On 9 June 2021, the General Court of the EU annulled for lack of reasoning the decision of the European Commission of 26 April 2020 authorising German aid of EUR 550 million in favour of the airline Condor. The General Court has suspended the effects of the annulment until the Commission adopts a new decision.
In its judgment, T-665/20 of 9 June 2021, the General Court of the EU annulled, for lack of reasoning, a decision of the European Commission approving aid from Germany of EUR 550 million in favour of the airline Condor.
Compensation for Condor’s damage caused by the pandemic, approved by the Commission
The European Commission had approved the aid, granted in the form of two subsidised public loans guaranteed by the German State for a total amount of EUR 550 million, on the basis of Article 107.2 b) TFEU in its decision of 26 April 2020 (see our article of 18 May 2020).
This provision obliges the European Commission to declare that aid intended to remedy [for] damage caused by natural disasters or other exceptional occurrences is compatible with the internal market. The COVID-19 crisis was considered by the Commission to be such an event, due to its exceptional and unpredictable nature and its major repercussions on the economy, which meant the Commission could authorise compensation for certain undertakings for damage directly caused by the pandemic. Since the start of the COVID-19 crisis, numerous aid measures for compensating damage caused by the pandemic have been authorised in favour of airlines (see in particular our article of 25 May 2021) as well as other sectors (see our article of 26 May 2021).
Ryanair’s action for annulment
Ryanair had previously challenged the Commission’s decisions authorising aid for airlines, and likewise brought an action for annulment of the Commission's decision in the Condor case to the General Court of the EU on 6 November 2020. The company requested the application of the accelerated procedure, which made it possible to reach a judgment within an extremely short period of eight months.
Ryanair relied on four grounds for annulment. The first concerned the violation of the principles of non-discrimination, freedom to provide services and freedom of establishment. The second criticised the Commission for misapplication of Article 107.2 b) TFEU and for a manifest error of assessment relating to the proportionality of the aid. In its third plea, Ryanair argued that the Commission should have initiated the formal investigation procedure. The fourth plea was based on breaching the obligation to state reasons.
The position of the General Court of the EU
The General Court of the EU examined the decision with regard to Ryanair’s fourth plea, namely the violation of the obligation to state reasons, and recalled that, under Article 107.2 b) TFEU, only damage caused directly by the exceptional occurrence can be compensated. A causal link must be established and there must be a reasonably precise assessment of the damage suffered.
In particular, the European Commission must examine whether the proposed support measures are appropriate to remedy the damage caused by the pandemic, since the measures cannot be general and unrelated to the damage caused by the occurrence. It must also verify that the amount of compensation granted is proportionate and restricted to what is necessary to remedy the damage suffered.
In its decision, the Commission determined the amount of damage suffered by Condor (in cancelling or rescheduling flights due to travel restrictions in many Member States) by calculating the difference between the forecasts of profits (before tax) for the period March to December 2020, made before and after travel restrictions and lockdown measures were announced. This amount was then increased to include the costs incurred by extending the airline’s insolvency proceedings, following the failure of its sale to an investor.
In this regard, the Court observed firstly that the declared objective of the German measure was to compensate Condor only for the damage directly caused by cancelling or rescheduling its flights as a result of travel restrictions or lockdowns, excluding any other damage caused.
However, with regard to the additional costs incurred by Condor as a result of extending its insolvency proceedings, the Commission merely stated in its decision that it was legitimate to add those costs to the damage claimed. It did not explain the direct link between those costs and cancelling or rescheduling its flights because of the health crisis.
In addition, the Court noted that the decision does not state that the failure of the sale of Condor to an investor was caused by cancelling or rescheduling its flights.
Finally, the Court found that the Commission had not explained how those additional costs had been assessed, or the type of costs concerned, or whether all or only part of those costs had been considered to be directly caused by Condor cancelling or rescheduling its flights.
Consequently, the General Court noted a failure to state reasons in the Commission’s decision as to the causal link between the costs caused by extending Condor’s insolvency proceedings and cancelling or rescheduling its flights because of the COVID-19 travel restrictions.
Therefore, the General Court annulled the Commission decision of 26 April 2020, concluding that, in light of a lack of reasoning, it was not able to determine whether the aid approved by the Commission complied with the conditions set out in Article 107.2 b) TFEU.
What are the consequences of the annulment of the Commission’s decision?
It should be noted that, as in its recent annulment judgments concerning aid to the airlines KLM and TAP (see our article of 1 June 2021), the General Court has suspended the effects of the annulment until the Commission adopts a new decision – an unusual step.
As the decision approving the aid has been annulled, the aid given to Condor is now illegal since it is no longer covered by a formal Commission approval. Suspending the effects of the annulment therefore avoids causing further damage to the German economy, already seriously affected by the current health crisis.
The Commission has been invited to adopt a new decision, better motivated…
After the General Court judgments in the KLM and TAP cases, this is another victory for Ryanair, which until then had unsuccessfully brought numerous appeals against decisions authorising State aid in the aviation sector (see, in particular, our articles of 19 February and 5 May 2021).
In future, the Commission will have to justify in more detail its decisions relating to aid to airlines in order to avoid the sanction of an annulment by the General Court.