The EU General Court confirms the legality of rescue aid granted to TAP during the COVID-19 crisis
Following a first annulment of its decision in June 2020 to authorize rescue aid in favour of TAP, the European Commission adopted in May 2021 a new decision on the same aid. Ryanair challenged the decision, for a second time, before the General Court of the EU. Its appeal was rejected on 5 February 2025.
Background
On 10 June 2020, under the 2014 Guidelines on rescue and restructuring aid, the European Commission authorized rescue aid of EUR 1.2 billion granted by the Portuguese State to TAP. TAP is a Portuguese airline whose main operations are in Portugal. Before the COVID-19 crisis, TAP encountered economic difficulties due to its performance and management.
In May 2021, the Commission decision was annulled by the General Court of the EU following an annulment action lodged by Ryanair. The reason for the annulment was a lack of motivation regarding the application of paragraph 22 of the Guidelines on rescue and restructuring aid, which states:
“A company belonging to or being taken over by a larger business group is not normally eligible for aid under these guidelines, except where it can be demonstrated that the company's difficulties are intrinsic and are not the result of an arbitrary allocation of costs within the group, and that the difficulties are too serious to be dealt with by the group itself. …”
In this case, the General Court found that the Commission had not initially specified whether the beneficiary belonged to a group and therefore had not considered this specific eligibility condition.
A few months later, the Commission adopted a new decision, better motivated, in which it confirmed again that the rescue aid granted in 2020 was compatible with the internal market. This decision of 16 July 2021 was also challenged by Ryanair before the General Court of the EU on the basis of several pleas in law for annulment.
TAP's eligibility for rescue aid
First, Ryanair claimed that TAP was not eligible for rescue aid under the relevant Guidelines. Ryanair claimed that the Commission had misinterpreted the conditions of eligibility for rescue aid, made errors of law and assessment concerning the composition of the group, and wrongly concluded that the beneficiary's difficulties were specific and too serious to be resolved by the group.
The General Court rejected Ryanair's arguments. It acknowledged that TAP was part of a group, as evidenced by the joint control exercised by the shareholders over TAP. Moreover, the shareholders concluded a shareholders’ agreement that includes, notably, an equal distribution of the rights to appoint the members of the board of directors and a qualified majority in the event of a tie. The General Court underlined that there is no need to focus on the ultimate shareholders of the beneficiary’s shareholders to determine whether the beneficiary is part of a group.
The General Court recognized that, in addition to the economic difficulties faced by the airline before the pandemic, the pandemic had a significant impact on airline profitability. Additionally, the beneficiary and its shareholders did not have consolidated accounts or shared functions. It would not have been possible for the shareholders to allocate profits arbitrarily within the group.
The General Court agreed with the Commission's argument that the group's financial difficulties were such that none of its shareholders could support the beneficiary. Indeed, like the beneficiary, its two shareholders are active in the transport sector and were also affected by the COVID-19 crisis. Furthermore, at the time of the decision, the future of transport companies was uncertain. In the General Court's view, TAP was already in a too-serious situation. The shareholders' inability to provide for the beneficiary’s needs and the exceptional context of the pandemic justified the granting of substantial aid to ensure the beneficiary did not exit the market due to a lack of liquidity. Finally, the General Court also concluded that the pandemic had drastically slowed down financing and investment in the airline sector. All the market options formerly available had been exhausted.
Under Article 107(3)(c) TFEU, which is the legal basis for rescue aid, the common interest must be pursued for the aid to be declared compatible with the internal market. According to Ryanair, the Portuguese State did not sufficiently demonstrate the common interest pursued by the State aid. In this case, the Commission had demonstrated that there was a risk of disruption to an important service that was difficult to replace and that a competitor of the beneficiary could not easily provide.
However, the General Court confirmed that the aid granted to the beneficiary was in the common interest. Indeed, its connectivity services for Portugal must be considered an important service, and the airline plays an essential systemic role in the Portuguese economy, particularly due to Portugal's geographical location, connectivity, the economic importance of TAP's services, cargo transport and the absence of a short-term substitute.
This plea was thus held unfounded.
An appropriate, proportional and non-discriminatory measure and no violation of freedom to provide services or the freedom of establishment
Ryanair argued that the measure was neither appropriate nor proportional.
The Guidelines on rescue and restructuring aid state that rescue aid must be limited to the amount needed to keep the beneficiary firm in business for six months. It is intended to prevent social difficulties or correct a market failure, irrespective of the cause of the firm's difficulties.
The Court confirms the Commission's method of assessing the compatibility of such aid with the internal market based on concrete and verifiable criteria. It also confirms that the statements made in the media by the Portuguese Minister referred to in Ryanair's complaint were not essential to this analysis. Only the amount needed to maintain an activity for six months may be authorized as rescue aid. The payment of instalments for such things as the replacement of aircraft, to avoid the company’s insolvency, could be included in the need for liquidity. So, the need for liquidity for the six months may include payments of instalments. Measures to share the burden among existing investors during the restructuring phase do not apply to rescue aid.
On the alleged breach of the principles of non-discrimination, freedom to provide services and freedom of establishment, the General Court underlined that the concept of State aid implies the grant of a selective advantage which distorts or threatens to distort competition. Those two criteria cannot therefore justify the measure's incompatibility with the internal market.
On the other hand, the measure must not have effects contrary to Union law and its general principles. Article 107(3)(c) TFEU allows exceptions to the prohibition of State aid, authorizing differences in treatment between undertakings if certain conditions are met. Consequently, it must be verified whether the difference in treatment caused by the measure in question is permissible under Article 107(3)(c) TFEU. In this case, the Commission had demonstrated the common interest pursued by the beneficiary as well as its financial difficulties, which arose before the COVID-19 crisis. Ryanair has not sufficiently demonstrated that it would have been more effective if the rescue aid had been divided between all the airlines operating in Portugal.
In this specific case, the choice of TAP as the beneficiary of the aid is intrinsically linked to the very objective of the aid measure, which is to keep the company in business for a given period. This aid is specifically aimed at guaranteeing the continuity of TAP's operations, which is essential for its financial recovery. Thus, this choice cannot be separated from the overall purpose of the aid. The applicant has failed to demonstrate that this aid prevents other airlines from providing services in Portugal or from establishing themselves in the country. In other words, it has not been proved that the aid granted to TAP creates a barrier to entry or operation for other airlines. Consequently, the aid concerned does not constitute an unjustified restriction on the freedom to provide services or the freedom of establishment in the EU.
Conclusion
In conclusion, the General Court of the EU validated the rescue aid granted to TAP, recognizing its systemic importance to the Portuguese economy and the significant impact of the COVID-19 pandemic on the airline industry. The General Court found that TAP's inclusion in a group and its pre-existing financial difficulties, compounded by the pandemic, justified the substantial aid granted. Although the pandemic was not the legal justification for the aid authorized under the Guidelines on rescue and restructuring aid, the context of the pandemic justified the grant of the rescue aid due to its impact on the aviation sector.
Moreover, the aid was deemed appropriate, proportional and non-discriminatory, serving the common interest by ensuring the continuity of essential connectivity services in Portugal. Ryanair's arguments were rejected, as the aid did not violate principles of non-discrimination, freedom to provide services or freedom of establishment within the European Union.
This case may not be over yet. Indeed, Ryanair may still appeal this judgment before the Court of Justice of the EU.
