The European Commission authorised on 15 April 2020 a public guarantee from the Danish State in favour of Scandinavian Airlines (SAS) as compensation for the significant losses it has suffered since the implementation of the travel restriction measures imposed by Denmark in order to fight the COVID-19 pandemic. Identical aid was notified by Sweden and approved by the Commission on 24 April 2020.
Both aids in the form of public guarantees on revolving credit facilities up to 274 million EUR in total are based on Article 107.2, b) of the TFEU which allows the Commission to declare compatible with the common market " aid to make good the damage caused by natural disasters or exceptional occurrences". The Commission has determined that the COVID-19 pandemic was such an occurrence, due to its exceptional and unpredictable nature and its major economic impact.
This aid constitutes the 4th measure notified by the Danish authorities concerning compensation schemes for the damage suffered by Danish companies. Previous schemes targeted organisers of events of more than 1.000 people that were cancelled due to the pandemic, self-employed and undertakings (eligible for compensation of up to 8 million EUR). Sweden had already notified a similar 38 million EUR scheme to compensate damages caused by cancelled or postponed cultural events that was deemed compatible by the Commission on 22 April.
Furthermore, this is the second Commission decision on this legal basis in favour of airlines. On 31 March 2020, the European Commission authorised the French aid scheme aimed at deferring the payment of certain aeronautical taxes by airlines with operating licenses in France (see our article of 2 April).
Sweden had also implemented a 455 million EUR guarantee scheme to support Swedish airlines affected by the outbreak but on the basis of the Temporary Framework for State aid measures to support the economy in the current COVID-19 outbreak. It is in line with Article 107.3, b) TFEU which allows the Commission to authorise aid to remedy a serious disturbance in the economy of the Member State. The objective of such aid is to ensure that those airlines have sufficient liquidity, hence ensuring the continuation of their activities during and after the current crisis, and not to compensate for damages.
The Commission has found that the air transport sector has been severely impacted by the COVID-19 crisis. Since April, the decline of global traffic has reached 80% compared to 2019. SAS has its main hub at Copenhagen Airport and is mainly active in Denmark, Sweden and Norway, providing two thirds of intra-Scandinavian air connectivity. Since the start of the pandemic, SAS, like all airlines, has experienced a significant decline in flights, which has resulted in high operating losses.
Both aids for SAS are granted in the form of State guarantees on revolving credit facilities of a maximum amount of 274 million EUR. The exact damage suffered by SAS will be calculated after the coronavirus crisis, on the basis of the airline’s operating accounts for the 2020 financial year. The calculation method will have to be submitted by Denmark and Sweden to the Commission for prior approval. If the amount of public support received by the airline exceeds the damage actually suffered, SAS will have to return the excess amount to the States under a claw-back clause (providing for a reimbursement mechanism).
The Commission considered that the Danish and the Swedish aids fulfilled all the conditions required for the granting of State aid (see our article of 19 March 2020 on aid to compensate for the damage caused by an exceptional event) because it will allow compensation for the damage directly linked to the COVID-19 pandemic suffered by SAS and that the compensations provided are proportional to this damage.
Finally, it should be noted that public support for air transport is currently the subject of much discussion. In addition to the budgetary constraints of the States that limit the extent and the form of such support, some voices are attempting to impose other conditions on airline companies in the form of climate commitments or fair tax measures. However, under an aid scheme based on Article 107.2, b) of the TFEU, the Commission cannot impose such conditions, since its control is limited to the absence of overcompensation. Only the concerned State could make its public support conditional but the urgency of the situation requires an immediate reaction from the public authorities to avoid the bankruptcy of many companies.
Further Commission decisions on aid to European airlines are expected in the coming weeks….