EU Commission launches investigation into Lufthansa’s state aid compliance

Simona Mazzeo
credit: euractiv

Brussels (Brussels Morning) – The European Commission has launched an investigation into a €6 billion German aid package for Lufthansa. It was approved in 2020 but overturned by the General Court in 2023.

The European Commission has unlocked an in-depth investigation to evaluate whether a German recapitalisation effort of €6 billion in favour of Deutsche Lufthansa AG (“Lufthansa”) is under EU State aid rules. The measure was originally agreed on 25 June 2020 by the EU Commission under the State Aid COVID Temporary Framework but subsequently revoked by the General Court on 10 May 2023. An appeal raised by Lufthansa is still pending.

https://twitter.com/EU_Competition/status/181025028280416673

The aid sought to restore the balance sheet position and liquidity of Lufthansa in the unusual situation generated by the coronavirus.

What are the components of Lufthansa’s €6 billion aid?

The German aid measure comprises an equity constituent of €306 million and two hybrid instrument components, i.e., Silent Participation I of €4.7 billion with elements of a non-convertible equity tool, and Silent Participation II €1 billion with features of a convertible debt instrument.

On 25 June 2020, the EU Commission agreed on the recapitalisation measure announced by Germany. The Commission discovered the measure to be compatible with EU State aid rules, in certain with Article 107(3)(b) of the Treaty on the Functioning of the European Union and the conditions outlined in the COVID Temporary Framework.

What conditions must Lufthansa meet to receive aid?

To profit from the aid, Lufthansa had to concede several behavioural obligations, such as prohibitions on dividends and strict limitations of the remuneration of its management, including a prohibition on bonus payments. In addition, Lufthansa had to rid of up to 24 slots/day at Frankfurt and Munich airports to permit competing carriers to install a base there.

In its decision of 10 May 2023, the General Court overruled the Commission’s decision. The General Court believed that the recapitalisation measure given to Lufthansa did not fulfil several of the conditions formed in the COVID-19 Temporary Framework.

What factors will the EU Commission consider in the investigation?

The EU Commission states that following the General Court’s judgment, now it will undertake a more in-depth investigation to assess additional recapitalisation measures. 

In that consideration, the Commission will concentrate on the eligibility of Lufthansa for the aid; the demand for a so-called “step-up” or equivalent mechanism to incentivise the withdrawal of the State from the capital; the cost of the shares at the time of a potential conversion of Silent Participation II into equity; the presence of Significant Market Power at airports other than Frankfurt and Munich, at least at Dusseldorf and Vienna airports; and specific aspects of the structural duties imposed on Lufthansa.

Lufthansa’s passenger air transport company 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 function flights to more than 300 destinations in approximately 100 countries, with a caravan of more than 700 aircraft.

What is the EU’s State Aid COVID Temporary Framework?

On 19 March 2020, the EU Commission assumed the State aid COVID Temporary Framework to allow Member States to use the maximum flexibility foreseen under State aid rules to sustain the economy in the context of the coronavirus outbreak. The COVID Temporary Framework was last revised on 18 November 2021.

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Simona Mazzeo is a journalist at Brussels Morning News. She is covering European Parliament, European Council, European Commission & Italy News. She is a law graduate and lawyer residing in Agropoli, has carved out a multifaceted career dedicated to justice and social advocacy. She actively serves as a delegated councilor for the Equal Opportunities Committee of the Bar Association of Vallo della Lucania, championing fair and equal representation within the legal system. Recognized for her expertise and empathy, Simona is qualified for registration in the list of Special Curators of minors in civil and criminal matters at the Court of Vallo della Lucania, ensuring the rights and interests of vulnerable children are protected throughout legal proceedings. Beyond her legal practice, Simona demonstrates a strong commitment to social causes. She is a founding member of the Free Lawyer Movement, a non-profit organization dedicated to providing legal assistance to those who cannot afford it. Additionally, she leverages her knowledge and passion for social justice as a non-professional journalist, contributing insightful and informative pieces on relevant legal and societal issues. Through her diverse endeavors, Simona Mazzeo exemplifies dedication to legal excellence, social responsibility, and a fervent belief in equal access to justice for all.