State aid for pandemic-stricken airlines was legal, EU court rules

February 17, 2021, 11:55 AM UTC

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Europe’s largest airline, Ryanair, has lost two legal challenges against state aid given last year to rivals such as Air France-KLM and SAS.

The rulings, issued Wednesday by the General Court of the European Union, are notable not just because they stymie the budget carrier’s attempt to deny bailouts for its legacy rivals. The court’s decisions also mark the first time the court has addressed the legality of state aid schemes that were designed to mitigate the effects of the COVID-19 pandemic.

Ryanair says it will appeal the case to the EU’s highest legal authority, the Court of Justice.

Last year, as the pandemic and its travel restrictions battered all airlines, several European countries bailed out their national carriers. Ryanair, which has long complained about advantages given to its rivals via state aid, launched legal challenges against the European Commission’s approval of these new measures.

On Wednesday, the General Court ruled in two of those cases that the Commission had been right, and Ryanair was wrong.

Exceptional circumstances

The court cleared both France’s deferral of aviation tax payments from airlines that have a French license (Air France-KLM is the big one here) and Sweden’s loan guarantee scheme for airlines with a Swedish license (meaning Norwegian and SAS).

The EU’s state aid rules, which are designed to prevent imbalances in the bloc’s internal market, generally forbid discrimination on the grounds of nationality. However, there are exceptions for “aid to promote the execution of an important project of common European interest or to remedy a serious disturbance in the economy of a Member State,” and for “aid to make good the damage caused by natural disasters or exceptional occurrences.”

These exceptions apply in the case of the French and Swedish airline measures, the General Court said, classifying the French lockdown and travel restrictions as “an exceptional occurrence” and the pandemic’s effects on the Swedish aviation sector as a “serious disturbance.”

Neither country went beyond what was necessary to fix these problems, it said.

Competition fears

Ryanair vehemently disagrees.

“Ryanair is a truly European airline,” the Ireland-headquartered company, for which the U.K. is also a major base, said in a statement. “We have no rich and powerful ‘home country’ to subsidize us in times of trouble. Nor do we want discriminatory aid. Our instinct in a crisis is to seek efficiencies and cost savings, to offer more routes at lower fares—while remaining Europe’s greenest airline. 

“During the COVID-19 pandemic over €30 billion [$36.2 billion] in discriminatory state subsidies has been gifted to EU flag carriers and, if allowed to stand, this will distort the level playing field in EU aviation for decades to come, giving chronically inefficient national airlines a leg up on their efficient low-fare competitors.”

Ryanair said at the start of this month that it was banking on mass vaccinations to return the aviation sector to health. “That’s the point where we are released from these restrictions,” said CEO Michael O’Leary at the time. “Short-haul travel will recover strongly and quickly. There is huge suppressed travel demand in Europe.”

At the same time, the French government signaled that more state aid could be heading Air France-KLM’s way, because of the ongoing effects of the pandemic. Ryanair objected vociferously, arguing that Air France should give up key slots at Paris Charles De Gaulle and other hubs if it did get “yet another enormous and illegal state aid bailout,” in order to “ensure fair competition in the French market and to protect the interests of the French consumer/visitor.”