COVID-19: EU General Court upholds Ryanair’s appeals against aid to KLM and TAP
On May 19, 2021, in its judgments T-643/20 and T-465/20, the General Court of the European Union annulled for lack of reasoning two decisions of the European Commission authorizing State aid in favor of airlines KLM and TAP.
In the first case, the European Commission authorized on 13 July 2020 aid from the Netherlands to KLM for an amount of 3.4 billion euros, in the form of a guarantee and a state loan and intended to provide the airline cash flow to deal with the economic effects of the COVID-19 pandemic. The Commission found that the aid complied with the conditions set out in the Temporary Framework on State aid to support the economy in the current context of the COVID-19 epidemic and approved the measure.
On 23 October 2020, Ryanair brought an action for annulment against this decision before the General Court of the European Union. Ryanair has invoked several grounds for cancellation.
The first concerned the fact that the Commission wrongly excluded the aid granted to Air France from the scope of the contested decision. The second invoked a violation of the principles of non-discrimination, freedom to provide services and freedom of establishment. The third alleged incorrect application of Article 107 (3) (b) of the TFEU. In its fourth plea, Ryanair considered that the Commission should have initiated the formal investigation procedure. The airline’s last plea alleged a breach of the obligation to state reasons. Ryanair obtained from the General Court the application of the accelerated procedure, which made it possible to deliver a judgment within one year.
In its judgment, the General Court noted that KLM and Air France belong to the same group and that Air France had benefited from aid linked to the pandemic approved by the Commission a few months earlier. According to the General Court, the Commission did not explain in its decision why the aid in favor of the French company had no impact on the compatibility of the aid in favor of KLM. The decision did not contain any information concerning the shareholders of Air France and KLM, nor any information on the functional, economic and organic links between the subsidiaries and the holding company. The latter only noted that the Dutch authorities had confirmed that the financing granted to KLM would not be used by Air France.
However, when aid has already been granted to another subsidiary of the same group, the Commission must, during its compatibility examination, examine the links between the various subsidiaries of the group in order to determine whether it constitutes an economic unit, considered as a single beneficiary, in particular when there is reason to suspect that the cumulation of State aid within the same group would have negative effects on competition.
The General Court therefore annulled the Commission’s decision of 13 July 2020 for lack of reasoning.
On 10 June 2020, the Commission approved a Portuguese rescue loan of € 1.2 billion for TAP under the guidelines on state aid for rescuing and restructuring firms in difficulty (see our article from June 12, 2020). This six-month loan allowed the Portuguese company to have sufficient liquidity to avoid bankruptcy and prepare its restructuring plan to be submitted to the European Commission.
Ryanair brought an action for annulment against this decision on 22 July 2020, raising various pleas, including the incorrect application of several points of the aforementioned guidelines and of Article 108 (2) of the TFEU; violation of Article 107 (3) (c) TFEU; the principles of non-discrimination, freedom to provide services and freedom of establishment; and also inadequate reasoning regarding TAP’s membership in a group – the Irish company claimed that the Commission failed to consider whether the beneficiary’s difficulties were too serious to be resolved by the group itself, a condition imposed by the above guidelines.
In its judgment, the General Court only examined the plea alleging insufficient reasoning. It recalled that, in accordance with the applicable guidelines, three cumulative conditions must be fulfilled in order for rescue aid granted to a company forming part of a group to be considered compatible. In this context, the Commission must examine whether the aid beneficiary is part of a group, whether the difficulties encountered by the beneficiary are intrinsic (and therefore do not result from an arbitrary distribution of costs within the group) and if these difficulties are too serious to be solved by the group itself.
However, the Court found that the Commission had neither verified nor specified whether the beneficiary was part of a group. The Commission considered that the other two conditions required were met without substantiating these assertions. It did not carry out an analysis on this subject and only provided details on the financial situation of the beneficiary and on the difficulties caused by the COVID-19 pandemic without specifying the intragroup relations between TAP and its shareholder companies.
Consequences of the annulment of the two decisions of the European Commission
In its two judgments, the General Court annulled the decisions of the Commission approving aid in favor of KLM and TAP. It considered that, for lack of reasons, it could not determine whether the aid approved by the Commission was necessary and proportionate and whether it complied with the conditions, in particular as regards the accumulation of aid, contained in the temporary framework or in the the guidelines for aid to firms in difficulty.
It should be noted that in both cases the General Court took the unusual decision to suspend the annulment pending the adoption of a new decision by the Commission in order to avoid causing further economic difficulties in the the Member States concerned, whose economies were already heavily covid pandemic19. In fact, due to the annulment of the decisions approving this aid, the aid has become illegal since it had been paid to the companies and is no longer the subject of formal approval by the Commission.
In the event of annulment for lack of reasoning, the Commission should adopt a new decision, with improved reasons.
It should be noted that the absence of reasons was the highest risk of cancellation in this type of case, because, due to the large number of aids notified to the Commission in the context of the pandemic and their urgency , the Commission only had a deadline to assess these complex aid projects and draft its decisions.
These two judgments were the first victories for Ryanair in a long series of actions taken by the company against decisions authorizing state aid in the aviation sector. Previously, these calls were unsuccessful. Specific examples include the French and Swedish aid schemes for their airlines (see our article from February 19, 2021). More recently, the General Court also dismissed Ryanair’s actions for annulment against the aid granted by Sweden and Denmark to SAS and against the aid granted by Finland in favor of Finnair (see our article of 5 May 2021).
It should also be noted that, on the same day, the General Court dismissed Ryanair’s appeal against a Spanish aid scheme intended to recapitalize non-financial companies established in Spain in Case T-628/20. The General Court found that the aid scheme was neither discriminatory nor disproportionate and therefore upheld the validity of the Commission decision declaring it compatible with EU state aid rules.