coronavirus pandemic

The European Commission approves €2.55 billion Portuguese restructuring aid in favour of TAP Group and €107 million compensation for damages suffered due to coronavirus pandemic

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Today, the European Commission has approved, under EU State aid rules: (i) €2.55 billion of restructuring aid to enable the Group Transportes Aéreos Portugueses SGPS S.A. (‘TAP SGPS’) and the airline TAP Air Portugal return to viability; and (ii) €107.1 million aid to compensate TAP Air Portugal for damages suffered as a result of the coronavirus pandemic between 1 July 2020 and 30 December 2020.  

Executive Vice-President Margrethe Vestager, in charge of competition policy, said: “The measures we approved today will enable Portugal to compensate TAP for damages directly suffered as a result of travel restrictions put in place to limit the spread of the coronavirus. At the same time, the approved restructuring plan for TAP will ensure the airline’s path towards long-term viability. The significant public support will come with safeguards to limit distortions of competition. In particular, TAP has committed to make available slots at the congested Lisbon airport, where TAP holds significant market power. This gives competing carriers the chance to expand their activities at this airport, ensuring fair prices and increased choice for European consumers.”

TAP Air Portugal is a Portuguese flag carrier and, as the largest airline based in Portugal, a major provider of mobility services for people and cargo, both in the mainland and the Autonomous Regions of Madeira and Azores, as well as for Portuguese-speaking countries and diaspora communities. The company plays a key role in the growth of Portuguese tourism and economy as whole and is a significant employer in Portugal. In 2019, it accounted for more than 50% of the arrivals and departures at the Lisbon International Airport.

Restructuring aid

On 10 June 2021, Portugal formally notified to the Commission restructuring aid, with the aim of financing a restructuring plan of TAP Group through TAP Air Portugal.

On 16 July 2021, the Commission opened an in-depth investigation to further assess the compliance of the proposed restructuring plan submitted by Portugal for TAP SGPS and of the related aid with the conditions of the Guidelines on rescue and restructuring aid. On the same day, it re-approved €1.2 billion rescue aid in favour of the airline following the annulment of the initial rescue aid decision by the General Court.

Today, following its in-depth investigation and the comments from interested parties and Portugal, the Commission has approved the proposed restructuring plan. The support will take the form of €2.55 billion equity or quasi equity measures, including the conversion of the €1.2 billion rescue loan into equity.

The Commission assessed the restructuring aid measures under its Guidelines on State aid for the rescue and restructuring of companies in difficulty.

In particular, the Commission assessed the restructuring plan, which sets out a package of measures for streamlining TAP SGPS’s operations and reducing costs. The plan provides for a split of businesses into (i) the airlines TAP Air Portugal and Portugalia (that will be supported and restructured), and (ii) a perimeter of non-core assets to divest in the course of the restructuring, namely subsidiaries in adjacent business of maintenance (in Brazil), catering and ground handling. In addition, TAP SGPS and TAP Air Portugal will be banned from any acquisitions and will reduce its fleet until the end of the restructuring plan, streamlining its network and adjusting to the latest forecasts that estimate demand not picking-up before 2023 because of the coronavirus pandemic.

Furthermore, TAP Air Portugal has a large presence at Lisbon airport, which is structurally highly congested, meaning that airlines cannot get access to the landing and take-off slots that they request for their operation at the airport. Therefore, additional measures to preserve effective competition at this airport are necessary. TAP Air Portugal will make available up to 18 slots per day at Lisbon airport to a competing carrier. These measures will enable the lasting entry or expansion of a competing carrier at this airport, to the benefit of consumers. A transparent and non-discriminatory selection procedure will be organized by the Commission (with the support of a Monitoring Trustee) to select the competing carrier. The first call for proposals will take place ahead of the IATA winter season 2022-23.

On this basis, the Commission concluded that the restructuring aid is in line with EU rules, as it will bring TAP Air Portugal back on the path of long-term viability without unduly affecting competition and trade.

The damage compensation measure

Portugal notified to the Commission another aid measure amounting to a total of €107.1 million to compensate TAP Air Portugal for damage it suffered between 1 July 2020 and 30 December 2020 as a direct result of the travel restrictions in place to limit the spread of the virus. Because of these travel restrictions, TAP Air Portugal incurred significant operating losses and experienced a steep decline in traffic and profitability over this period. This follows a previous support measure in favour of the airline that the Commission approved in April 2021, compensating TAP Air Portugal for the damage suffered due to the coronavirus outbreak and the related travel restrictions between 19 March and 30 June 2020.

Under the compensation measure, the aid will take the form of either (i) a capital injection; or (ii) a loan that may be converted into capital. The choice between these forms of support will be made by the Portuguese government.

The Commission assessed the measure under article Article 107(2)(b) of the Treaty on the Functioning of the European Union (TFEU), which enables the Commission to approve State aid granted to compensate specific companies or specific sectors for the damages directly caused by exceptional occurrences. The Commission considers that the coronavirus outbreak qualifies as an exceptional occurrence, as it is an extraordinary, unforeseeable event having a significant economic impact. As a result, exceptional interventions by the Member States to compensate for the damages directly linked to the pandemic are justified.

The Commission found in particular that the Portuguese measure will compensate damage that is directly linked to the coronavirus outbreak. It also found that the measure is proportionate, as the compensation does not exceed what is necessary to make good the damage.

On this basis, the Commission concluded that the Portuguese measure is in line with EU State aid rules.

Background

EU State aid rules, more specifically the Commission’s Guidelines on rescue and restructuring aid, enable Member States to support companies in difficulty, under certain strict conditions. In particular, rescue aid may be granted for a period of up to six months. Beyond this period, either rescue aid must be reimbursed or Member States must notify a restructuring plan to the Commission, for assessment under the State aid rules. In order for restructuring aid to be approved, the plan must ensure that the viability of the company can be restored without continued State support, that the company contributes sufficiently to the costs of its restructuring and that distortions of competition created by the aid are addressed through compensatory measures, including in particular structural measures.

Financial support from EU or national funds granted to health services or other public services to tackle the coronavirus situation falls outside the scope of State aid control. The same applies to any public financial support given directly to citizens. Similarly, public support measures that are available to all companies such as for example wage subsidies and suspension of payments of corporate and value added taxes or social contributions do not fall under State aid control and do not require the Commission’s approval under EU State aid rules. In all these cases, Member States can act immediately. When State aid rules are applicable, Member States can design ample aid measures to support specific companies or sectors suffering from the consequences of the coronavirus outbreak in line with the existing EU State aid framework.

On 13 March 2020, the Commission adopted a Communication on a Coordinated economic response to the COVID-19 outbreak setting out these possibilities.

In this respect, for example:

  • Member States can compensate specific companies or specific sectors (in the form of schemes) for the damage suffered due and directly caused by exceptional occurrences, such as those caused by the coronavirus outbreak. This is foreseen by Article 107(2)(b)TFEU.
  • State aid rules based on Article 107(3)(c) TFEU enable Member States to help companies cope with liquidity shortages and needing urgent rescue aid.
  • This can be complemented by a variety of additional measures, such as under the de minimis Regulation and the General Block Exemption Regulation, which can also be put in place by Member States immediately, without involvement of the Commission.

In case of particularly severe economic situations, such as the one currently faced by all Member States due the coronavirus outbreak, EU State aid rules allow Member States to grant support to remedy a serious disturbance to their economy. This is foreseen by Article 107(3)(b) TFEU of the Treaty on the Functioning of the European Union.

On 19 March 2020, the Commission adopted a State aid Temporary Framework based on Article 107(3)(b) TFEU to enable Member States to use the full flexibility foreseen under State aid rules to support the economy in the context of the coronavirus outbreak. The Temporary Framework, as amended on 3 April8 May29 June13 October 2020, 28 January and 18 November 2021, provides for the following types of aid, which can be granted by Member States: (i) Direct grants, equity injections, selective tax advantages and advance payments; (ii) State guarantees for loans taken by companies; (iii) Subsidised public loans to companies, including subordinated loans; (iv) Safeguards for banks that channel State aid to the real economy; (v) Public short-term export credit insurance;(vi) Support for coronavirus related research and development (R&D); (vii) Support for the construction and upscaling of testing facilities; (viii) Support for the production of products relevant to tackle the coronavirus outbreak; (ix) Targeted support in the form of deferral of tax payments and/or suspensions of social security contributions; (x) Targeted support in the form of wage subsidies for employees; (xi) Targeted support in the form of equity and/or hybrid capital instruments; (xii) Support for uncovered fixed costs for companies facing a decline in turnover in the context of the coronavirus outbreak;(xiii) Investment support towards a sustainable recovery; and (xiv) Solvency support.

The Temporary Framework will be in place until 30 June 2022, with the exception of investment support towards a sustainable recovery, which will be in place until 31 December 2022, and of solvency support, which will be in place until 31 December 2023. The Commission will continue to monitor closely the developments of the COVID-19 pandemic and other risks to the economic recovery.

The non-confidential version of the decisions will be made available under the case numbers SA.60165, and SA.63402 in the State aid register on the Commission’s competition website once any confidentiality issues have been resolved. New publications of State aid decisions on the internet and in the Official Journal are listed in the Competition Weekly e-News.

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