The European Commission has opened an in-depth investigation to assess whether a German recapitalisation measure of €6 billion in favour of Deutsche Lufthansa AG (“Lufthansa”) is in line with EU State aid rules. The measure was initially approved on 25 June 2020 by the Commission under the State aid COVID Temporary Framework, but subsequently annulled by the General Court on 10 May 2023. An appeal submitted by Lufthansa is still pending.
The aid aimed at restoring the balance sheet position and liquidity of Lufthansa in the exceptional situation caused by the coronavirus.
The Commission’s investigation
The German aid measure consisted of an equity component of €306 million and two hybrid instrument components, namely, Silent Participation I of €4.7 billion with features of a non-convertible equity instrument, and Silent Participation II €1 billion with features of a convertible debt instrument.
On 25 June 2020, the Commission approved the recapitalisation measure notified by Germany. The Commission found the measure to be compatible with EU State aid rules, in particular with Article 107(3)(b) of the Treaty on the Functioning of the European Union and the conditions set out in the COVID Temporary Framework.
In order to benefit from the aid, Lufthansa had to comply with a number of behavioural commitments, such as bans on dividends and strict limitation of the remuneration of its management, including a ban on bonus payments. In addition, Lufthansa had to divest of up to 24 slots/day at Frankfurt and Munich airports to allow competing carriers to establish a base there.
In its judgment of 10 May 2023, the General Court annulled the Commission’s decision. The General Court considered that the recapitalisation measure granted to Lufthansa did not meet several of the conditions set out in the COVID Temporary Framework.
Following the General Court’s judgment, the Commission will now carry out a more in-depth investigation to assess further the recapitalisation measure. In that regard, the Commission will focus on the following points:
- the eligibility of Lufthansa for the aid;
- the need for a so-called “step-up” or similar mechanism to incentivise the exit of the State from the capital;
- the price of the shares at the time of a potential conversion of Silent Participation II into equity;
- the existence of Significant Market Power at airports other than Frankfurt and Munich, at least at Dusseldorf and Vienna airports; and
- certain aspects of the structural commitments imposed on Lufthansa.
The opening of an in-depth investigation gives Germany and interested third parties the opportunity to submit comments. It does not prejudge in any way the outcome of the investigation.
Background
Lufthansa’s passenger air transport business includes Lufthansa Passenger Airlines, Swiss International Air Lines Ltd., Brussels Airlines S.A./N.V., Austrian Airlines AG, Air Dolomiti S.p.A., Eurowings GmbH, Germanwings GmbH, Edelweiss Air AG and SunExpress Deutschland GmbH. These airlines operate flights to more than 300 destinations in around 100 countries, with a fleet of more than 700 aircraft.
On 19 March 2020, the Commission adopted the State aid COVID Temporary Framework 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 COVID Temporary Framework has been amended on 3 April, 8 May, 29 June, 13 October 2020, 28 January and 18 November 2021.
As announced in May 2022, the COVID Temporary Framework has not been extended beyond the set expiry date of 30 June 2022, with some exceptions.
Framework complements the ample possibilities for Member States to design measures in line with existing EU State aid rules. For example, EU State aid rules enable Member States to help companies cope with liquidity shortages and needing urgent rescue aid. Furthermore, Article 107(2)(b) TFEU enables Member States to compensate companies for the damage directly caused by an exceptional occurrence, such as the coronavirus outbreak.
The non-confidential version of the decision will be made available under the case number SA.57153 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.