Brussels, 06 March 2013
State aid: Commission opens in-depth inquiry into a €31.3 million capital increase and a rescue aid package for Cyprus Airways
The European Commission has opened an in-depth investigation into a number of public support measures in favour of Cyprus Airways. At this stage, the Commission has doubts whether these measures are in line with EU state aid rules. The opening of an in-depth investigation gives interested third parties an opportunity to comment on the measures under assessment. It does not prejudge the outcome of the investigation. However, the Commission emphasises that no further state aid measures in favour of Cyprus Airways should be implemented without the Commission's prior approval.
The Commission started a preliminary investigation in February 2012 when it learned from press reports that a capital increase was planned for Cyprus Airways. The capital increase took place in early 2013 and it appears that the Cypriot State contributed €31.3 million, whereas private participation was minimal. Public support measures constitute state aid in the meaning of EU rules if they were not made on terms that a private player operating under market conditions would have accepted. At this stage, the Commission has doubts that the capital increase was made on market terms. Indeed, in view of the company's financial difficulties and viability prospects the majority of private shareholders decided not to participate in the capital increase.
In addition, the Cypriot authorities notified to the Commission a rescue aid loan of €73 million for Cyprus Airways in December 2012. It appears that loan payments have already been made in 2013. This would violate the so-called "standstill obligation" in EU state aid rules, according to which state aid must not be granted before the Commission has approved it. Moreover, Cyprus Airways had already received rescue and restructuring aid in 2007. According to EU state aid rules, companies in difficulty can receive rescue and restructuring aid only once over a period of ten years (according to the so-called "one time last time" principle). The Commission also doubts whether there is a credible restructuring plan for Cyprus Airways.
Finally, the Cypriot State is planning to grant ex gratia compensation to redundant personnel of Cyprus Airways, in addition to what they are entitled under the Cypriot law. The Commission notes that the ex gratia compensation to redundant employees may constitute an advantage to the company.
Cyprus Airways was established in 1947 and mainly carries passengers and cargo by air. The company is listed on the Cypriot Stock Exchange. The Cypriot State is the majority shareholder in the company. Cyprus Airways is the only airline with a major base on the island, at the airport of Larnaca. It operates scheduled flights to 41 destinations and has a fleet of 11 aircraft. It has been in economic difficulty for many years, except for 2007-2009, after it received state aid for restructuring (see IP/07/297). The company currently has negative equity.
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) and Estonian Air (see IP/13/133). The Commission also recently adopted decisions concerning Air Malta (see IP/12/702), Czech Airlines (see IP/12/981), and LOT (see IP/12/1243).
Public interventions in companies that carry out economic activities are not considered to be state aid when they are made on terms that a private market player would also have accepted (the so-called "market economy investor principle"). If this is not the case the public intervention constitutes state aid (Article 107 of the Treaty on the Functioning of the European Union) because it gives an economic advantage to the beneficiary that its competitors did not have. The Commission will then assess whether such aid can be found compatible with the EU rules that allow certain categories of aid.
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 viability of the company is restored without further state support, that the company contributes to the costs of its restructuring and that distortions of competition created by the aid are addressed through compensatory measures. Any one company may receive rescue aid only once over a period of ten years (according to the so-called "one time last time" principle).
The non-confidential version of the decision will be made available under the case number SA.35888 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.