there was a risk that the aid granted to AUA could also benefit Lufthansa.

In response, the General Court observed that “(37) if the airlines of the Lufthansa group, such as AUA, were to receive aid granted by a State other than the Federal Republic of Germany, the amount of that aid would be deducted from the total amount granted to the Lufthansa group by that Member State. The aid measures mentioned above thus put in place a mechanism for deductions, under which the aid granted by the Federal Republic of Germany to the entire Lufthansa group is reduced by the aid granted by other States to a particular company in that group, so that the overall amount received by that group remains the same.”

Furthermore, the Court pointed out that “(41) the German loan and the aid which is the subject of the Lufthansa decision, based on Article 107(3)(b) TFEU, on the one hand, and the measure at issue, based on Article 107(2)(b) TFEU, on the other hand, are not supposed to cover the same eligible costs, […] While the first measures are intended to ensure the solvency and adequate capitalisation of the beneficiary, the measure at issue is intended to remedy the damage caused by the cancellation and rescheduling of AUA flights due to the imposition of travel restrictions and other containment measures linked to the COVID-19 pandemic.”

Principle of non-discrimination

Ryanair contended that the Commission infringed the principle of non-discrimination on the grounds that the measure at issue benefitted only AUA. Ryanair labelled it a measure of “naked economic nationalism”. Ryanair held “8% of the Austrian market and therefore suffered 8% of the damage” caused by the pandemic. [Please note that the amount of damage (measured either in terms of loss of revenue or incurred costs) does not necessarily have a 1-to-1 relationship with the number of cancelled flights. In addition, the need of an airline to receive compensation, perhaps in order to avoid bankruptcy, is more likely to be higher, the larger the dependency of the airline on the Member State that imposes the travel restrictions.]

The General Court, first, reiterated that “(47) State aid which contravenes the provisions of the Treaty or the general principles of EU law cannot be declared compatible with the internal market” and then recalled that “(48) the principle of non-discrimination requires that comparable situations must not be treated differently and that different situations must not be treated in the same way unless such treatment is objectively justified”.

It also reiterated that “(49) the elements which characterise different situations, and hence their comparability, must in particular be determined and assessed in the light of the subject matter and purpose of the EU act which makes the distinction in question. The principles and objectives of the field to which the act relates must also be taken into account”.

“(50) Furthermore, it should be borne in mind that the principle of proportionality, which is one of the general principles of EU law, requires that acts adopted by EU institutions do not exceed the limits of what is appropriate and necessary in order to attain the legitimate objectives pursued by the legislation in question […]; where there is a choice between several appropriate measures, recourse must be had to the least onerous measure and the disadvantages caused must not be disproportionate to the aims pursued”.

Then, the General Court pointed out that “(52) the sole purpose of the measure at issue is to compensate AUA partially for the damage resulting from the cancellation or rescheduling of its flights”.

“(53) It is true, as the applicants correctly submit, that all airlines operating in Austria were affected by those restrictions and that as a consequence they, like AUA, have all suffered damage resulting from the cancellation or rescheduling of their flights”.

“(54) However, the fact remains, as the Commission correctly submits in its defence, that there is no requirement for Member States to grant aid to make good the damage caused by an ‘exceptional occurrence’ within the meaning of Article 107(2)(b) TFEU.”

“(56) An aid measure may be directed at making good the damage caused by an exceptional occurrence, in accordance with Article 107(2)(b) TFEU, irrespective of the fact that it does not make good the entirety of that damage.”

[However, this argument seems more relevant to the amount of damage that may be compensated rather than which company may be compensated. But, the word “entirety” can be understood to mean all the damage suffered by a company or all the companies that have suffered damage.]

“(57) Consequently, it does not follow from either Article 108(3) TFEU or from Article 107(2)(b) TFEU that Member States are obliged to make good the entirety of the damage caused by an exceptional occurrence, such that they similarly cannot be required to grant aid to all of the victims of that damage.”

[The last part of the sentence above does not necessarily follow from the fact that Member States are not obliged to compensate 100% of the damage. The proportion of compensation and who receives compensation are two different issues.]

“(58) It should be noted that individual aid, such as that at issue, by definition benefits only one company, to the exclusion of all other companies, including those in a situation comparable to that of the recipient of that aid. Consequently, such individual aid, by its nature, brings about a difference in treatment, or even discrimination, which is nevertheless inherent in the individual character of that measure. To argue, as the applicants do, that the individual aid at issue is contrary to the principle of non-discrimination amounts, in essence, to calling into question systematically the compatibility of any individual aid with the internal market solely on account of its inherently exclusive and thus discriminatory nature, even though EU law allows Member States to grant individual aid, provided that all the conditions laid down in Article 107 TFEU are met.”

“(59) In any event, even if, as the applicants claim, the difference in treatment established by the measure at issue, in so far as it benefits only AUA, may amount to discrimination, it is necessary to ascertain whether it is justified by a legitimate objective and whether it is necessary, appropriate and proportionate in order to attain that objective. Similarly, since the applicants refer to the first paragraph of Article 18 TFEU, it should be made clear that, under that provision, any discrimination on grounds of nationality is prohibited within the scope of the application of the Treaties ‘without prejudice to any special provisions contained therein’. Therefore, it is important to ascertain whether that difference in treatment is permitted under Article 107(2)(b) TFEU, which is the legal basis for the contested decision. That examination requires, first, that the objective of the measure at issue satisfies the requirements laid down in that provision and, second, that the conditions for granting the measure at issue, namely, in the present case, that it benefits only AUA, are such as to enable that objective to be achieved and do not go beyond what is necessary to achieve it.”

“(60) As regards the objective of the measure at issue, the applicants do not dispute the fact that compensation for damage resulting from the cancellation or rescheduling of an airline’s flights following the imposition of travel restrictions amid the COVID-19 pandemic makes it possible to make good the damage caused by that crisis. Nor do the applicants dispute that the COVID-19 pandemic constitutes an exceptional occurrence within the meaning of Article 107(2)(b) TFEU.”

“(61) As regards the arrangements for granting the measure at issue, […], AUA played an essential role in Austria’s airline services and that it made a significant contribution to the Austrian economy, given that it was the only network carrier operating out of Austria offering long-haul connectivity from and to the Vienna airport hub. Furthermore, in view of Vienna’s relatively small catchment area, no other airline would be able to offer a large number of long-haul flights from and to Vienna, given that feeder flights could also be routed to other airports, from which long-haul flights could be offered. In addition, AUA employs approximately 7 000 people, and approximately 17 500 jobs are directly or indirectly dependent on AUA. According to the Austrian authorities, the economic importance of a network carrier such as AUA comprises approximately EUR 2.7 billion per annum in economic added value for the Austrian economy and approximately EUR 1 billion per annum in taxes.”

“(62) Furthermore, it should be noted that, […], AUA is the largest airline in Austria, where it held 43% of the market share in 2019, that market share being significantly higher than that of the second airline and of the applicants whose respective market shares were only 14% and 8% in 2019.”

“(63) They […] submit that that difference in treatment is not proportionate, since the measure grants AUA all the aid intended to remedy the damage at issue, whereas it bore only 43% of that damage.”

“(64) AUA, because of its essential role in providing Austria’s airline services, was more affected by the cancellation and rescheduling of flights in Austria following the imposition of travel restrictions”.

“(65) In addition, […] AUA is proportionately and, because of the scale of its activities in Austria, significantly more affected by those restrictions than Ryanair, which, […], carried out only a minimal part of its activities to or from that country, unlike AUA, which carried out a much larger part of its activities there.”

“(66) Finally, as regards the question of whether the measure at issue goes beyond what is necessary to attain the objective pursued, it must be stated that the amount of that measure is lower than the amount of damage caused to AUA […] Therefore, the measure at issue does not go beyond what is necessary to achieve the legitimate objective it pursues.”

“(67) Consequently, it must be held that the difference in treatment in favour of AUA is appropriate for the purpose of making good the damage resulting from those restrictions and does not go beyond what is necessary to achieve that objective.”

“(68) Moreover, the applicants have not established that the fact of dividing the amount of the aid at issue among all the airlines operating in Austria would not deprive that measure of its effectiveness.”

“(69) In any event and in so far as the difference in treatment brought about by the measure at issue may amount to discrimination, it follows that granting the benefit of the measure at issue only to AUA was justified and that the measure at issue does not infringe the principle of non-discrimination.”

However, please note that the General Court arrived at this conclusion by reasoning that the AUA had larger operations in Austria, was more important to the Austrian economy and had suffered more damage. Even though all three findings are correct, they do not prove that Ryanair did not suffer some damage too. All three findings are predicated on a relative assessment; i.e. they are based on a comparison of the situation of AUA to that of Ryanair. They raise two fundamental questions. First, why did the Court carry out a comparative analysis if its initial premise is that Member States are allowed under Article 107(2)(b) to grant State aid to whoever they wish? Second, what then is the purpose of establishing the absence of discrimination according to whether aid is proportional? If aid is proportional in the sense that the beneficiary does not receive more aid than the damage it has suffered, then the comparative analysis is meaningless because the benchmark is the cost of the damage by the recipient, not whether others have suffered less damage. In fact, the General Court did go on later in the judgment to confirm that the aid did exceed the cost of the damage. Therefore, this meaning of proportionality must be understood to be distinct from what may be called the “relative proportionality” of intervention which can only be based on a comparison between the aid recipient and other companies in a similar situation.

Infringement of the freedom of establishment and of the free provision of services

Ryanair argued, as in its other appeals, that the aid created a barrier to establishment and provisions of services. In paragraphs 70-75, the General Court dismissed the argument on the grounds that Ryanair failed to prove how its right to establishment and provision of services had been affected. “(74) In particular, the applicants fail to identify the elements of fact or law which cause that measure to produce restrictive effects that go beyond those which trigger the prohibition in Article 107(1) TFEU, but which, […], are nevertheless necessary and proportionate to make good the damage caused to AUA by the exceptional occurrence of the COVID-19 pandemic, in accordance with the requirements laid down in Article 107(2)(b) TFEU.”

Misapplication of Article 107(2)(b) TFEU and error relating to the proportionality of the aid

Ryanair alleged, first, that the Commission erred in its assessment of the amount of damage caused to AUA and, second, that it erred in its assessment of the amount of the aid at issue.

The General Court, first, recalled the principle that “(83) aid likely to exceed the losses incurred by the beneficiaries of that aid is not covered by Article 107(2)(b) TFEU”.

“(87) The Commission could take into account, without committing any error, the damage caused to AUA by the aforementioned cancellations and rescheduling during that period.”

“(89) As regards the applicants’ argument that the Commission failed to ensure that AUA took the necessary steps to reduce its costs during the period from 9 March to 14 June 2020, so that not only avoided costs but also ‘avoidable’ costs, that is to say costs which it could have avoided but which it nevertheless incurred, are excluded from the compensation for damage, it should be noted that, […], the Commission explained that the damage to be compensated corresponded to the loss of added value, calculated as the difference between, on the one hand, AUA’s loss of profit, that is to say the difference between the turnover it could have expected to achieve during the period from 9 March to 14 June 2020, in the absence of the travel restrictions and other containment measures related to the COVID-19 pandemic, and the turnover actually achieved during that period, adjusted by AUA’s profit margin, and, on the other hand, the avoided costs.”

“(90-91) The Commission defined the avoided costs as being those which AUA would have incurred during the period from 9 March to 14 June 2020 if its activities had not been affected by the travel restrictions and containment measures linked to the COVID-19 outbreak, and which AUA did not have to bear as a result of the cancellation of its operations […], for example, the reduction in fuel costs, fees and charges, and the reduction in personnel costs, in particular due to the use of short-term work.”

“(92) Thus, the assessment of the damage, as is apparent from paragraph 42(b) of the contested decision, takes account of the additional costs and the costs avoided as a result of those restrictions.”

In other words, the damage is the difference between the net revenue that the AUA would earn in the absence of the pandemic and the net revenue that the AUA actually earned during the travel restrictions, not, as Ryanair claimed, the presumably higher amount that the AUA could have earned had it cut more of its costs.

Assessment of aid granted on different legal bases

Ryanair also claimed that the Commission erred in its assessment of aid granted to the AUA on different legal bases.

The General Court, first, “(102) pointed out that the FEU Treaty does not preclude a concurrent application of Article 107(2)(b) and Article 107(3)(b) TFEU, provided that the conditions of each of those two provisions are met. That applies in particular where the facts and circumstances giving rise to a serious disturbance in the economy are the result of an exceptional occurrence.”

“(103) In the present case, […], the German loan and the aid which is the subject of the Lufthansa decision, together with the aid measure under the Austrian aid scheme granted to AUA, were awarded on the basis of Article 107(3)(b) TFEU, whereas the measure at issue was accorded on the basis of Article 107(2)(b) TFEU.”

“(104) In that regard, the Commission noted, […], that those measures, granted on the basis of Article 107(3)(b) TFEU, were intended to restore AUA’s solvency and viability, and therefore covered costs beyond mere compensation for the damage caused directly by the travel restrictions imposed amid the COVID-19 pandemic. […] the Commission also noted that the Austrian authorities had confirmed that the measure at issue could not be combined with other aid covering the same costs and that the other measures forming part of the support granted to AUA could not give rise to overcompensation because they were not intended to compensate AUA for the damage which it suffered as a result of the travel restrictions imposed on account of the COVID-19 pandemic, and that that measure could not be used for such compensation.”

The argument above is tenuous in at least two respects. First, liquidity aid does not have identifiable costs. It is simply the amount of cash a company needs to cover its immediate expenses. So it is not possible to compare costs under paragraphs 2(b) and 3(b) of Article 107 TFEU. Second, compensation for damage can improve the liquidity of a company and, vice versa, liquidity aid can offset the damage caused by covid-19, even if it is not directly linked to the amount of the damage.

However, in paragraphs 105-107, the General Court referred to several other reasons that led it to agree with the Commission that there was no overlap between the various aid measures.

Advantage v economic benefit

“(119) As regards the applicants’ argument that the Commission did not take account of the competitive advantage conferred on AUA as a result of the discriminatory nature of the measure at issue, it should be noted that, for the purposes of assessing the compatibility of aid with the internal market, the advantage procured by that aid for the recipient does not include any economic benefit the recipient may have enjoyed as a result of exploiting the advantage. That benefit may not be the same as the advantage constituting the aid, and there may indeed be no such benefit, but that cannot justify a different assessment of the compatibility of the aid with the internal market”.

Indeed, Article 107(3)(b) does not require a balancing of the positives and negatives of the aid, as under Article 107(3)(c).

“(120) Consequently, it must be held that the Commission was right to take account of the advantage conferred on AUA, as it results from the measure at issue. However, the Commission cannot be criticised for not having determined the existence of any possible economic benefit resulting from that advantage.”

Given that the General Court dismissed all of Ryanair’s pleas, it rejected Ryanair’s appeal in its entirety.


[1] The full text of the judgment can be accessed at:

https://curia.europa.eu/juris/document/document.jsf?text=&docid=244115&pageIndex=0&doclang=en&mode=lst&dir=&occ=first&part=1&cid=6467377


Photo by JC Gellidon on Unsplash

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About

Phedon Nicolaides

Dr. Nicolaides was educated in the United States, the Netherlands and the United Kingdom. He has a PhD in Economics and a PhD in Law. He presently holds positions at the College of Europe and the University of Maastricht. He has published extensively on European integration, competition policy and State aid. He is also on the editorial boards of several journals. Dr. Nicolaides has organised seminars and workshops in many different Member States, and has acted as consultant to several public authorities.

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