Flybe's rescue under State aid rules

Europe
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The recent agreement between the UK Government and Flybe's major shareholders to avoid the airline’s bankruptcy is making waves one year after its takeover by the Connect Airways consortium.

Such agreement
covers apparently a deferral of a £10 million tax debt payment and a loan of approximately £100 million. According to the press, Connect Airways has undertaken to invest additional funds in the airline, together with the support of the UK Government.

Nevertheless, this announcement has provoked many reactions in the sector (Ryanair, Wizz air, EasyJet...), which doubts that the European rules on state aid for this type of intervention have been respected. The International Airlines Group has already lodged a complaint before the European Commission.

As long as the UK is an EU Member State, European competition law, including EU state aid rules, continue to apply in full to the UK. The UK will leave the EU on 31 January 2020, but will still have to comply with EU law, including all EU state aid rules, until the close of a transition period expected to end on 31 December 2020. Compliance with the state aid framework is likely to be imposed as part of the EU-UK FTA negotiations.

The European Commission may therefore decide to open an investigation into the proposed public support measures in favour of the airline. In this respect, it should be noted that aids to undertakings in difficulty are authorised by the Commission under strict conditions in view of the high risk of distortion of competition in accordance with the Guidelines on State Aid for rescuing and restructuring troubled non-financial undertakings in difficulty.

If the UK Government is unable to demonstrate that it is behaving like a private operator, its interventions will have to comply with the following conditions:

  • The aid must be granted to an undertaking in difficulty, meaning that, without State intervention, it will almost certainly go out of business in the short or medium term. The financial conditions required in order to fall under this definition depend on the undertaking’s legal form. However, a newly created undertaking will not be eligible to benefit from such aid.
  • The rescue aid can be granted for a maximum of six months as this should give the company time to seek solutions in an emergency situation.
  • The rescue aid must consist of temporary liquidity support in the form of loan guarantees or loans; the interest rate must be in line with the Commission’s reference rate; the loan must be repaid within the six-month period or a restructuring or liquidation plan setting out the steps for liquidation must have been submitted to the Commission; and the aid cannot be used to finance structural measures.
However, it is important to remember that the European Commission's assessment is made on a case-by-case basis and that an analysis of the specific circumstances will have to be carried out in order to grant such aid. On 14 October 2019, the European Commission authorised German rescue aid for the airline Condor.