Brussels, 6 November 2013
State aid: Commission opens in-depth inquiry into €200 million restructuring aid for LOT Polish Airlines
The European Commission has opened an in-depth investigation to assess whether a PLN 804 million (around €200 million) restructuring aid for the ailing state-owned carrier LOT complies with EU state aid rules. The Commission will examine in particular whether the planned aid will enable LOT to become viable without continued public funding and whether the company offers adequate compensation to alleviate the distortion of competition caused by the state support. The Commission will also verify if LOT sufficiently contributes to the cost of restructuring. The opening of an in-depth investigation gives interested third parties an opportunity to comment on the measures under scrutiny. It does not prejudge the final outcome of the investigation.
LOT has been in difficulty for several years. In May 2013, the Commission approved temporarily a €100 million rescue loan, upon the commitment of Poland to notify a restructuring plan capable of ensuring the long-term viability of the firm (see IP/13/431).
On 20 June 2013, Poland notified the Commission a €200 million capital increase to help the cash-starved LOT finance the restructuring. The underlying restructuring plan covers a two and a half year restructuring period and aims at restoring viability by 2015.
The Commission has doubts whether LOT's restructuring plan complies with the requirements of the 2004 EU Rescue and Restructuring Guidelines (see MEMO/04/172). In particular, the Commission is concerned that the forecasts on long-term viability may not be realistic and that the proposed capacity reduction may not be adequate to compensate for the distortions of competition. The Commission also has doubts whether LOT's own contribution to the restructuring cost is sufficient.
Finally, the Commission will investigate whether LOT is eligible for restructuring aid in view of potential aid the company may have previously received from the state-owned airports in Poland when it was already in difficulties. According to EU state aid rules, companies in difficulty can receive rescue and restructuring aid only once over a period of ten years. This is to avoid keeping ailing firms in business with continued public funding.
LOT is the Polish national flag carrier, employing approximately 1 800 people, and operating a fleet of 45 planes. The company has reported losses in every financial year since 2008 and faced increasing liquidity problems as the sources of funding used so far (e.g. the sale of subsidiaries) have been exhausted. The financial difficulties culminated in December 2012 when the company was forced to ask for state aid in order to avoid bankruptcy.
The Commission has recently opened other investigations into public support measures granted to national flag carriers, namely Air Baltic (see IP/12/1245), Adria Airways (see IP/12/1246) Estonian Air (see IP/13/133) and SAS (see IP/13/567). In November 2012, the Commission concluded that the sales of three of LOT's subsidiaries to state-owned entities did not involve state aid (see IP/12/1243).
Under the EU guidelines on rescue and restructuring aid, companies in difficulty may receive state aid under certain conditions. Such aid has a high potential of distorting competition in the EU internal market, as it artificially keeps companies alive that would have otherwise exited the market. 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 long-term viability of a company is restored without further state support, that distortions of competition induced by the state support are addressed through compensatory measures and that the company contributes to the costs of restructuring. Finally, restructuring aid may be granted only once over a period of ten years ('one time, last time' principle).
The non-confidential version of the decision will be made available under the case number SA.36874 in the State Aid Register on the DG Competition website once any confidentiality issues have been resolved. New publications of state aid decisions on the internet and in the Official Journal are listed in the State Aid Weekly e-News.