Member of the Brussels Bar and Partner at CMS Belgium, Annabelle Lepièce reports on the support to airports under State aid rules in the context of the COVID-19 outbreak.
How to support airports under State aid rules in the context of the COVID-19 outbreak?
The COVID-19 outbreak continues to have a dramatic economic impact on air transport. Lockdowns imposed by Member States grounded thousands of aircrafts for several months. Gradual deconfinement has allowed the relaunch of air routes, but we are far from the capacity levels of the same period last year.
The second wave has further impacted the sector. As we all know it will take several months if not years before the sector returns to normal. According to IATA’s current forecast, the air transport sector will recover to pre-crisis levels by 2024.
National airlines have benefitted from significant aid of up to EUR 30 billion subject to European Commission approval.
Up to now, only seven aid schemes and individual aid for European airports have been approved by the European Commission for a total budget of EUR 1.7 billion, with the German airport aid scheme alone taking the greatest share of more than EUR 1.36 billion.
There are various legal options for public support for airports to help them through this crisis. These measures must be systematically analysed under European rules on State aid to ensure legality.
What is state aid and why should airports be concerned by this issue?
In European law, State aid is forbidden unless the European Commission declares it compatible because its positive effects outweigh any negative impact on competition. Such approval is granted following a prior notification by the Member State.
For certain categories of aid, it is possible to avoid notification to the Commission and the aid can be declared compatible directly on the basis of an exemption regulation of the Commission.
In the case of unauthorised aid, the European Commission requests the Member State recovers from the beneficiary the aid amount, plus interest. Airlines have been the subject of high-profile cases, mainly low-cost airlines receiving commercial incentives granted by regional airports/authorities or national airlines benefitting from rescue and restructuring aid.
Negative decisions of the Commission are rare in the airport sector, I have noticed State aid has become a legal weapon between airports competing against each other and increasingly the issue of State aid has been brought before the European Commission or before a national court competent to verify the legality of an aid.
I should emphasise that the notion of State aid is broader than the concept of subsidy.
State aid is an abnormal economic advantage granted to an undertaking, decided by the State (including public undertakings, Regions, local authorities, Chambers of Commerce, etc.) and funded by public resources.
It must be selective (as opposed to a general measure applicable to companies in all sectors) and distort or threaten to distort and affect or threaten to affect trade between Member States.
Therefore, public loans, public guarantees, capital injections, public debt write-offs, transfer of land and infrastructure and compensation for services may be qualified as State aid if they cover economic activities and are not granted under normal market conditions.
What type of public support can be granted to airports in the context of the covid-19 outbreak?
Public authorities and undertakings can grant support to airports in various forms.
Aid can be granted via subsidies, public loans, public guarantees, concession fee deferrals, concession fee write-offs, conversion of public debt into capital, recapitalisation, extension of the duration of a concession and compensation for sanitary measures.
Legal constraints applying to these forms of public support depend on the European legal ground that will be used to authorise the aid.
For instance, Timisoara Airport benefitted from a subsidy of around EUR 1 million as compensation under Article 107.2, b) of the Treaty on the Functioning of the European Union (“TFEU”) for the damage caused by the pandemic.
Similar grants are available to operators of German airports under a general scheme approved in August by the European Commission and to Polish airports, along with subsidized loans.
The European Commission approved operating aid for the period 2019–2024 in favour of Saarbrücken Airport and Debrecen International Airport under the 2014 Aviation Guidelines.
European airports such as Walloon airports, Burgas and Varna airports, and Ostend and Antwerp airports were the object of potential concession fee deferrals that were considered as public loans by the European Commission under the Temporary Framework for State aid measures to support the economy in the current COVID-19 outbreak.
How much aid may be granted to an airport?
The amount of aid awarded to airports by public authorities and undertakings is also subject to the European legal ground that will be applied to the specific aid.
Under the Temporary Framework for State aid measures to support the economy in the current COVID-19 outbreak, Member States may grant:
- aid up to a maximum of EUR 800,000 per undertaking per country;
- subsidized loans and public guarantees for a maximum amount of 25% of the beneficiary’s total turnover in 2019 or twice the annual wage bill of the beneficiary in 2019 (including social charges and the cost of personnel working on the undertaking’s site if in the payroll of subcontractors) or based on liquidity needs for 18 months for SME & 12 months for large enterprises;
- wage subsidies for employees to avoid lay-offs during the COVID-19 outbreak, which must not exceed 80% of the employee’s monthly gross salary (including employer’s social security contributions) (or 80% of the average monthly wage of a self-employed individual); and
- aid in the form of support for uncovered fixed costs that must not exceed 90% of the uncovered fixed costs and capped at EUR 3 million per company.
Under Article 107.2(b) TFEU, Member States may provide compensation for the damage caused by the pandemic (in various forms such as a subsidy, moratorium on public debt, public loan and guarantee).
If the aid amount does not exceed the amount of damage directly caused by the pandemic, the Commission must authorise it and cannot impose any additional conditions.
The compensation period is a matter for Commission debates, it can be affected by factors such as the methodology to establish the damage compensation for a longer period of time.
The damage for the first lockdown is calculated on the loss of revenues compared against 2019, plus the additional costs that have been generated by the pandemic less the avoided costs (temporary unemployment, other aid).
A longer compensation period may be subject to a less favourable approach to evaluate the damage. There are currently pending cases before the Commission.
Which aid has to be prior notified to the European Commission?
The obligation to notify the project of aid in favour of an airport will depend on the European legal basis that is applied by the public authority and the potential existing national schemes.
Such prior notifications are not compulsory in the case of:
- Operating aid and investment aid covered by the General Block Exemption Regulation of the European Commission that covers
– operating aid for airports with less than 200,000 passengers per year; and
– investment aid for airports with less than 3 million passengers per year (with no other airport within 100 km, except airports with less than 200,000 passengers per year).
- De minimis aid: aid that qualifies explicitly as de minimis aid and has a ceiling of EUR 200,000 per company per Member State for a period of three fiscal years.
- The application of a national umbrella scheme on the basis of the Temporary Framework COVID-19.
Member States must notify to the European Commission the following aid before it is granted:
- Operating aid for airports with between 200,000 and 3 million passengers per year and investment aid for airports with up to 5 million passengers per year and outside the scope of the General Block Exemption Regulation.
- Aid provided for by the Temporary Framework COVID-19 for airports that were not in difficulty on 31 December 2019 (except for SMEs): aid schemes of a maximum of EUR 800,000 per company per Member State in the form of subsidized loans, guarantees, tax advantages, public guarantees, recapitalisation measures, support for uncovered fixed costs, etc.
- Compensation for the damage caused by the pandemic under Article 107.2, b) TFEU.
- Rescue and/or restructuring aid to airports that were already in difficulty on 31 December 2019: the 2014 EC Guidelines on rescue and restructuring aid that were regularly applied to airlines may also cover aid to airports, although it is rare. To my knowledge, only Ancona Airport benefitted from such rescue aid in 2017 and restructuring aid in 2019.
How does the notification procedure work in practice?
First, only Member States are competent to notify projects of aid to the European Commission. Beneficiaries of aid are not formal parties to the procedure although they are often involved in the preparation of the notification documents. The procedure for this notification will vary from one country to another according to its internal organisation.
In practice, in most cases, the public entity that grants the aid and the beneficiary will together prepare the documents for the notification.
The formal notification is preceded by a prenotification which consists of informal contacts with the Commission in order to verify that the file is complete and to speed up the formal procedure. A normal notification process can take from four months to three years depending on the complexity of the case, the situation of the airport and good preparation and completeness of the file.
In the context of the pandemic, the European Commission has responded very swiftly and significantly shortened the duration of such procedures. For instance, for an aid scheme for airports, the whole process between the first informal contact and the final decision took 11 days.
Which aid for which airport?
The most adequate aid for a specific airport will depend on various factors: the size of the airport concerned, the actual impact of the pandemic, its financial needs, the existence of a national umbrella scheme, the type of management of the airport (existence of a concession), the existence of public debt/concession fees, etc.
It is a case-by-case analysis depending also of course on the budgetary limits of the competent public authorities.
In many cases, public authorities have prioritized legal options that did not entail transfer of public resources: concession fee deferrals, concession fee write-offs, extension of the duration of the concession, etc.
Can an airport benefit from compensation for sanitary measures?
State aid only covers the funding of economic activity. The European Commission has acknowledged that to the extent COVID-19 related emergency activities fall within the public remit, i.e. concern activities that the State normally performs in the exercise of its public powers, the public funding of such activities does not fall under State aid rules.
In the air transport sector, activities may include operating special flights for the purpose of repatriation of nationals, or transporting people for medical reasons, by military aircraft or similar.
Therefore, the funding of non-economic activities such as security, fire protection and sanitary measures falls outside the scope of State aid if there is no overcompensation of the costs and if there is no discrimination between airports under the same legal order. It implies that the compensation should cover the same types of cost, and the same methodology for the calculation of the compensation should be used. Otherwise, the public compensation will be considered as aid and will have to be notified to the European Commission.
Why are there so many differences in terms of numbers and amounts of aid between airlines and airports and between member states?
The role of the European Commission under State aid rules is limited to the control of the conditions to declare such aid compatible with the common market. Therefore, the Commission only examines the notifications that are presented by Member States. It cannot force Member States to fund their airports or to allocate their budgets in a certain way.
The aid to be granted to airports remains an exclusive competence of Member States, which include Regions, local authorities and public companies.
If central governments have been extremely fast and generous in their support to their national airlines, public authorities have been slower to act as aid to airports and other essential actors of the sector (such as groundhandlers) are concerned and in a more limited way, at least publicly. The regionalisation of airports in some countries may explain such divergence. Many airport operators are still negotiating with the owners of the infrastructure and budget limitations are often invoked.
The Commission is nevertheless competent to verify if State rules are well applied in Member States and it does so on its own initiative following the publication of press articles for instance or following complaints, which are frequent in the air transport sector.
How long can airports benefit from aid in the context of the pandemic?
In the current European legal framework, aid granted under the Temporary Framework COVID-19 and the national umbrella schemes that were approved by the European Commission on this basis will be in force until 30 June 2021.
Compensation of damage caused by the pandemic can be granted without any time limit but will be limited to a compensation period that is not defined yet.
The 2014 Aviation Guidelines remain in force until 2024 and the 2014 Guidelines on rescue and restructuring aid have been extended until the end of 2023.
Note that European associations are putting the pressure on the Commission to adopt a specific aviation temporary framework as the sector will suffer following the pandemic.
In the context of the COVID-19 outbreak, the European Commission reacted swiftly and generally in favour of all sorts of public support for the Member States’ economies.
There are various legal options for Member States, including regions, local authorities, public companies and Chambers of Commerce to support their airports. It is surprising that there are not more Commission decisions in this sector.
The fragmentation of the sector, the competence of regional and local authorities and the budgetary limitations may explain such a small number of official cases of aid in favour of airports.
In future, more flexibility should be guaranteed for public support granted by public authorities to airports, preferably in a specific temporary aviation framework prior to the forthcoming Aviation Guidelines in 2024.