COVID-19: the European Commission gives green light to the Danish and Swedish recapitalisation of SAS

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The European Commission approved, on 17 August 2020, the recapitalisation of SAS by Denmark and Sweden for a total budget of EUR 1 billion (of which approximately EUR 583 million will be granted by Denmark and EUR 486 million by Sweden). The measure is based on the Temporary Framework for State aid measures to support the economy in the current COVID-19 outbreak, as amended on 8 May and 29 June 2020.

On 15 April 2020, the Commission approved the Danish public guarantee of up to EUR 137 million to compensate SAS for the damage caused by the coronavirus outbreak. On 24 April 2020, the green light was given for the Swedish State guarantee of the same amount of EUR 137 million. These aid measures aimed at partly compensating SAS for the damage suffered due to the cancellation or rescheduling of its flights as a result of the imposition of travel restrictions to limit the spread of the virus.

Background to the aid

The worldwide travel restrictions imposed during the health emergency have led to a sharp decline in business for the air transport sector. As a result, SAS is currently facing a risk of default and potential insolvency.

SAS is a major network airline operating in Denmark, Sweden and Norway and provides two-thirds of the intra-Scandinavian air connectivity. It also contributes to over 30% and 25% of Denmark’s and Sweden’s international traffic respectively. SAS thus plays a key role in the connectivity and economy of the Scandinavian countries.

The aid measure

The recapitalisation measure is part of a broader recapitalisation package, which also foresees a significant participation by private investors, including the conversion of outstanding privately held debt instruments into equity.

The Danish and Swedish recapitalisation measure notified to the Commission includes:

  • an equity participation of approximately EUR 194 million through the subscription of new shares, shared between Denmark and Sweden;
  • an equity participation of up to approximately EUR 292 million through the subscription and underwriting of new shares in a rights issue, shared between Denmark and Sweden; and
  • newly issued State hybrid notes with the features of an equity instrument non-convertible into shares of approximately EUR 583 million, of which approximately EUR 243 million is allocated to Sweden and approximately EUR 340 million to Denmark.

As a result of the recapitalisation, the revolving credit facility in favour of SAS on which Denmark and Sweden have granted 90% public guarantees, approved by the Commission on 15 April 2020 and 24 April 2020, will be cancelled. It should be noted that Ryanair brought before the General Court of the European Union an action for annulment of the Swedish aid measure.

The Commission authorised the recapitalisation on the basis of the Temporary Framework (see our article of 7 April 2020) establishing the following conditions:

  • the necessity, appropriateness and size of the intervention;
  • the States’ entry, remuneration and incentives to exit from the capital of the company: Denmark and Sweden submitted a business plan prepared by SAS to redeem the recapitalisation instruments by fiscal year 2025;
  • governance: SAS and its subsidiaries are subject to bans on the distribution of dividends and share buy-backs if these operations are not in relation to the State, and to strict limitations on the remuneration of SAS executives, including a prohibition on the payment of bonuses until 75% of the recapitalisation is redeemed;
  • prohibition of cross-subsidies and acquisition ban: SAS cannot support the economic activities of integrated companies that were already facing economic difficulties on 31 December 2019; and
  • public transparency and reporting, including on how the use of the aid received supports the company’s activities.

These conditions, stricter than for other forms of aid such as public guarantees and loans, are justified by the nature of the aid, i.e. a capital intervention.

The Commission considers that the recapitalisation measure helps to mitigate the economic impact of the sanitary crisis by enabling SAS to restore its balance sheet position and liquidity, while maintaining the necessary safeguards to limit competition distortions.

Since the beginning of the crisis, many airlines have benefited from various State aid measures: (i) recapitalisation approved under the Temporary Framework for Deutsche Lufthansa, airBaltic and Finnair; (ii) compensation for the damage caused by COVID-19 for Swedish airlines, French airlines and Condor; and (iii) rescue aid for TAP and SATA airline