The EU Commission clears financial support granted by Romania to an airport as a compensation for the damage caused by the COVID-19 outbreak (Timisoara airport)

Introduction

Applying Article 107(2)(b) TFEU the European Commission has cleared financial support granted by Romania to Timisoara Airport as compensation for damage caused by the outbreak of Covid-19 [1].

Background

Following the declaration of a state of emergency in Romania on 16 March 2020, public authorities adopted a number of restrictive measures to contain the spread of virus in the territory of Romania. These measures also included travel restrictions that gradually reduced the flights at Timisoara Airport leading to the total of cessation of operations of airlines from 25 March 2020 until 16 June 2020 (hereinafter the compensation period). Timisoara Airport is a publicly-owned entity and, unsurprisingly, experienced a sharp decline in revenue over the above compensation period in spite of taking several steps to reduce fixed and semi-fixed costs inherent in keeping the airport open. To mitigate these negative effects, Romania decided to provide aid to Timisoara Airport in the form of a direct grant of € 987,744.00. The measure was duly notified by Romania to the European Commission on 29 July 2020.

The decision of the Commission

The Commission took the position that the notified national measure constituted State aid within the meaning of Article 107(1) TFEU and went on to consider whether the aid qualified for the exemption in Article 107(2)(b) TFEU as claimed by Romania. Article 107(2)(b) TFEU states that aid granted to make good damage caused by natural disasters or exceptional occurrences shall be compatible with the internal market.

The Commission reminded that as the provision in Article 107(2)(b) TFEU has an exception to general State aid rules and, accordingly, should be narrowly interpretated. For Article 107(2)(b) to apply, the following compatibility conditions must be met by the national measure: i) the presence of a natural disaster or exceptional occurrence; ii) a causal link between the damage suffered by the aid beneficiary and the exceptional occurrence; iii) proportionality of aid.

  • Exceptional occurrence An event is qualified by the Commission as an exceptional occurrence on a case-by-case base when it is unforeseeable and extraordinary and have a significant economic impact. In the view of the Commission, the Covid-19 health crisis fulfilled these criteria. The risk for public health due to the absence of vaccines and drugs to treat the Covid-19 disease determines the exceptional nature of the event. The rapid spread of the virus result in far-reaching disruption of various economic sectors, including the aviation business especially because of the travel restrictions adopted by national governments. For these reasons the Covid-19 pandemic is an exceptional occurrence because it was not foreseeable and is distinguishable from ordinary events.
  • Causality link As clarified by the CJEU [2], there must be established a direct link between the damage and the exceptional circumstance. The Commission noted that the travel restrictions imposed by national governments resulted in a complete suspension of flights over the compensation period. Hence, there was a causal link between the Covid-19 pandemic and the damage suffered by the aid recipient over the period running from 16 March 2020, when the state of emergency was declared in Romania, to 16 June 2020, when air traffic at the airport of Timisoara gradually resumed. The notified aid was aimed at covering the net losses of Timisoara Airport attributable to the suspension of flights following the adoption of Covid-19 related travel restrictions.
  • Proportionality of aid First, the Commission dealt with which methodology to employ to calculate damage of Timisoara Airport. What should be considered is how the exceptional occurrence of Covid-19 outbreak affected the operations of Timisoara Airport and what actual impact it had on the costs and revenues of the aid recipient. Actual damage is calculated by factoring in the loss of revenues and avoided costs of Timisoara Airport during the compensation period. To this end, it is necessary to compare the results of the aid recipient over the compensation period with the results of the airport expected in the same months of the previous year in absence of the pandemic. The avoided costs corresponded to all the costs that Timisoara Airport would have incurred in absence of the Covid-19 outbreak and the ensuing freezing of the airports’ activities. Avoided costs are also calculated by a comparison between the actual costs borne by Timisoara Airport during the compensation period and the costs actually incurred in the same period of time the year before.

Applying this methodology to the data submitted by the Romanian authorities, the Commission held that that the total amount of the granted aid was equal to damage directly caused to Timisoara Airport by the Covid-19 restrictions over the compensation period.

Further, the Commission noted that Romania committed to review the net losses suffered by the aid recipient by February 2021 on the basis of the financial accounts of Timisoara Airport for the year 2020 audited by an independent external auditor. Romania also committed to a claw-back mechanism to ensure that the aid recipient would repay any over-compensation resulting from such review.

Hence, the Commission reached the conclusion that the aid granted to Timisoara Airport met the compatibility conditions in Article 107(2)(b) and on this legal basis declared the aid compatible with the internal market.

Conclusion

With the Covid-19 hit aviation sector still in need of financial support, the Timisoara Airport case illustrates the decisional practice of the Commission on the interpretation of the proportionality limb of the legal test for the granting of the exemption in Article 107(2)(b). To assess proportionality of aid, the amount of damage to be compensated by the national measure corresponds to loss of revenue minus avoided costs. These financial data are then estimated by means of a counterfactual, comparing the actual revenue and costs of the aid recipient during the pandemic with the projected revenues and costs for the same period of the year in the absence of the Covid-19 outbreak [3]. Claw-back mechanisms and the commitment to review the estimate of damage on the basis of audited financial accounts of the aid beneficiary are also of importance to meet the proportionality condition.

Footnotes

[1European Commission, Decision of 5 August 2020, Case SA.57178 – Romania- COVID-19 – Aid to Timisoara Airport (Timisoara Airport), https://ec.europa.eu/competition/state_aid/cases1/202033/287435_2180736_128_2.pdf.

[2Joined Cases C-346/03 and C-529/03 Atzeni and Others [2006] ECR I-1875.

[3A similar methodology to calculate proportionality of compensation to airports was also followed by the EFTA Surveillance Authority in Haugesund Airport (Case 097/20/COL) and Torp Sandefjord Airport (Case 099/20/COL).

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Author

Quotation

Michele Giannino, The EU Commission clears financial support granted by Romania to an airport as a compensation for the damage caused by the COVID-19 outbreak (Timisoara airport), 5 August 2020, e-Competitions August 2020, Art. N° 97248

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