On 17 February 2021, the General Court of the European Union (“General Court”) in Cases T-259/20 and T-238/20 dismissed Ryanair’s challenges to pandemic aid packages introduced in France and Sweden in order to support the domestic airline sector. The judgments are the first ones where the General Court has decided on the legality of the State aid schemes adopted in response to the COVID-19 pandemic.
The deferral of the payment of taxes introduced by France
On 24 March 2020 France notified to the European Commission (“Commission”) an aid measure in the form of a deferral of the payment of civil aviation tax and solidarity tax on airline tickets for the period from March to December 2020. This deferral benefits airlines holding a French licence and involves postponing the payment of those taxes until 1 January 2021 and then subsequently spreads payments over a 24 month period, until 31 December 2022.
On 8 May 2020, Ryanair lodged an action for annulment of the Commission’s Decision under the General Court’s expedited procedure.
General Court’s assessment
First, the General Court noted that the COVID-19 pandemic and the pursuant travel restrictions/lockdown measures adopted by France constitute an exceptional occurrence justifying the granting of State aid.
The General Court found that the French scheme was appropriate for achieving the objective of making good the damage caused by this exceptional occurrence. In particular, the General Court noted that possession of a French licence meant the recipient would have their principal place of business in France and would be subject to financial/reputational monitoring by the authorities.
In considering Ryanair’s proportionality argument, the General Court noted that the airlines eligible for the aid scheme were those most severely affected by the travel restrictions and lockdown measures. The extension of the scheme to companies not established in France would not have addressed the economic damage suffered by the airlines operating in France.
In light of the above, the General Court confirmed that the objective of the deferral scheme satisfied the requirements for granting State aid and that the conditions for granting the aid did not go beyond what was necessary. The General Court furthermore did not find the scheme to violate discrimination prohibitions.
Also, the General Court dismissed the argument that the Commission committed a manifest error of assessment of the value of the advantage afforded to the airlines benefitting from the aid. The General Court concluded that the amount of damage suffered by the beneficiaries is, in all probability, higher than the total amount of the deferral, so it ruled out possible overcompensation. The General Court further took into consideration the commitments given by France to provide the Commission a detailed methodology as to the amount of damage associated with the crisis – an additional safeguard for reducing the risk of overcompensation.
The loan guarantee scheme put in place by Sweden
In April 2020, Sweden notified to the Commission State aid in the form of a loan guarantee program aimed at supporting airlines holding a Swedish operating licence as of 1 January 2020, with the exception of airlines having non-scheduled passenger air services as their main activity.
Similarly, on 1 May 2020, Ryanair sought annulment of the Commission’s Decision before the General Court under the expedited procedure.
General Court’s assessment
First, the General Court considered Ryanair’s argument alleging infringement of the principles of non-discrimination on the grounds of nationality and the free provision of services. Similar to the reasoning in the French case, the General Court confirmed that the objective of the loan guarantee scheme satisfied the conditions for granting State aid, as it effectively seeks to remedy a serious disturbance in the Swedish economy as a result of the COVID-19 pandemic.
The General Court found that the limitation of the loan guarantee scheme to airlines in possession of a Swedish licence is appropriate in achieving the objective of remedying the serious disturbance in Sweden’s economy. The beneficiaries in possession of a licence had their principal place of business in Sweden and were therefore subject to financial and reputational reporting by the authorities. There were, consequently, reciprocal obligations between the airlines holding a Swedish licence and the Swedish authorities, which provided a specific, stable link that satisfied the conditions for granting State aid. As to the proportionality of the measure, the General Court found that the airlines eligible for the aid contribute most to Sweden’s regular air service (both as regards freight and passenger transport). Extending the aid scheme to airlines not established in Sweden would not have achieved that stated objective.
In light of the above, the General Court confirmed that the Commission did not commit any error of assessment in considering that the aid scheme did not go beyond what was necessary to achieve the stated objective of the Swedish authorities. This objective became crucial, as at the end of March 2020, the Swedish State recorded a drop of 93% of the passenger air traffic in its three main airports. The General Court similarly found that the aid scheme did not amount to discrimination.
Second, the General Court rejected Ryanair’s allegation that the Commission infringed its obligation to weigh the beneficial effects of the aid against the adverse effect on trading conditions. Such an exercise was not required in this case as the aid measures, such as the loan guarantee scheme, were presumed to be adopted in the interests of the European Union where they are necessary, appropriate and proportionate.
Ryanair has announced that it is appealing both judgments to the Court of Justice of the European Union.
Both judgments are significant as they are the first judgments relative to the Temporary Framework in response to the pandemic. As recognised by the General Court, the aviation sector has been particularly adversely affected by the pandemic and the subsequent measures imposed. This is also evidenced by the numerous other aid measures which the Commission has authorised on the basis of the Temporary Framework to parties active in the aviation sector.
The Covington State aid team will continue to monitor the situation and update you on any new developments.
You can also stay up-to-date with the Covington Competition blog, where we are providing regular updates on the competition law/antitrust implications – both procedural and substantive – of the Covid-19 crisis in the US and the EU.