State aid - EU Commission re-examines corona aid for Lufthansa
The EU Commission is investigating the billions in state aid given to Lufthansa during the Corona Pandemic once again. In a deeper review process, it will be determined if the longest repaid aid from the German state in the amount of around six billion Euros in 2020 was in line with European competition rules.
Background of the investigation is a judgment of the EU Court from about a year ago, which decided on complaints from Lufthansa competitors Ryanair and Condor. The judges in Luxembourg ruled then that the Commission should not have approved the German state aid in the amount of roughly six billion Euros. The officials involved had made several errors, leading to the Commission's decision being declared null and void.
Other Airlines affected
Similar judgments have also deemed the state aid for Dutch and French airlines KLM and Air France as unlawful. Whether the Commission will initiate new investigations like in the Lufthansa case is still open. All airlines have lodged appeals against the respective judgments.
The complainants had to examine more closely in the Lufthansa case whether the company still had its own securities to obtain credits. Additionally, the court criticized that the market power of Lufthansa at several airports was underestimated.
New investigation also regarding market power at airports
Now, the Commission is re-examining its decision and will particularly consider the market power of Lufthansa at airports in Vienna and Düsseldorf. The authority emphasizes that the initiation of an investigation does not yet indicate its results.
First, it remains open what consequences another investigation result and a new state aid decision could have. Possible outcomes include demands for interest or new requirements such as the surrender of take-off and landing slots (Slots) at controlled airports.
Lufthansa expected further examination
Lufthansa had already stated in its 2023 business report that it expected a formal examination by the EU. A spokesperson referred to the full repayment of the aid on Monday. The stabilization measures were already completed at the time of the European Court's judgment.
Travel restrictions during the pandemic had brought Lufthansa's business almost to a standstill. In the company with around 138,000 employees, thousands of jobs were at risk. Therefore, the German government supported the largest German airline in the spring of 2020.
State aid not fully withdrawn - Completely repaid by now
Germany, Austria, Switzerland, and Belgium had promised the Lufthansa Group a total of nine billion Euros in aid, but not all of it was fully withdrawn. The largest share of the sum came from Germany, the home country of Lufthansa. Six billion Euros including a 20% equity stake and silent participations came from the state-owned Wirtschaftsstabilisierungsfonds (WSF), while the state-owned KfW-Bank contributed a billion Euros in credit. The European partners joined the aid package at a later stage.
The rescued corporation had fully repaid all the aid by the end of 2022 and partially replaced it with its own debts. It was better to be in debt in the market than to the tax office, explained Lufthansa CEO Carsten Spohr. The German state did not lose any money under the line but even made a profit of around 760 million Euro from interest and stock sales.
Communication EU
- The EU Commission is looking into the EU Court's ruling on the six billion Euros in aid given to Air France by the French government, also considering it as potentially unlawful.
- Ryanair and Condor, Lufthansa's competitors, had previously challenged the Commission's approval of KLM's state aid, which was also deemed unlawful.
- The Netherlands and France are not the only EU countries under scrutiny; the EU Commission is also investigating the aid given to Belgian airlines, including Brussels Airlines, which is part of the Lufthansa Group.
- Condor, a German airline, also received state aid during the coronavirus pandemic, and the Commission's approval of that aid is now under review.
- EU regulations dictate that airlines should have their own resources to obtain credit; the Commission found errors in the initial review approach that did not take this requirement into account for Lufthansa.
- Frankfurt Airport, operated by German airline Lufthansa's hub, Lufthansa Cargo, and Germany's largest airport, has also been identified as an area of concern in terms of market power.
- In the event of a new state aid decision requiring Lufthansa to pay interest or surrender slots at controlled airports, such as Frankfurt or Düsseldorf, could have significant financial implications for the airline.
- The EU Commission's review of state aid to airlines takes place against the backdrop of the overall aviation industry recovery, which was impacted by travel restrictions during the Coronavirus pandemic.
