COVID-19: EU General Court upholds Ryanair’s appeals against aid to KLM and TAP

On 19 May 2021, in its judgments T-643/20 and T-465/20, the General Court of the European Union annulled two decisions of the European Commission authorising State aid in favour of the airlines KLM and TAP for lack of reasoning.

KLM case

In the first case, the European Commission approved on 13 July 2020 aid from the Netherlands to KLM for an amount of EUR 3.4 billion, in the form of a guarantee and a state loan and intended to provide the airline with liquidity to deal with the adverse economic effects of the COVID-19 pandemic. The Commission found that the aid complied with the conditions set out in the Temporary Framework for State aid measures to support the economy in the current the COVID-19 outbreak and approved the measure.

On 23 October 2020, Ryanair brought before the General Court of the European Union an action for annulment against this decision. Ryanair invoked several pleas in law for annulment.

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 an infringement of the principles of non-discrimination, free provision of services and freedom of establishment. The third invoked misapplication of Article 107, paragraph 3, point b) of the TFEU. In its fourth plea, Ryanair considered that the Commission should have initiated the formal investigation procedure. The airline’s final plea alleged a breach of the duty to state reasons. Ryanair obtained from the General Court the application of the accelerated procedure, which made it possible to reach a judgment within a 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 pandemic-related aid 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 favour of the French company had no impact on the compatibility of the aid in favour of KLM. The decision did not include any information concerning Air France and KLM shareholders, 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 to determine whether it forms one economic unit, considered as a single beneficiary, especially when there is reason to suspect that cumulation of State aid within the same group would have adverse effects on competition.

The General Court therefore annulled the Commission’s decision of 13 July 2020 for lack of reasoning.

TAP case

On 10 June 2020, the Commission approved a EUR 1.2 billion Portuguese rescue loan for TAP under the Guidelines on State aid for rescuing and restructuring undertakings in difficulty (see our article of 12 June 2020). This six-month loan provided the Portuguese company with sufficient liquidity to avoid bankruptcy and to 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, paragraph 2 of the TFEU; the violation of Article 107, paragraph 3, point c) of the TFEU; the principles of non-discrimination, free provision of services and freedom of establishment; and also inadequate reasoning regarding TAP’s membership of a group – the Irish company claimed that the Commission had not examined whether the beneficiary’s difficulties were too serious to be resolved by the group itself, a condition imposed by the above-mentioned Guidelines.

In its judgment, the General Court examined only the plea relating to inadequate reasoning. It recalled that, in accordance with the applicable Guidelines, three cumulative conditions must be met for rescue aid granted to a company which is part of a group to qualify as compatible. In this context, the Commission must examine whether the beneficiary of the aid is part of a group, whether the difficulties faced by the beneficiary are intrinsic (and therefore do not result from an arbitrary allocation of costs within the group) and whether those difficulties are too serious to be resolved by the group itself.

However, the General Court found that the Commission had neither verified nor specified whether the beneficiary was part of a group. The Commission had considered that the other two conditions required were fulfilled without substantiating these affirmations. It did not carry out an analysis in this regard 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 relationships between TAP and its shareholder companies.

Consequences of annulment of the two European Commission decisions

In its two judgments, the General Court annulled the decisions of the Commission approving aid in favour of KLM and TAP. It considered that, in light of a lack of reasoning, it could not determine whether the aid approved by the Commission was necessary and proportionate and whether it complied with the conditions, in particular concerning the cumulation of aid, contained in the Temporary Framework or in the guidelines for aid to undertakings in difficulty.

Note that, in both cases, the General Court took the unusual step of suspending the annulment pending the adoption of a new decision by the Commission in order to avoid causing further economic hardship in the Member States concerned, whose economies were already severely disrupted by the Covid-19 pandemic. In fact, due to the annulment of the decisions approving this aid, the aids became unlawful since they had been paid to the companies and are no longer covered by a formal approval by the Commission.

In the event of annulment for a lack of reasoning, the Commission should adopt a new decision, with an improved reasoning.

It should be noted that a lack of reasoning constituted the highest risk of annulment 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 had only a limited period of time to assess these complex aid projects and to draft its decisions.

These two judgments were Ryanair’s first victories in a long series of cases initiated by the company against decisions authorising State aid in the airline sector. Previously, these appeals had not succeeded. Particular examples include French and Swedish aid schemes for their airlines (see our article of 19 February 2021). More recently, the General Court also dismissed Ryanair's actions for annulment against the aid measures granted by Sweden and Denmark to SAS and against the aid granted by Finland in favour of Finnair (see our article from 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 for recapitalising non-financial companies established in Spain in case T-628/20. The General Court considered that the aid scheme was not discriminatory and disproportionate and therefore upheld the validity of the Commission decision declaring it compatible with EU State aid rules.