Aviation Industry – Survival through state aid
The Coronavirus (COVID-19) pandemic has already caused significant economic losses for companies and citizens alike across the European Union (EU). This has led various affected businesses to examine and enquire whether the rules in relation to state aid allow EU Member States (States) to provide financial support during these difficult times. The concept of state aid encompasses any advantage granted selectively to certain undertakings by the State or through State resources, including grants, subsidies, loans on favorable terms, state guarantees or tax benefit amongst others. Although State aid is generally prohibited, there are a few exceptions that allow governments to assist companies which are facing financial difficulties as a result of the COVID-19 crisis.
The aviation industry is considered to be one of the worst-hit sectors by the COVID-19 pandemic considering the negative impacts such outbreak has had on tourism and aviation, placing the latter industry in its biggest crisis since the twin tower attacks, with several airlines consequently on the brink of collapse. As the pandemic deepens, countries around the world are moving towards imposing national lockdowns and travel bans to battle the spread of COVID-19. In light of the deteriorating situation, EU officials have started working on necessary measures to be undertaken in order to assist air operators in coping with the pandemic’s far-reaching effects on the aviation industry. In fact, Margrethe Vestager, the Executive Vice-President and Competition Commissioner of the EU, signalled that her office is currently drafting EU guidelines to this effect and further re-iterated that the EU is preparing itself to take action so that countries would be in a position to help ailing sectors as soon as possible, before it may be too late.
In accordance with EU law, States may adopt aid measures to compensate for damage solely when caused by exceptional occurrences. In this regard, on 13th March 2020, the European Commission set out a European coordinated response to counter the socio-economic impact of the COVID-19 outbreak, centred on a European coordinated response. The Commission announced that that the present devastating situation is considered an extraordinary and unforeseeable event and thus qualifies as such an exceptional occurrence. Notably, Article 107(2)(b) TFEU enables States to compensate companies for the damage directly caused by exceptional occurrences, whilst Article 107(3)(b) TFEU also enables the Commission to approve additional national support measures to remedy a serious disturbance to the economy of a State. In fact, the Commission has already approved (within 24 hours of receipt of notification from the Danish Government) an aid scheme amounting to 12 million Euro to compensate Danish organisers for the damages suffered for cancellation of events as a result of COVID-19.
EU state aid rules enable States to take swift and effective action to support citizens and companies, and as stipulated by the Commission, the primary fiscal response to the COVID-19 pandemic shall be garnered from States’ national budgets, through supportive measures such as wage subsidiaries or suspension of payments of corporate and value-added taxes or social contributions amongst others. States may also grant financial support directly to consumers for cancelled services or tickets that are not reimbursed by the operators concerned, but more importantly, EU state aid rules permit States to assist companies to cope with liquidity shortages and urgent rescue aid by compensating them for the damage directly caused by the exceptional occurrence – the COVID-19 pandemic.
In lieu of the above, certain governments have already begun talks with airlines over possible state aid packages as air operators have begun calling upon them requesting financial aid in emergency state support as the crisis continues to engulf the aviation industry. The list of governments preparing such financial aid to support their national airlines is endless following requests for bailout packages through credit facilities or increased shareholding. For example, the Dutch and French governments have already signalled their intention of financially assist Air France-KLM Group, recognising the vital role played by the airline towards the states’ economies.
Evidently, the future of the aviation industry beyond this crisis cannot be guaranteed without state aid, and such has been recognised by industry players all over the globe. As a result of the lengthy nature of the crisis and its substantial financial impact, it may be concluded that financial state aid may be one of the only viable options to keep numerous air operators propelling themselves through these turbulent economic times.
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Photo: DFA