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European Commission - Press release

State aid: Commission orders Estonia to recover incompatible aid from national air carrier Estonian Air

Brussels, 7 November 2015

Following an in-depth investigation, the European Commission has concluded that aid measures by Estonia in favour of national flag carrier Estonian Air gave the company an undue advantage over its competitors in breach of EU state aid rules.

Estonian Air therefore needs to pay back the state aid already received, which according to the Commission's information amounts to about €85 million plus interest, and cannot receive an additional €40 million of restructuring aid. Estonian Air has been consistently loss-making since 2006. The Commission's investigation has shown that the aid measures cannot be approved under EU state aid rules, because they involve repeated public support that did not enable the company to become viable again and did not limit the distortions of competition created by the aid.

Commissioner Margrethe Vestager, in charge of competition policy, said: "Companies should compete based on a sustainable business model rather than relying on continued support by the State to stay in the market. Estonian Air has repeatedly received public subsidies over the past five years but did not carry out the necessary restructuring to become viable as a business. It would not be a good use of taxpayer money to keep Estonian Air in the market artificially – nor would it be fair to competitors, which have to compete without such support."

Estonian Air has been in financial difficulties for many years. It has repeatedly benefitted from public support measures during that period. Some of these measures did not involve state aid but a large majority of them provided Estonian Air with an unfair selective advantage over its competitors that cannot be justified under EU state aid rules.

The Commission's investigation found that a €2.48 million State participation in a capital increase in Estonian Air and the sale of Estonian Air's ground-handling activities to the State-owned Tallinn Airport for €2.4 million, both in 2009, were conducted in line with market conditions. Therefore, they did not involve state aid within the meaning of the EU rules.

On the other hand, several subsequent measures provided Estonian Air with a selective advantage over its competitors and therefore involved state aid in favour of Estonian Air amounting to a total of €125.6 million (out of which €84.9 million have already been paid out). In particular, these concern:

  • A State capital injection of €17.9 million in November 2010;
  • An additional State capital injection of €30 million in two tranches (December 2011 and March 2012);
  • A rescue loan facility of €37 million provided by the State in several tranches between December 2012 and November 2014; and
  • A planned additional State capital increase of €40.7 million.

State aid for companies in difficulty can only be approved if the measures comply with conditions set out in the applicable Commission Rescue and Restructuring Aid Guidelines.

Under the Guidelines rescue and restructuring aid can only be granted once in a ten-year period (the so-called "one time, last time" principle). This is to avoid that a company relies on public money instead of competition on the merits. However, Estonia granted at least three public subsidy measures to Estonian Air between 2010 and 2014 with another capital injection still foreseen.

The Commission's investigation also revealed that Estonian Air did not have a credible restructuring plan capable of ensuring that the company would become viable without continued state support. Finally, the plan did not include sufficient measures aimed at limiting the distortions of competition created by the State support.

The repeated public support measures have already given the airline a considerable economic advantage that its competitors did not have. In order to remedy this distortion of competition, Estonian Air now needs to pay back the aid already received (€84.9 million plus interest) to Estonian taxpayers. This is necessary to ensure a level-playing field in the internal market.

 

Background

Estonian Air is the flag carrier airline of Estonia. Since 2011/2012, the stake of the State in the airline is 97.34%. The Commission opened two in-depth investigations into public support measures in favour of the airline in February 2013 and February 2014.

In recent years, the Commission has conducted a number of in-depth investigations concerning airlines restructuring. In some cases, the relevant measures involved no state aid (e.g. SAS Scandinavian Airlines), in others they were in line with common EU rules (e.g. Adria Airways, airBaltic, LOT airlines, Air Malta and Czech Airlines), in still others, airlines had to pay back the undue advantages they had received (Malév, Cyprus Airways). The Commission has also published a policy brief on state aid granted to airlines in difficulty.

Rescue and restructuring aid is highly distortive of competition as it artificially keeps a company in the market that would otherwise have exited it. It can therefore only be granted under strict conditions. The EU Rescue and Restructuring Aid Guidelines (2004 EU Guidelines on State aid for rescuing and restructuring firms in difficulty and since August 2014 the 2014 Rescue and Restructuring Aid Guidelines) therefore require that beneficiaries work out a sound restructuring plan that enables them 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 instead of competing on the merits. The plan must provide for measures to reduce the distortions of competition induced by the state support, such as reductions in capacity or market share. Furthermore, the beneficiary needs to make a significant own contribution to the costs of restructuring. Finally, rescue and/or restructuring aid may be granted only once over a 10-year period.

The Commission's recovery policy is set out in its 2007 Recovery Notice.

 

The non-confidential version of the decision will be made available under the case numbers SA.35956 and SA.36868 in the State Aid Register on the 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.

IP/15/6023

Press contacts:

General public inquiries: Europe Direct by phone 00 800 67 89 10 11 or by email


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