The General Court of the EU confirms the Commission decision on the Finnish recapitalisation of Finnair
On 22 June 2022, the General Court of the EU confirmed the legality of the European Commission decision of 9 June 2020 approving the public recapitalisation of Finnair for an amount of around EUR 500 million.
The Commission decision of 9 June 2020
In June 2020, Finland notified the Commission a project aid in the form of a recapitalisation for an amount of between EUR 499 million and EUR 512 million. The aim was to ensure the viability of the Finnish airline, which faced significant financial difficulties due to the impact of the COVID-19 outbreak. On 9 June 2020, the Commission declared the aid compatible on the basis of Article 107.3(b) TFEU in accordance with the ‘Temporary Framework for State aid measures to support the economy in the current COVID-19 outbreak’ (see our article of 7 April 2020).
Ryanair’s appeal
This decision was challenged by Ryanair before the General Court of the EU on 30 October 2020. In support of the action, the applicant relied on four pleas in law.
First, Ryanair alleged that the Commission misapplied Article 107.3(b) TFEU and incompletely applied the Temporary Framework.
Second, Ryanair alleged that the Commission violated specific provisions of the TFEU and the general principles of European law regarding the prohibition of discrimination, free provision of services and free establishment.
Third, Ryanair alleged that the Commission failed to initiate a formal investigation procedure and violated the applicant’s procedural rights.
Fourth, Ryanair alleged that the Commission violated its duty to state reasons.
The General Court’s judgment
First, Ryanair considered that the Commission decision violated its procedural rights based on Article 4 of Regulation 2015/1589. In its third plea, in which Ryanair referred to its first and second pleas, six parts were developed.
Ryanair argued that the Commission failed to establish that the measure at issue served to remedy a serious disturbance in the Finnish economy. In its ruling, the Court stated that Article 107.3(b) does not require that the aid should be capable of remedying the serious disturbance in the economy.
Ryanair claimed also that the measure at issue departed from certain requirements laid down in section 3.11 of the Temporary Framework, namely the requirement that individual recapitalisation measures must include a step-up mechanism increasing State remuneration to incentivise the beneficiary to buy back the State capital injections and a measure prohibiting beneficiaries from acquiring a stake of more than 10% in competing undertakings linked with the redemption of 75% of the aid measure. On the other hand, the Commission and Finland argued that certain specific circumstances justified the non-application of these requirements.
The General Court considered that point 61 and section 3.11.7 of the Temporary Framework do not release the Commission from the obligation to assess whether the step-up mechanism is suitable in the circumstances. In the present case, the General Court concluded that the step-up mechanism was not suitable. Indeed, in view of the very particular characteristics of the measure at issue, the requirement for Finland to sell the equity stake acquired due to the step-up mechanism would have led to a change in the beneficiary’s capital structure, which goes beyond the objective of the step-up mechanism laid down in points 61 and 62 of the Temporary Framework. In light of the Commission’s derogation from the acquisition ban set out in point 74 of the Temporary Framework, the Court accepted the argument of the contested decision determining that the measure linked to the redemption of 75% of the aid measure was not appropriate as the Member State concerned would be obliged to reduce its stake in the capital of the beneficiary to a pre-COVID-19 level.
Moreover, Ryanair considered that the Commission had the obligation to weigh the expected positive effects of the measure against the adverse effects between the Member States. In its judgment, the General Court rejected the applicant’s argument. It held that no such obligation can be deduced from the nature of compatible aid or can arise from the Temporary Framework.
Furthermore, Ryanair argued that the Commission made an error of assessment of the significant market power of Finnair. In its plea, the applicant maintained that the level of congestion at Helsinki Airport and the number of slots say nothing about significant market power. It mostly used the fact that 68.4% of all passengers departing from and arriving at Helsinki Airport in 2019 were carried by Finnair. The General Court rejected this argument by stating that [Finnair’s share of slots is not enough for it to disrupt the various offer & demandmarkets to or from Helsinki Airport since a large number of slots remain available. Moreover, Ryanair also argued that state control over Helsinki Airport’s manager, Finavia, discouraged Finavia from cooperating with low-cost airlines in developing regional airports. The General Court also rejected this argument, considering that it was not relevant to the dispute in question.
Ryanair also argued that the Commission applied different treatment to airlines in a similar situation operating routes to and from Finland by favouring Finnair without objective justification and, therefore, violated the principle of non-discrimination. However, the General Court considered that the aid in question had a legitimate objective, and was necessary, appropriate and proportionate in achieving that objective.
Moreover, the applicant claimed that the aid measure infringed the freedom to provide services and the freedom of establishment. In that respect, the General Court concluded that Ryanair failed to identify the elements of fact or law which would cause the aid to produce restrictive effect on freedoms. Indeed, Ryanair did not demonstrate how the exclusive character of the aid was such as to deter air carriers from establishing themselves in Finland or from providing services from that country or to it.
Finally, Ryanair pleaded that the Commission failed to respect the obligation to state reasons, claiming that the Commission did not provide enough or convincing reasoning in different matters. However, the General Court concluded that the Commission either presented sufficient reasoning in the contested decision or was not obliged to present any.
On this basis, the General Court rejected Ryanair’s appeal and confirmed the legality of the Commission decision authorising the aid in favour of Finnair on the basis of Article 107.3(b) in accordance with the Temporary Framework, and thus did not violate European Law.
Conclusion
The COVID-19 pandemic has had a major impact on air transport in Europe, thereby placing the vast majority of airlines, groundhandling operators and airports in serious financial difficulty.
In order to mitigate the negative effects of the crisis, the Commission quickly approved, under favourable conditions, numerous aid measures notified by the States for their airlines. Indeed, since the beginning of the coronavirus crisis, the Commission has approved more than 50 aid schemes and individual aid for the airline sector on the basis of the Temporary Framework for Deutsche Lufthansa, Brussels Airlines, airBaltic and Finnair; as compensation for the damage caused by COVID-19 for Swedish airlines, French airlines and Condor; in the form of rescue aid for TAP and SATA Airlines; and on the basis of Article 107.2(b) of the TFEU for SAS and Blue Air.
Ryanair lodged appeals against nearly all the Commission’s decisions authorising State aid for airlines.
The judgment in this case confirms the large margin of manoeuvre of the European Commission in determining the conditions of aid compatibility in relation to the pandemic. As is the case in this judgment, the General Court did not follow Ryanair’s reasoning in most appeals (see, in particular, our articles of 19 February and 5 May 2021). Ryanair only won three cases before the General Court (see, in particular, our articles of 24 June 2021 and 1 July 2021). In these judgments, remember that the General Court considered that the lack of reasoning constituted the highest risk of annulment in this type of case due to the considerable number of pandemic-related aids notified to the Commission and quite exceptionally the General Court had suspended the effects of its annulment pending the adoption of new decisions. The Commission had approved again in a matter of weeks the same aid in favour of KLM, TAP and Condor.
The General Court has yet to rule on a number of appeals by Ryanair against Commission decisions authorising individual aid to Air France, Lufthansa, Brussels Airlines, Nordica, Condor, airBaltic, KLM, TAP Air Portugal and Croatia Airlines. It should be noted that, in its latest appeals, Ryanair had developed new arguments for annulment, emphasising the violation of the general principles of air transport liberalisation and the obligation for the Commission to open a formal investigation procedure. However, those new pleas in law were not successful.
Finally, we draw your attention to the fact that the aid in question was not the only one granted to Finnair during the COVID-19 outbreak. Prior to the recapitalisation measure approved in June 2020, the Commission had authorised on 19 May 2020 a state guarantee for a loan to Finnair. This decision was also challenged by Ryanair before the General Court, which dismissed this appeal in its judgment of 14 April 2021.
However, those public measures were not sufficient for Finnair to overcome its financial difficulties caused by the COVID-19 crisis. The Finnish authorities notified an additional aid measure in the form of a hybrid loan of EUR 351.38 million to compensate for the damage suffered by Finnair between 16 March and 31 December 2020 on the basis of Article 107.2(b) TFEU. The aid was approved on 12 March 2021. Another aid measure was notified by the Finnish authorities in the same form for an amount of EUR 48.6 million. This aid was approved on 10 February 2022.
