The EU Commission approves a €12 million COVID-19 damage compensation as well as a €255.5 million of liquidity support to two airline companies in Portugal and extends an ongoing in-depth investigation to planned restructuring aid (SATA / Azores)

State aid: Commission approves €12 million coronavirus damage compensation and €255.5 million of liquidity support to SATA Air Açores and Azores Airlines in Portugal; extends ongoing in-depth investigation to planned restructuring aid*

The European Commission has approved €12 million in Portuguese support in favour of SATA Air Açores - Sociedade Açoriana de Transportes Aéreos S.A. (‘SATA Air Açores’) as compensation due to damages suffered as a direct result of travel restrictions imposed due to the coronavirus outbreak. Furthermore, it approved up to €255.5 million additional liquidity support to SATA Air Açores. At the same time, the Commission has extended the ongoing in-depth investigation into other support measures to assess whether Portugal’s planned restructuring support measures in favour of SATA are in line with EU rules on State aid to companies in difficulty.

Executive Vice-President Margrethe Vestager, in charge of competition policy, said: “The measures we have approved today, amounting to almost €270 million, will enable Portugal to provide immediate support to SATA Air Açores and Azores Airlines to ensure the continuity of air connections within and to the Azores, an outermost region of the EU. At the same time, we have extended the ongoing investigation into the compliance of past measures in favour of the airlines. We will continue to be in close contact with the Portuguese authorities in this context.”

SATA Air Açores and Azores Airlines, along with SATA – Gestão de Aeródromos, belong to the SATA Group, which is controlled by the Regional Government of Azores. The two air carriers provide air transport passenger and cargo services within the Azores and to and from several national and international destinations. SATA Air Açores is focused on inter-island flights, while Azores Airlines mostly operates flights to and from mainland Portugal and international destinations. The airlines have been entrusted with public service obligations (‘PSO’) on domestic routes and certain routes to mainland to ensure connectivity of the islands in the Açores. SATA – Gestão de Aeródromos manages the small local airports in Azores.

Compensation for damage suffered by SATA due to coronavirus outbreak

Portugal notified to the Commission an aid measure to compensate the two airlines for damages suffered between 19 March 2020 and 30 June 2020 due to the travel restrictions that the Regional Government of Azores, Portugal and the authorities of other destination countries had to impose to limit the spread of the coronavirus.

The support will take the form of a €12 million direct grant. The measure provides that, following appropriate reporting by SATA to the Commission at the end of the financial year, any public support received by the beneficiaries in excess of the actual damage suffered will have to be returned to Portugal. The risk of overcompensation is therefore excluded.

The Commission assessed the measure under Article 107(2)(b) of the Treaty on the Functioning of the European Union (TFEU), which enables the Commission to approve State aid granted to compensate specific companies or specific sectors for the damages 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 damages directly linked to the outbreak are justified.

The Commission found in particular that the Portuguese measure will compensate damage that is directly linked to the coronavirus outbreak. The Commission also found that the measure is proportionate, as the compensation does not exceed what is necessary to make good the damage.

On this basis, the Commission concluded that the Portuguese measure is in line with EU State aid rules.

The Portuguese liquidity support measure

Separately, Portugal notified the Commission of its intention to grant an additional €122.5 million in support to SATA, with the aim of providing the airlines with sufficient resources to address its urgent and immediate liquidity needs until the end of 21 November 2021, or until the Commission takes a final decision on the ongoing investigations. This follows the Commission’s decision of 18 August 2020 approving, under EU State aid rules, €133 million in liquidity support to the SATA airlines.

The support, in the form of a public guarantee on temporary loans or public loans, allows the company to continue providing essential services including routes subject to PSOs and services of general economic interest at local airports, ensuring the connectivity of the Azores outermost region.

The Commission found that the increase and prolongation of individual aid to SATA in the form of guarantees and loans strictly relates to urgent liquidity needs linked to the provision of essential services including routes subject to PSOs and services of general economic interest at local airports. On this basis, the Commission approved the measure under EU State aid rules.

Extension of ongoing investigation into other support measures

Furthermore, Portugal notified the Commission of its intention to grant restructuring aid to support SATA’s restructuring plan. This follows the adoption, also on 18 August 2020, of a Commission decision to open an in-depth investigation to assess whether certain past public support measures by Portugal in favor of SATA are in line with EU rules on State aid to companies in difficulty (under case number SA.58101).

At this stage, the Commission has doubts that the planned restructuring aid is in line with these rules. In particular, the Commission has doubts on:

- the proportionality of the restructuring aid, given that the contribution of SATA to the costs of its restructuring is less than 50% and therefore that the restructuring aid does not appear to be limited to a minimum;

- the solidity of the assumptions under and the timespan of the restructuring plan; and

- compliance with the so-called “one time, last time” principle that companies in financial difficulty can receive restructuring aid only once over a period of 10 years. In addition, the doubts on the compatibility of the certain past public support to SATA raised in the formal proceedings opened on 18 August 2020 remain valid at this moment.

The opening of an in-depth investigation is a normal step in the procedure, which provides Portugal and other interested parties with an opportunity to provide comments. It does not prejudge in any way the outcome of the investigation.

Background

The Azores Autonomous Region is an archipelago composed of nine volcanic islands and 245,000 inhabitants. The Azores Region is considered as an outermost region of the European Union, located in the North Atlantic Ocean, about 1,400 km from mainland Portugal, which is dependent of air transport for passengers and cargo, especially during the winter season.

SATA Group is an air transport company controlled by the Portuguese Autonomous region of Azores. SATA has been facing financial difficulties already before the coronavirus outbreak, i.e. on 31 December 2019. Since at least 2014, the company has been experiencing operating losses and has reported negative equity in recent years, which has been aggravated by the effects of the coronavirus outbreak. SATA, as a company in difficulty, is currently facing urgent and pressing liquidity needs. In that context, both liquidity and solvency issues need to be addressed that is why the restructuring aid is essential to continue the activities of the airline company given its unique position in the geographical area and the market.

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 was amended on 3 April, 8 May, 29 June, 13 October 2020 and 28 January 2021 and 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.

Companies that were already in financial difficulty before the coronavirus outbreak, i.e. on 31 December 2019 are not eligible to receive support under the Commission’s State aid Temporary Framework, which is aimed at supporting otherwise viable companies. Other forms of support, for example support under Article 107(2)(b) TFEU, are also available to companies that were already experiencing financial difficulties before the coronavirus outbreak. More information on the Temporary Framework and other action the Commission has taken to address the economic impact of the coronavirus pandemic can be found here.

Under the Commission’s 2014 Guidelines on State aid for rescue and restructuring non-financial undertakings in difficulty, may receive State aid provided they meet certain conditions. Aid may be granted for a period of 6 months (“rescue aid”). Beyond this period, the aid must either be reimbursed or a restructuring plan must be notified to the Commission for the aid to be approved (“restructuring aid”). The plan must ensure that the viability of the company is restored without further State support, that the company contributes to an adequate level to the costs of its restructuring and that distortions of competition created by the aid are addressed through compensatory measures. By ensuring compliance with these conditions, the Commission maintains fair and effective competition between different companies in the air transport market, like in other sectors.

The non-confidential version of the decisions will be made available under the case numbers SA.61771 and SA.62043 in the State Aid Register on the Commission’s competition website once any confidentiality issues have been resolved.

*This is the original title of the press release. The title above has been amended in order to match the e-Competitions format. Individual authors are welcome to provide original independent commentaries on the case law. Articles are subject to approval by the Board of e-Competitions Bulletin before publication based on the Editorial Policy (click here).

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European Commission, The EU Commission approves a €12 million COVID-19 damage compensation as well as a €255.5 million of liquidity support to two airline companies in Portugal and extends an ongoing in-depth investigation to planned restructuring aid (SATA / Azores), 30 April 2021, e-Competitions June 2021, Art. N° 100721

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