The General Court of the EU confirms the legality of the rescue aid to TAROM

On 4 May 2022, the General Court of the EU confirmed the legality of the Commission's decision approving rescue aid of 36.66 million EUR from Romania to the airline TAROM. It found that the aid was indeed aimed at avoiding the social difficulties that an interruption of TAROM's services would cause for the connectivity of Romanian regions.

In its judgment, the Court of First Instance clarifies the examination of the compatibility of rescue and restructuring aid with the internal market, in particular with regard to the conditions of “contribution to an objective of common interest” and “non-recurrence” laid down in the Guidelines on State aid for rescuing and restructuring firms in difficulty other than financial institutions.

The Commission's decision approving rescue aid for TAROM

Since 2017, the financial situation of Compania Nationala de Transporturi Aeriene Romane (“TAROM”), which has been loss-making since at least 2008, has deteriorated significantly. The Romanian authorities argued in their notification that without rescue aid, the company would not have survived March 2020.

Against this background, on 19 February 2020, Romania notified the European Commission of a planned rescue loan of 36,660,000 EUR to cover TAROM's liquidity needs during the preparation of its restructuring plan. In accordance with the Guidelines on State aid for rescuing and restructuring firms in difficulty ("Guidelines"), the loan was repayable at the end of a six-month period with the possibility of partial early repayment.

On 24 February 2020, in the preliminary procedure, the European Commission considered the notified state aid measure compatible with the internal market under Article 107(3)(c) TFEU and the above-mentioned Guidelines.

Following the Commission's approval decision, the airline Wizz Air Hungary Zrt. (“Wizz Air”) filed an action for annulment before the General Court of the EU on 5 December 2020 against this decision.

Wizz Air's arguments

In its action, Wizz Air argued that the rescue aid violated two conditions of the Guidelines, namely:

1. the condition relating to the contribution of the aid measure to an “objective of common interest”; and
2. the condition of “non-recurrence” of rescue and restructuring aid, according to which such aid may only be granted once every ten years.

Wizz Air argued that these two conditions were not met and that for this reason the Commission should have opened a formal investigation procedure. Indeed, according to the European rules on state aid, the Commission is obliged to open a formal investigation procedure when a notified aid raises doubts as to its compatibility with the internal market.

Moreover, according to Wizz Air, the Commission did not give sufficient reasons for its decision.

Assessment of the General Court of the EU

First, the Court analysed whether the Commission erred in law by deciding not to open the formal investigation procedure, despite the doubts it should have had during the preliminary assessment of the compatibility of the notified aid with the internal market, in particular with regard to the conditions of “objective of common interest” and “non-recurrence”.

The common interest objective of the aid

With regard to the condition of “objective of common interest”, the Court specifies that the Guidelines require Member States to demonstrate that the failure of the beneficiary would be likely to result in serious social difficulties or a significant market failure. This is particularly the case where there is a risk of interruption of an important service which is complicated to reproduce and which a competitor could hardly provide in place of the beneficiary.

The Court also notes that the Member State is not required to establish that, in the absence of the aid measure, certain negative consequences would necessarily occur, but only that they are likely to occur.

In this respect, the Court held that the Commission was entitled to consider, in view of the poor state of the Romanian road and rail infrastructure, that the regional connectivity by means of the domestic air links and the international connectivity provided by TAROM constituted an important service whose interruption was likely to cause serious social hardship or to constitute a market failure within the meaning of the Guidelines.

Moreover, according to the Court, while, when examining the existence and legality of State aid, it may be necessary for the Commission to go beyond a mere examination of the facts and law brought to its knowledge, it is not incumbent on the Commission to seek, on its own initiative and in the absence of any indication to that effect, all information that might be relevant to the case before it, even if such information is in the public domain.

Consequently, the Court concluded that the arguments put forward by Wizz Air were not such as to call into question the Commission's analysis confirming the importance of TAROM for the connectivity of Romanian regions and the very substantial impact that a failure of the airline would have had on those regions.

Thus, the Commission was able to conclude, without any doubts, on this basis alone that the notified aid met an objective of general interest in accordance with the Guidelines.

The non-recurrence of aid

With regard to the condition of “non-recurrence” of aid, the Court recalls that rescue aid must be granted to firms in difficulty for a single restructuring operation.

Point 71 of the Guidelines provides that, where a firm has already received such rescue or restructuring aid, the Commission will authorize new aid only if at least ten years have elapsed:

1. since the previous aid was granted (first hypothesis), or
2. the previous restructuring period has ended (second hypothesis), or
3. since the implementation of the previous restructuring plan has ceased (third hypothesis).

As regards the first hypothesis, the Court notes that TAROM benefited until 2019 from the implementation of restructuring aid in the form of a loan and several guarantees relating to other loans it took out. This aid was granted between 1997 and 2003 and the loan guarantees were all called immediately after they were granted.

In this respect, the Court concluded that the first assumption was established, since the actual transfer of resources is not decisive in determining the date of granting of the aid.

As regards the second and third hypotheses, the Court states that the concept of ‘restructuring period’ refers to the period during which the restructuring measures are taken, which is, in principle, distinct from that during which a State aid measure accompanying those measures is implemented.

In this respect, the Court notes that Wizz Air has not provided any evidence or indication that the previous restructuring period ended less than ten years before the granting of the notified aid measure.

Lastly, as regards the concept of ‘restructuring plan’, the Court states, moreover, that the fact that restructuring aid is linked to a restructuring plan does not mean that that aid, as such, forms part of that restructuring plan, the existence of the latter constituting, on the contrary, an essential condition for such aid to be regarded as compatible with the internal market.

The Court therefore rejects Wizz Air's argument that the fact that the restructuring aid granted to TAROM between 1997 and 2003 was implemented until 2019 means that the restructuring plan, which was linked to that aid, also lasted until 2019.

In conclusion, the Court rejected Wizz Air's claims that the Commission erred in law by deciding not to initiate the formal investigation procedure despite the doubts it should have had during its preliminary assessment of the condition of “non-recurrence” of the rescue and restructuring aid.

Secondly, the Court of First Instance also rejected Wizz Air's plea of breach of the Commission's duty to motivate its decision.

Comments

Wizz Air has the possibility to appeal against this judgment to the Court of Justice of the EU, which can only rule on points of law.

This judgment, which provides useful clarifications on the conditions for rescue aid, complements the recent case law of the EU General Court in the context of Ryanair's numerous appeals against the Commission's decisions approving aid to airlines in the context of COVID-19. It confirms, in general, the wide margin of manoeuvre of the Commission in declaring the compatibility of aid.

Following the approval of the rescue aid, Romania notified the European Commission of the company's restructuring plan on 24 August 2020. At the end of the preliminary procedure, the European Commission opened on 5 July 2021 a formal investigation procedure on a restructuring aid project in favor of TAROM following the notification by Romania. The Commission had indeed expressed doubts as to whether the proposed restructuring plan and the aid to support it met the strict conditions of the above-mentioned guidelines (in this respect, see our article of 16 July 2021).

During the formal investigation procedure, the Commission will verify :

• ­Whether the proposed restructuring plan is appropriate to remedy TAROM's difficulties and to restore its long-term viability within a reasonable timeframe without continued state aid ;
• ­whether TAROM or market operators will contribute sufficiently, in principle at least 50 %, to the restructuring costs, thus ensuring that the restructuring plan does not rely excessively on public funds and that the aid is proportionate ; and
• ­if the airline undertakes to take appropriate measures to limit the distortion of competition created by the aid. These measures aim to offset the impact of the aid on the airline's competitors and may take the form of the transfer of slots, the sale of subsidiaries, a commitment not to expand, etc.

It should also be noted that rescue and restructuring aid has regularly been granted to traditional airlines. In many cases, this aid has allowed the company to recover. In October 2019, the European Commission authorized a rescue loan of 380 million EUR for the German company Condor. In June 2020, the Commission authorized a 1.2 billion EUR rescue loan to TAP, a Portuguese airline. Another Portuguese airline, SATA, received liquidity support for a total amount of 133 million EUR.

In the meantime, TAROM has already received two grants to compensate for the damage caused by the pandemic.

Indeed, on 2 May 2022, the European Commission approved a Romanian aid measure of 1.9 million EUR to compensate the airline for the damage suffered on 14 routes in the period between 1 July and 31 December 2020 due to the coronavirus pandemic. This compensation follows another measure that the Commission approved on 2 October 2020 to compensate the airline for damages suffered between 16 March and 30 June 2020 (in this regard, see our article of 10 October 2020).