State aid: Commission approves restructuring aid for Air Malta

June 28, 2012 flight2000it

Following an in-depth investigation, the European Commission has concluded that a €130 million aid amount granted to the state-owned airline Air Malta for its restructuring is in line with EU state aid rules. The Commission found that the restructuring plan adequately addresses the financial problems of Air Malta. The restructuring measures foreseen, which include a significant capacity reduction and the sale of assets, should ensure long-term viability without continued state support, whilst avoiding undue distortions of competition.

In November 2010, the Commission authorised a loan facility of €52 million for Air Malta as rescue aid (see IP/10/1509), subject to the submission by the Maltese authorities of a restructuring plan within a six-month period.

In May 2011, Malta notified the Commission a €130 million capital increase to help restructure the company, which has been in difficulty for several years.

The Commission had a number of doubts whether the notified restructuring plan complied with the requirements of the 2004 EU Rescue and Restructuring Guidelines (see IP/04/856 and MEMO/04/172). Therefore, the Commission opened an in-depth investigation in January 2012 (see IP/12/42).

The Commission’s investigation found that the restructuring plan, covering a period of five years until November 2015, is based on realistic assumptions and should enable Air Malta to become viable within a reasonable timescale. The Commission is satisfied that the proposed capacity reduction consisting in the withdrawal from certain routes will avoid undue distortions of competition. Moreover, Air Malta will contribute to the costs of restructuring by selling land and other assets, as well as securing a private bank loan.

Finally, the Commission found that a previous capital injection of 2004 was carried out on market terms and therefore did not constitute state aid in the meaning of EU rules.

Background

Rescue and restructuring aid is highly distortive of competition as it artificially keeps a company in the market that would otherwise have exited it. The Rescue and Restructuring Guidelines require that the restructuring plan enables the beneficiary to become viable in the long-term on the basis of realistic assumptions. This is to avoid that a company keeps asking for public support. As public funding gives a company an economic advantage that its competitors do not have, the plan must foresee measures to reduce the distortions of competition induced by the state support, such as the reduction of capacity or market share. Furthermore, to avoid free riding, the beneficiary needs to make a significant own contribution to the costs of restructuring. Finally, restructuring aid may be granted only once over a period of ten years (‘one time, last time’ principle).

Source: European Commission