Brussels, 4 February 2014
State aid: Commission opens in-depth investigation into restructuring aid for Cyprus Airways
The European Commission has opened an in-depth investigation to verify whether Cyprus' plans to support the restructuring of Cyprus Airways with €102 million are in line with EU state aid rules. The Commission will investigate in particular whether the restructuring plan is suitable to make Cyprus Airways viable without continued state support and to offset the competition distortions created by the state aid. 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.
In December 2013, Cyprus notified the Commission a € 102.9 million aid package to restructure the national flag carrier Cyprus Airways, which has experienced financial difficulties for several years. The restructuring plan runs from 2012 to 2017. The plan includes a € 31.3 million capital injection granted in 2012, a conversion of debts of the company into equity amounting to € 63 million and € 8.6 million to cover the deficit of the company's Provident Fund, a benefit scheme for the Cyprus-based employees (excluding pilots), financed through contributions from the employees and Cyprus Airways.
The Commission has doubts whether the restructuring plan is suitable to ensure Cyprus Airways' long-term viability and whether the airline is capable of withstanding likely challenges in the air transport market during the next years. It is also uncertain whether the proposed capacity reduction through the cancellation of routes is sufficient to compensate for the distortions of competition created by the state support. The Commission also has concerns that the airline's contribution to the cost of restructuring may be insufficient.
Moreover, according to EU rules restructuring aid may be granted only once over a period of ten years to avoid that inefficient companies are kept artificially alive with repeated subsidies (the so-called "one time, last time" principle). The Commission already approved restructuring aid for Cyprus Airways in 2007 (see case C 10/2006 (decision of 7 March 2007). Since then, the airline has benefitted from additional public interventions, including the 2012 capital injection and a € 34.5 million rescue aid loan in 2013. In March 2013, the Commission opened an in-depth investigation into these measures and an envisaged state compensation to the airline's redundant staff (see IP/13/133).
An exception to the "one time, last time" principle can be granted in exceptional and unforeseen circumstances. However, at this stage, the Cypriot authorities have not provided an adequate justification to that end.
Cyprus Airways is the Cypriot flag carrier and 93.67% owned by the Cypriot State. Cyprus Airways has been in financial difficulty since 2009.
The Commission has recently opened other investigations into public support measures granted to national flag carriers, namely airBaltic (see IP/12/1245), Adria Airways (see IP/12/1246), SAS (see IP/13/567) LOT (see IP/13/1045) and Estonian Air (see IP/13/133, IP/13/332 and IP/14/106). The Commission has found state measures in favour of Air Malta (see IP/12/702), Czech Airlines (see IP/12/981) and LOT (see IP/12/1243) to be in line with the state aid rules.
Rescue and restructuring aid has a high potential of distorting competition as it artificially keeps a company in the market that would otherwise have exited it. It can therefore be granted only under strict conditions ensuring that the beneficiary will become viable and offsetting the distortions of competition created by the state funding. Thus, the EU Rescue and Restructuring Guidelines (see MEMO/04/172) require that the restructuring plan enables the company to become viable in the long-term on the basis of realistic assumptions. This is to avoid that a company keeps asking for public support. The plan must foresee measures to reduce the distortions of competition induced by the state support, such as the reduction of capacity or market share. Furthermore, the beneficiary needs to make a significant own contribution to the costs of restructuring, to avoid free-riding.
The non-confidential version of the decision will be made available under the case number SA.37220 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.