Ryanair Triumphs in Court, Air France’s State Aid Annulled

The European Union’s General Court of Justice has annulled the French state aid package provided to Air France in 2020 and 2021. In a complaint filed by Ryanair and its subsidiary Malta Air, the General Court said on Wednesday that it can’t be ruled out that not just Air France, but also KLM and the holding Air France-KLM have benefitted from the French aid under the EU Temporary Framework. The European Commission can appeal today’s ruling. In April 2020, weeks after the first wave of Covid paralyzed the airline industry, the French government announced that it would guarantee 90 percent of a €4.0 billion loan that was provided by a consortium of banks, plus €3.0 billion as a shareholder loan. At the time, the French State owned 14.3 percent of Air France. The package was approved by the European Commission in May, as it qualified for the Temporary Framework for state aid measures to support companies during the pandemic. The French package was conditional to benefit only Air France, not the Air France-KLM holding or KLM, as the Dutch government was preparing its own aid package. This was formalized in July 2020. However, in December 2020, the EC corrected its decision, as the original text referred to “Air France Group” instead of just “Air France.” In April 2021, Brussels confirmed the final state aid and recapitalization package of Air France and Air France-KLM, which included €4.0 billion in French aid and €1.0 billion in a capital increase through the conversion of a shareholder loan into hybrid instruments. Ryanair contested the decision and claimed that KLM was benefitting from illegal state aid. In May 2021, the General Court annulled the EC’s decision as it wasn’t clear if KLM would be the beneficiary of any French aid. Sole beneficiary This was not the end of the matter. In October 2021, the European Commission acknowledged that it would have to offer additional evidence that Air France was the sole beneficiary of the state aid. France, The Netherlands, Air France, Air France-KLM, and also the German government contended that the annulment should be dismissed. The involvement of Germany was directly related to the state aid package to Lufthansa, which was also successfully contested by Ryanair in May this year. Ryanair upheld its claims that the French state aid package benefitted not just Air France, but also the holding and KLM. Ryanair pointed out that “Air France is 100 percent owned by the Air France-KLM holding and that the latter holds 93.84 percent of the share capital, 99.7 percent of the economic rights and 49 percent of the voting rights in KLM.” As with the KLM case that it won in May 2021, Ryanair stated that the EC had failed to sufficiently determine whether the companies within the group should be considered as an economic unit or are legally and financially independent. “In the present case, it is apparent (…) of the contested decision that the Air France-KLM holding has a power of control over Air France and KLM by virtue of the veto rights which it enjoys over their business plans and budgets, on the one hand, and over the remuneration, appointment and dismissal of their managers, including the appointment and dismissal of the members of their boards of directors, on the other.” The European Commission contested this view during a presentation of the case in Luxembourg stating that Air France and KLM were ‘functionally autonomous’, as they have their own management teams and both airlines are independent for most of their commercial activities and finance. Conclusion In its conclusion which was released today, the General Court annuls the decision of the European Commission to approve the state aid. The court says that “the Commission committed a manifest error of assessment by considering that the beneficiaries of the measure at issue were Air France and its subsidiaries, to the exclusion of the Air France-KLM holding and its other subsidiaries, including KLM and KLM’s subsidiaries, and, consequently, the first plea in law must be upheld.” “In that regard, the General Court examines the capital, organic, functional and economic links between the companies in the Air France-KLM group and the contractual framework on the basis of which the measures at issue were granted, as well as the type of aid measure granted and the context in which they were granted. It concludes, on that basis, that the Air France-KLM holding (in the first case) and KLM (in the second case) were capable of benefiting, at least indirectly, from the advantage granted by the State aid at issue.” Ryanair demands immediate recovery of state aid The European Commission can appeal the decision of the General Court but hasn’t said if it will do so. All state aid to Air France, KLM, and Air France-KLM has been fully redeemed, so it isn’t clear how they can repay aid that can now be qualified to have been non-conforming. It is the same with Lufthansa and the German state aid package, of which the General Court annulled the EC’s decision earlier this year. Ryanair says in a media statement that it calls on the EC to immediately recover the €4.0 billion granted as state-backed loans from Air France-KLM. “The European Commission’s approval of the French State aid to Air France-KLM went against the fundamental principles of EU law, like the principle of non-discrimination on the basis of nationality. Today’s judgments confirm that the Commission must act as a guardian of the level playing field in air transport and cannot sign off discriminatory State aid issued by national governments.” The airline adds: “The European Commission’s Directorate General for Competition has still not acted to force recovery of the unlawful aid, nor has it imposed any measures to remedy the damage to competition caused by the Swedish, Danish, German, and Italian governments favoring their local airlines over other EU airlines, in breach of EU law. Today’s judgments underline the need for the European Commission to immediately act to recover these illegal State aid packages and order remedies to restore at least some of the damage done to competition.” Air France-KLM has not responded to the ruling.

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