An EU Court has upheld the European Commission’s finding that an aid scheme allowing French airlines to defer payments of civil aviation tax and solidarity tax is compatible with state aid rules.
In two February 17 decisions, the General Court of the European Union dismissed Ryanair’s appeals of commission rulings on the French scheme and a Swedish loan guarantee scheme, which Ryanair claims heavily favor Air France-KLM and SAS AB Airlines, respectively. The General Court examined, for the first time, the validity of schemes implemented because of the COVID-19 pandemic under EU state aid rules.
In Ryanair DAC v. Commission, T-259/20 (GCEU 2021), the General Court agreed with the commission’s findings and held that the French tax deferrals were justified because the pandemic and the travel restrictions associated with lockdowns constituted “an exceptional occurrence” under article 107(2)(b) of the Treaty on the Functioning of the European Union. Article 107(2)(b) of the TFEU allows the commission to approve state aid measures granted by member states to compensate specific companies or sectors for damages caused by exceptional circumstances.
In a February 17 release, Ryanair said it will appeal the General Court’s decisions to the Court of Justice of the European Union.
“One of the EU’s greatest achievements is the creation of a true single market for air transport, underpinned by the principle of a common EU airline license — one for each airline. A nationality condition in a State aid scheme is plainly incompatible with the single market,” a Ryanair spokesperson said in the release.
Under France’s aid scheme, French airlines have the option to defer payment of civil aviation tax and solidarity tax on airline tickets due between March and December 2020 until after January 1, 2021. Qualifying airlines are allowed to pay those taxes over a period of no more than 24 months. The French scheme, which the commission said is in line with EU state aid rules, is designed to compensate airlines for any damages incurred from the novel coronavirus outbreak by allowing them to temporarily free up their cash flows, according to a March 31, 2020, commission release. The commission said the pandemic justifies “exceptional interventions” from member states to mitigate ensuing damages.
The General Court said in a February 17 release that the pandemic has caused economic damage to French airlines and that limiting the scheme to airlines with a French license is “appropriate for achieving the objective of making good the damage caused by the exceptional occurrence in question.” The General Court reasoned that the scheme requires an “institutional link” with the place where the damage caused by travel restrictions and lockdowns occurred. Also, because the measures are extended to airlines with a French license, the tax authorities are better equipped “to carry out financial checks of the recipients,” the court said.
The General Court added that the commission did not commit an error of assessment regarding the methodology to quantify the value of the scheme because it considered France's detailed methodology and safeguarded for risks of overcompensation.
The Swedish aid scheme was examined in Ryanair DAC v. Commission, T-238/20 (GCEU 2021). Sweden had informed the commission in April 2020 of a loan guarantee scheme that would benefit Swedish airlines engaging in commercial activities, except for airlines with unscheduled flights. Under the plan, the guarantee would be provided to companies until December 31, 2020, for six years and loans up to SEK 5 billion (approximately $604 million). The commission approved the aid scheme under article 107(3)(b), considering the state aid temporary framework that was proposed in March 2020, the General Court said in a February 17 release.
The state aid temporary framework allows member states to provide companies that experienced difficulties after December 31, 2019, because of the pandemic with aid in the forms of guarantee schemes to support bank loans taken out by businesses; subsidized interest rates for private and public loans to companies; safeguards for banks; and short-term export credit insurance.
The General Court said in the release that it agreed with the commission’s findings that the Swedish loan guarantee scheme does not constitute illegal state aid because the scheme “effectively seeks to remedy a serious disturbance” under article 107(3)(b) of the TFEU caused by the pandemic and that limiting the scheme to airlines with a Swedish license appropriately achieves its objective. The court added that the commission did not commit an error of assessment by concluding that the scheme "did not go beyond what was necessary to achieve the stated objective."
The General Court noted that the free provision of services under article 56 of the TFEU does not apply to these cases because the fundamental freedom does not extend to the air transport sector and Ryanair did not allege any violations under article 56 in its appeal.