The EU General Court annuls the Commission’s decisions authorising State aid schemes granted by Portugal and the Netherlands to two airline companies (Ryanair)

State Aid to Group of Companies*

In assessing the compatibility of State aid with the internal market, the Commission must also consider previous awards to a legally distinct but related company. In assessing the need for rescue/restructuring aid, the Commission must also consider whether the recipient is a member of a group that can provide internal funding.

Introduction

Paragraph 11 of the Commission’s Notice on the Notion of State Aid points out that several separate legal entities may form one economic unit for the purposes of State aid rules. An undertaking is an economic unit. Given that an undertaking, by definition, exercises control over the separate legal entities that make up the economic unit, State aid granted to one member of the unit may leak or be directed to the benefit of another member of the unit. Therefore, State aid granting authorities need to check who is the ultimate beneficiary of the aid in order to ensure, at minimum, that the aid does not breach the maximum allowable thresholds. It follows that the Commission too must identify who ultimately receives the aid it authorises so as to confirm its compatibility with the internal market.

The first of the two cases which are reviewed in this article demonstrates the need to identify all potential aid beneficiaries in a group of companies and quantify the aid that may flow from the direct recipient to other members of the group. This is especially important when members of the same group have previously received State aid. It is irrelevant that the aid may be granted by different Member States. Unlike de minimis aid where the aid ceiling of EUR 200,000 applies per Member State, for non-de minimis aid, all awards from all Member States must be taken into account.

The second case also highlights the significance from a State aid perspective of being a member of a group of companies. This is because a group may be able to assist a member without the need for external funding from the state.

Case I: KLM

On 19 May 2021, the General Court delivered its ruling in case T‑643/20, Ryanair v European Commission. [1] Ryanair sought the annulment of Commission Decision SA.57116 authorising a loan guarantee and a loan granted to KLM by the Dutch government. The Commission authorised the aid in July 2020.

Ryanair is the third largest airline serving the Netherlands and has about 5% of the market there.

KLM is a subsidiary of the Air France-KLM holding company, in which the French and Dutch states are the largest shareholders, owning 14.3% and 14% respectively of the share capital.

In May 2020, the Commission, in Decision SA.57082, approved a guarantee and a shareholder loan by France for Air France.

Both measures [SA.57082 & SA.57116] were authorised on the basis of the Temporary Framework that allows State aid to remedy the economic effects of covid-19.

Obligation to take into account all State aid to a single group of companies

Ryanair alleged breach of the duty of the Commission to state the reasons why it did not take account of the impact of the aid previously granted to Air France, even though, like KLM, it was part of the Air France-KLM group.

The General Court considered that the earlier aid measure in favour of Air France was a relevant factor that should have been taken into account. However, the Decision on the aid to KLM “(43) does not contain any other analysis as to whether the aid previously granted to ‘Air France through the Air France-KLM company, the group’s holding company’ could also be used, if only in part, for KLM’s liquidity needs, if necessary through the Air France-KLM holding company, of which both Air France and KLM are subsidiaries.”

According to the General Court, “(46) where legally distinct natural or legal persons constitute an economic unit, they should be treated as a single undertaking for the purposes of EU competition law.” “(47) Among the factors taken into account by the case-law in order to determine the presence or absence of an economic unit in the field of State aid are, inter alia, the company concerned being part of a group of companies which is directly or indirectly controlled by one of those companies, the pursuit of identical or parallel economic activities, and the companies concerned having no economic autonomy; the formation of a single group controlled by one entity, despite the constitution of new companies each having a separate legal personality; the possibility, for an entity owning a controlling shareholding in another company, to exercise functions relating to control, direction and financial support in relation to that company, going beyond the simple placing of capital by an investor, and the existence of organic and functional links between them; and also the existence of relevant contractual clauses”.

The General Court also stressed that the onus was on the Commission to examine the links between companies belonging to the same group where State aid could leak from the direct recipient to other companies in the group.

In the present case, the Court noted that although “(51) the contested decision describes the shareholder structure of the Air France-KLM holding company […], it does not, by contrast, contain any information concerning the shareholder structure of its two subsidiaries, Air France and KLM.” Also, “(55) the contested decision does not contain any information as to the functional, economic and organic links between the Air France-KLM holding company and its subsidiaries Air France and KLM.”

Then the Court observed that “(59) the Air France-KLM holding company assumed certain contractual rights and obligations in relation to the aid measure at issue.” “(60) Similarly, several aspects of the Air France decision make it apparent that the Air France-KLM holding company assumed contractual obligations and rights in relation to the aid measure which was the subject of that decision.” “(61) It follows from the factors described in paragraphs 59 and 60 above that the Air France-KLM holding company was involved in the grant of both the aid measure at issue and the one which was the subject of the Air France decision.”

Therefore, “(67) the Commission could not conclude that the aid previously granted to Air France through the Air France-KLM holding company could not under any circumstances be used for KLM’s liquidity needs”, thus “(72) the Commission failed to provide reasons for the contested decision to the requisite legal standard.”

Then the General Court examined the conditions for the application of the Temporary Framework.

“(74) Article 107(3)(b) TFEU requires not only that the Member State concerned is indeed faced with a serious disturbance in its economy, but also that the aid measures adopted to remedy that disturbance are, first, necessary for that purpose and, second, appropriate and proportionate for achieving that objective. That same requirement is also apparent from paragraph 19 of the Temporary Framework.”

“(75) In addition, and more specifically, […] in accordance with paragraph 25(d)(i) of the Temporary Framework, State aid in the form of new public guarantees on loans is considered to be compatible with the internal market on the basis of Article 107(3)(b) TFEU provided that, for loans with a maturity beyond 31 December 2020, the total amount of loans per beneficiary is not more than double the annual wage bill of the beneficiary for 2019, or for the last year available. The same threshold applies to State aid in the form of subsidies to public loans, in accordance with paragraph 27(d)(i) of that framework.”

“(76) Accordingly, the assessment of the necessity and proportionality of the aid, in general, and of compliance with those thresholds, in particular, presupposes that the amount of the aid, the beneficiary and the absence of a risk of cross-financing, drawing on the aid in question, between the Air France-KLM holding company, KLM and Air France, have been determined beforehand. However, the inadequacy of the statement of reasons which vitiates the contested decision in that regard prevents the Court from reviewing whether the Commission rightly took the view that it was not faced with serious difficulties in assessing the compatibility of the aid in question with the internal market.”

Suspended annulment

The General Court proceeded to annul the Commission Decision on State aid to KLM but rather unusually, it considered that “(82) there are overriding considerations of legal certainty justifying the limitation of the temporal effect of the annulment of the contested decision. First, the immediate calling into question of the receipt of the sums of money envisaged by the aid measure at issue would have particularly damaging consequences for the economy and air transport connectivity of the Netherlands in an economic and social context which is already affected by the serious disturbance to the economy of that Member State owing to the harmful effects of the COVID‑19 pandemic. Secondly, account should be taken of the fact that the cause of the annulment of the contested decision is the inadequacy of its reasoning.”

“(84) For those reasons, the effects of the annulment of the contested decision must be suspended pending the adoption of a new decision by the Commission. Having regard to the speed with which the Commission acted, following the pre-notification and notification of the measure at issue, those effects will be suspended for a period of no more than two months from the date of delivery of this judgment if the Commission decides to adopt such a new decision under Article 108(3) TFEU, and for a reasonable further period if the Commission decides to initiate the procedure under Article 108(2) TFEU”.

Case II: TAP Portugal

On 19 May 2021, the General Court also ruled in case T‑465/20, Ryanair v European Commission. [2]

In this case, Ryanair sought the annulment of Commission Decision SA.57369 of June 2020 authorising rescue aid in the form of a loan and a guarantee granted by Portugal to TAP not in the context of the Temporary Framework but on the basis of the Rescue and Restructuring Guidelines.

Ryanair claimed that its procedural rights as an “interested party” were violated because the Commission failed to open the formal investigation procedure. Ryanair argued that the Commission did not consider properly whether TAP could obtain funding from the TAP group.

The General Court, first, noted that “(38) according to point 22, ‘a company belonging to or being taken over by a larger business group is not normally eligible for aid under these guidelines, except where it can be demonstrated that the company’s difficulties are intrinsic and are not the result of an arbitrary allocation of costs within the group, and that the difficulties are too serious to be dealt with by the group itself’.”

“(40) It follows that point 22 of the Guidelines sets out three cumulative conditions in order for aid granted to a company belonging to a group to be regarded as compatible with the internal market. Accordingly, it is the task of the Commission to examine, first, whether the beneficiary of the aid belongs to a group and, as the case may be, the composition of that group, secondly, whether the difficulties faced by the beneficiary are intrinsic and are not the result of an arbitrary allocation of costs within the group and, thirdly, whether those difficulties are too serious to be dealt with by that group itself.”

“(42) As regards, first, the question of whether the beneficiary belongs to a group, it must be noted that the Commission neither found nor first specified whether the beneficiary belonged to such a group.”

“(51) Secondly, […] the Commission has not provided a sufficient explanation as to why it considered that the second and third conditions laid down by point 22 of the Guidelines and noted in paragraph 38 above had been satisfied. In that regard, the Commission merely asserted, […] respectively, that the beneficiary’s difficulties were intrinsic and were ‘not the result of an arbitrary allocation of costs to the benefit of its shareholders or other subsidiaries’ and that those difficulties were ‘too serious to be dealt with by its controlling or other shareholders’, without, however, substantiating those assertions in any way at all.”

“(53) Consequently, it is impossible for the Court to review whether the conditions laid down in point 22 of the Guidelines were satisfied in the present case and whether they prevent the beneficiary from being eligible for the grant of rescue aid.” “(55) The inadequacy of the statement of reasons which vitiates the contested decision requires the annulment of that decision.”

Suspended annulment

However, the General Court also decided, similarly to the KLM case, that “(59) there are overriding considerations of legal certainty which justify the limitation of the temporal effect of the annulment of the contested decision” for two months.

*Article published on the Lexxion Blog (click here), republished in e-Competitions with the courtesy of the author. The original title of this article appears below the e-Competitions title. Authors are welcome to write an alternative article on this case/text, provided they have no relationships with a party or related third party. Article will need e-Competitions Board approval before publication.

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Phedon Nicolaides, The EU General Court annuls the Commission’s decisions authorising State aid schemes granted by Portugal and the Netherlands to two airline companies (Ryanair), 19 mai 2021, e-Competitions May 2021, Art. N° 101174

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