Navigating state aid in response to the Covid-19 outbreak
May 6, 2020
Sophie Bertin, was head of unit, state aid, at the Directorate General for Competition of the European Commission during the financial crisis, and has over 20 years of experience in the financial services industry. She is now a senior advisor with the Covington EU Competition team, helping states and individual companies better understand how to use and deploy state aid to overcome the COVID-19 crisis. Here she explains the fundamentals in play…
As Commissioner Vestager said: “Managing the economic impact of the COVID-19 outbreak requires decisive action. We need to act fast. We need to act in a coordinated manner. EU state aid rules provide a toolbox for member states to take swift and effective action.”
In principle, EU member states are prohibited from granting state aid to avoid a subsidy race and competition distortion in the EU. However, state aid can be used in exceptional circumstances, like the COVID-19 crisis, to provide much-needed support to companies. In such case, state aid can be provided mostly in the form of liquidity (loans, guaranteed loans), direct grants or capital support measures. State aid is in most cases subject to approval by the European Commission. Importantly, the different state aid types come with specific conditions to ensure the distortions of competition are limited to the minimum.
Since the beginning of the COVID-19 crisis, and as of 3 May 2020, the European Commission has approved over 100 different schemes or individual decisions from almost all EU member states, that represent over EUR 1.8 trillion of approved aid.
All affected sectors of the economy are benefitting from the state aid, and in particular the worst hit sectors of hospitality, tourism and travel.
For the airlines industry, given the size of the state support needed, as of end April, specific individual decisions are either in discussion or have been adopted – e.g., SAS, Condor, the Belgian airports, NorwegianAir, Lufthansa, Swiss, AirFrance / KLM.
For the companies in the travel and flight services sectors, options for getting state support range from accessing schemes put in place and open for all companies (especially the liquidity support schemes) or discuss with the respective government the need for a tailored scheme, like the Danish schemes to compensate event organisers. Typically, a tailored scheme would be possible if several, but individually not large companies, represent a sizeable share of the economy and employment in that country. If, however the company is large, and the available schemes would not suffice for the amounts and tools available, there is the option of requesting an individual support measure.
While state aid is not a right, in the current circumstances, member states are receptive to justified and well substantiated requests for support from companies. The current the overarching objective is to preserve the economy of the European member states, and limit the devastating effects of the crisis.
Companies in the flight services sectors need to identify what are the best options in terms of state aid measures in order to ensure their survival.
At Covington we have built expertise and a track record in this area and are happy to help companies in the flight services sector identify the best state aid options available to them and support them in the process of negotiating it.