Estonian Air is under investigation by the European Commission to ascertain whether or not state aid extended to the airline complies with EC regulations.
The European Commission has opened an in-depth investigation to verify whether the plans of Estonia to grant €40.7 million state aid for the restructuring of the national flag carrier Estonian Air is in line with EU state aid rules. The Commission will, in particular, assess whether the airline’s restructuring plan is suitable to restore the company’s long-term viability and to offset the distortions of competition created by the state support. The opening of an in-depth investigation gives interested third parties an opportunity to comment on the measures under assessment; it does not prejudge the outcome of the investigation.
In June 2013, Estonia notified the Commission a €40.7 million recapitalisation of Estonian Air to help restructure the company, which has experienced financial difficulties for several years. The restructuring plan covers a five-year restructuring period from 2013 to 2017.
The Commission has doubts whether the restructuring plan is capable of ensuring that Estonian Air will become viable without continued state support and whether the airline will be able to meet the challenges that the air transport sector will likely face over the next years. It is also uncertain whether the proposed capacity reduction through the cancellation of routes is sufficient to compensate for the distortions of competition created by the state support. The Commission also has concerns that the contribution of Estonian Air to the costs of its restructuring may be insufficient.
Moreover, according to EU rules rescue and/or restructuring aid may be granted only once over a period of ten years to avoid that inefficient companies are kept artificially alive with repeated subsidies (‘one time, last time’ principle). Since 2009, Estonian Air seems to have benefitted from several other public interventions, including three capital injections totaling over €57 million. In December 2012, Estonia notified its intention to grant a €8.3 million rescue loan to Estonian Air. The Commission opened an in-depth investigation with respect to these measures in February 2013; its scope was extended in April.
Estonian Air is the flag carrier airline of Estonia. Since 2011/2012, the stake of the State in the airline has reached 97.34%. Estonian Air has registered significant losses since 2006.
The Commission has recently opened other investigations into public support measures granted to national flag carriers, namely airBaltic, Adria Airways, Cyprus Airways, SAS and LOT. The Commission also recently adopted decisions concerning Air Malta, Czech Airlines, and LOT.
Rescue and restructuring aid is highly distortive of competition as it artificially keeps a company in the market that would otherwise have exited it. It can therefore only be granted under strict conditions, ensuring that the aided company will become viable without continued state support and that the distortion of competition created by the aid is effectively offset.
The EU Rescue and Restructuring Guidelines, therefore, require that beneficiaries work out a sound restructuring plan that enables them to become viable in the long-term on the basis of realistic assumptions. This is to avoid that a company keeps asking for public support. The plan must provide for measures to reduce the distortions of competition induced by the state support, such as the reduction of capacity or market share. Furthermore, the beneficiary needs to make a significant own contribution to the costs of restructuring. Finally, rescue and/or restructuring aid may be granted only once over a 10-year period (‘one time, last time’ principle).