European Court annuls EC approval of Covid aid to carriers

The General Court of Justice of the EU has annulled European Commission approval of €3.4 billion in state aid to KLM during the Covid-19 pandemic on the grounds that it benefited the Air France-KLM group as a whole.

The Court declared EC approval of the aid, comprising a state guarantee of a bank loan and a state loan, had contravened state-aid rules following a complaint brought by Ryanair.

The EC approved the Dutch government aid to KLM during the first months of the pandemic along with a similar state guarantee and loan package by the French government to Air France.

Competition Commissioner Margrethe Vestager noted at the time that the carrier was “playing an essential role in the repatriation of citizens and for the transport of medical equipment” and said the aid would “provide “he liquidity to withstand the impact of the coronavirus outbreak”.

But Ryanair chief Michael O’Leary slammed the aid as “unlawful” and warned then of a legal challenge.

The General Court of the EU initially annulled approval of the aid in 2021 following a Ryanair complaint, ruling the EC had failed to provide the reasons for its decision. But the Court suspended the annulment pending a new decision by the EC.

The Commission approved the state aid as compatible with EU rules a second time in July 2021.

But the General Court annulled EC approval of the French government aid to Air France in December 2023.

In its latest ruling, the Court judged the Commission “erred in defining the beneficiaries” of the Netherlands’ state aid.

Air France and KLM merged in 2004 and the Court noted the Air France-KLM holding company holds almost 94% of the share capital and 49% of the voting rights in KLM.

It ruled the carriers “form a single economic unit for the purpose of application of the rules on state aid” with “coordinated and centralised management of significant investments, fleet operations and financial risk management”.

The Court found the aid was “capable of strengthening, at least indirectly, the financial position of that group as a whole” and that the Commission “committed a manifest error” by considering the beneficiaries of the aid were KLM and its subsidiaries.

It annulled the decision and ordered the EC to pay Ryanair’s costs.

Ryanair welcomed the ruling, noting the decision was “the fourth time the Court has ruled Covid-19 state aid to the Air France-KLM group was unlawful”.

It called on the EC to order the Dutch government “to immediately recover this illegal state aid package and impose adequate remedies”.

The General Court decision is subject to appeal.

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