Europe’s largest airline, the budget carrier Ryanair, has been conducting a crusade against the state bailouts that have been granted to its legacy rivals. It’s been handed defeat after defeat, but now it’s finally chalked up a couple of victories.
On Wednesday, the European Union’s General Court annulled the European Commission’s approvals for Portugal’s bailout of TAP and the Netherlands’ bailout of KLM, on the basis that the Commission didn’t give sufficient reasoning for its decisions. Without those approvals, the state aid is illegal and subject to recovery.
However, given the damage this would inflict on the COVID-battered Dutch and Portuguese economies and air-transport services, the union’s second-highest court suspended the effects of the annulments, giving the Commission time to try again.
Favoring flag carriers
KLM effectively got €3.4 billion ($4.15 billion) from the Dutch government last year in the form of a state loan plus a state guarantee for another loan from a banking consortium. TAP got a €1.2 billion loan from the Portuguese government to keep it airborne in the second half of 2020.
According to Ryanair, it was unfair and illegal for European governments to grant aid to their national flag carriers—in many cases a source of national pride as well as being economically important—but not to other airlines that also contribute to their economies.
The Dutch airline is a subsidiary of Air France-KLM. One of the first cases Ryanair lost was against the Commission’s approval of France’s €7 billion bailout of its flag carrier.
Now, the KLM case has given the General Court an opportunity to clarify what the Commission is supposed to do when evaluating state aid for a subsidiary of a holding company that has already seen another subsidiary get state aid.
Ryanair’s argument was that the Commission failed to demonstrate that KLM wasn’t able to benefit from the aid already granted to Air France.
The General Court agreed, also saying the EU executive “failed to set out…in a sufficiently clear and precise fashion, all the relevant matters of fact and law to be taken into account in order to assess a complex situation, featuring the parallel grant of two state aid measures to two subsidiaries of the same holding company, which is, moreover, involved in the grant and administration of that aid.”
Regarding TAP, which was partially privatized in 2015, the court said the Commission “had not substantiated in any way its assertions, first, that the beneficiary’s difficulties were intrinsic and were not the result of an arbitrary allocation of costs to the benefit of its shareholders or other subsidiaries and, secondly, that those difficulties were too serious to be dealt with by its controlling shareholders or other shareholders.”
The Commission said in a statement that it would “carefully study” the judgements and “reflect on possible next steps”. KLM also said it will review the General Court’s judgement—and highlighted the fact that it doesn’t have to give back any money for now.
“Level playing field”
Ryanair, meanwhile, hailed the rulings as “an important victory for consumers and competition.”
“During the COVID-19 pandemic over €30 billion in discriminatory state subsidies has been gifted to EU flag carriers,” a spokesperson said in an emailed statement. “Unless halted by the EU courts in line with today’s rulings, this state aid spree will distort the market for decades to come. If Europe is to emerge from this crisis with a functioning single market, airlines must be allowed to compete on a level playing field.”
However, this only marks two wins out of the 20 appeals against Commission state aid decisions that Ryanair has filed. The General Court has sided against it in appeals regarding Air France, SAS and Finnair, and also dealt Ryanair another blow on Wednesday by dismissing its suit against a €10 billion bailout for strategic Spanish businesses—Ryanair said it will appeal that one to the Court of Justice of the EU, the bloc’s highest legal authority.
And the money continues to flow. A couple weeks ago, the Commission green-lit yet another flag carrier bailout: an extra €12.8 million for Alitalia from the Italian government, which had already thrown nearly €300 million its way during the pandemic. Ryanair swiftly lodged an appeal.
On Monday, Ryanair reported a full year loss of €815 million over what it called its “most challenging” year ever, but Berenberg reiterated its “buy” rating, saying Ryanair “offers the quickest return to pre-tax profitability of the European airlines.”
Update: This article was updated on May 19 to include the Commission’s statement on the rulings.
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