COVID-19: European Commission authorises EUR 550 million German state-guaranteed loan to Condor

Europe
Available languages: FR

At the end of April 2020, the European Commission authorised a public loan guaranteed by the German State for an amount of EUR 550 million in favour of Condor, a German charter company, under the European rules on state aid. The national containment measures adopted to curb the spread of COVID-19 have grounded the airlines, making this sector one of the most affected by the current crisis.

Since the bankruptcy of the British group Thomas Cook in September 2019, Condor, the former German subsidiary of the group, has been in a difficult financial situation. One month after the bankruptcy of the tour operator, in October 2019, the European Commission authorised the German State to grant rescue aid to the airline in the form of a EUR 380 million loan.

The current COVID-19 crisis is not likely to improve the situation of the airline. Since mid-March, the company has suffered significant operating losses as a result of containment and travel restriction measures in many destination countries. Therefore, the Commission has again authorised the German State to financially support the company.

The aid takes the form of a public loan guaranteed by the State for an amount of EUR 550 million and is based on Article 107(2)(b) TFEU. Such Article allows the Commission to declare compatible with the internal market "aid to make good the damage caused by natural disasters or exceptional occurrences". In this respect, the Commission considers that the coronavirus pandemic constitutes an "exceptional occurrence" because of its exceptional and unpredictable nature and its significant impact on the economy.

This is the fourth decision taken on this basis by the European Commission in the air transport sector. On 31 March 2020, the Commission approved the French aid scheme aimed at deferring the payment of certain aeronautical taxes by airlines licensed to operate in France (see our article of 2 April). On 15 April 2020, the Commission gave its green light to a public guarantee from the Danish State in favour of the airline Scandinavian Airlines (SAS). Finally, identical aid was notified by Sweden and approved by the Commission on 24 April 2020 (see our article of 30 April).

Sweden has also set up a guarantee scheme with a budget of EUR 455 million to support Swedish airlines affected by the crisis, but on the basis of Article 107(3)(b) of the TFEU, which allows the Commission to authorise aid to remedy serious disturbances in the economy of a Member State. More recently, the Commission validated a state guarantee for loans and a shareholder loan of EUR 7 billion in favour of Air France.

The objective of these measures, taken on the basis of Article 107(3)(b), is to ensure that airlines have sufficient liquidity to continue their activities during and after the pandemic, and not to compensate for their damages (contrary to Article 107(2)(b) TFEU).

Remember that public support for air transport is currently the subject of much debate. In addition to the budgetary constraints of the States that limit the extent and 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.

Finally, at a time when the Commission has just published an information sheet on the rules on State aid and public service obligations applicable to the air transport sector during the COVID-19 outbreak, it is certain that other airlines will receive aid in the coming weeks.

In Germany, Lufthansa is awaiting an agreement with the government on an aid package that could amount to at least EUR 9 billion. Difficult negotiations are also currently ongoing in Belgium to support the Belgian airline Brussels Airlines.

The EU Court of Justice will have the opportunity to look into this issue and to examine the legality of this aid to air transport. Ryanair has already brought a number of actions for annulment against Commission decisions authorising aid to airlines, alleging discrimination in these support measures.