Flying through the storm: COVID-19 – state aid and other EU competition law updates

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The coronavirus pandemic has caused significant disruption to the economy, but few industries have felt the devastating impact as much as aviation. The widening travel restrictions and the plunge in demand for flights has led many airlines to require state support in order to help them navigate and, in some cases, survive this global economic crisis.

State aid

  • Governments across the European Union (EU), and globally, have offered a variety of state aid packages to help airlines during the coronavirus pandemic. 
  • State aid is any advantage granted by public authorities through state resources, on a selective basis, to any organisation that could potentially distort competition and trade in the EU.
  • The European Commission (the Commission) has introduced a Temporary Framework to aid and support economic recovery. The Framework allows member states to inject investments into otherwise viable businesses now facing difficulties because of the pandemic. These companies must have been economically sound as at 31 December 2019.
  • State aid packages that have been offered to struggling airlines include:
    • Lufthansa's €9 billion recapitalisation and state guarantee package;
    • Air France's €7 billion package consisting of guarantees and loans from the French government;
    • Alitalia's renationalisation by the Italian government;
    • SAS's €302 million guarantee on a revolving credit facility from the Danish and Swedish governments; and
    • TAP Portugal's €1.2 billion rescue loan. As TAP did not meet the Temporary Framework conditions, the aid was granted under the Commission's Guidelines on rescue and restructuring.
  • The Norwegian government has also allowed SAS and Norwegian Air to coordinate their schedules to maintain connectivity for citizens during the coronavirus pandemic. Coordination between competitors is usually prohibited under EU competition law, but companies across the globe have indicated that this prohibition may need to be waived during the pandemic.
  • The conditions attached to aid packages have varied significantly. For example, Lufthansa's aid package is conditional upon a divestment of up to 24 slots per day at Frankfurt and Munich airports. However, other governments have taken the opportunity to impose conditions linked to sustainability. Air France's aid package is contingent on various green initiatives, including a 50% reduction in carbon emissions on domestic flights by 2024, and investment in more fuel-efficient planes. Sister carrier, KLM, must reduce costs by 15%, reduce the number of night-time flights and make an active contribution to sustainability.
  • The variation in aid packages offered, and the conditions attached to the aid, has caused concern that aid packages could distort competition in the industry. First, more significant aid packages may be limited to wealthier member states; and second, some airlines, as a result of obtaining an aid package, may emerge in a much stronger position than prior to the pandemic. This may lead to increased scrutiny in the aviation sector, at a time when competition authorities are demonstrating a renewed focus on enforcement against abusive practices by dominant companies.

Sustainability

  • Sustainability is a focus of the regulatory framework for aviation, but also for competition law enforcement more broadly. As mentioned, national governments have taken the opportunity to attach green initiatives and sustainability-related conditions to aid packages. 
  • The Netherlands Authority for Consumers and Markets (the ACM) has also published draft sustainability guidelines (the Draft Guidelines). Competition law may limit collaboration between competitors, even if those agreements pursue sustainability objectives. The Draft Guidelines aim to allow competitors more collaboration opportunities when pursuing sustainability objectives. 
  • A new proposal in the Draft Guidelines is to allow the ACM to assess any negative effects of anti-competitive behaviour against the benefits incurred for society as a whole. This is a departure from previous approaches of competition authorities, which have focused on weighing the negative effects of anti-competitive behaviour against the consumer benefit attached to a particular product or service. This proposal would enable companies to enter into sustainability agreements more freely, which could be relevant to future code sharing and alliance arrangements, and other forms of collaboration between airlines. 

Consumer protection

Around the world, competition and consumer authorities are tackling the same issue: how to balance the consumer's right to a refund from airlines and other parties whose cash flows have been devastated by coronavirus. 

Earlier this year, the European Commission issued guidelines to ensure that passengers' rights are protected and applied in a coherent manner across the EU. Passengers must be given the choice between a refund, rebooking, a voucher or credit if an airline cancels a flight. However, the Commission considers that measures taken by governments to contain the pandemic are extraordinary circumstances, meaning that the passenger has no right to additional compensation under EU Regulation 261/2004.

Aviation safety

The Commission has delayed the implementation of certain provisions of Regulation 2018/1042, which is due to introduce certain aviation safety measures, including support programmes, psychological assessment and random drug testing to ensure the medical fitness of flight and cabin crew members. The pandemic has inhibited the industry's ability to prepare for this change, so the Commission has pushed back the implementation date by six months. These provisions of the Regulation will now apply from 14 February 2021.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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