Introduction
On 23 November 2023, Ryanair lost another appeal before the Court of Justice. The Court ruled, in case C-210/21 P, Ryanair v Commission, that the General Court was right to dismiss Ryanair’s request for annulment of a Commission decision that had authorised French aid to compensate airlines for the damage they suffered as a result of the covid-19-related travel restrictions. The controversial aspect of that case was that the aid was limited to airlines licensed in France. This eligibility criterion automatically excluded Ryanair which considered that the aid measure violated the fundamental principle of non-discrimination.
The General Court, in one of its very first judgments on covid-related State aid, in case T-259/20, Ryanair v Commission, upheld the Commission decision which approved the French scheme SA.56765. That scheme aimed to remedy the harmful effects the pandemic by deferring the payment of taxes for which airlines were liable, such as charges on passengers. More specifically, the objective of the scheme was to ensure that airlines holding an operating licence issued in France would be able to maintain sufficient liquidity until the restrictions or prohibitions on movement linked to the covid-19 pandemic were lifted. The airlines that were licensed in France were in practice airlines that had their principal place of business in France.
The Commission considered that the pandemic constituted an exceptional occurrence within the meaning of Article 107(2)(b) TFEU and that there was a causal link between the damage caused by the pandemic and the harm that was compensated by the scheme in question.
Was there discrimination on the basis of nationality?
Ryanair argued that the French scheme discriminated against other airlines according to their nationality and, therefore, it could not be found compatible with Article 107(2)(b) TFEU.
The Court of Justice, first, explained that since a State aid measure must, among other things, confer a selective advantage and distort competition, selectivity and distortion of competition cannot be grounds for objecting to the application of Article 107(2) or (3).
“(35) Article 107(2) and (3) TFEU provides for certain derogations from the principle that State aid is incompatible with the internal market, .., such as that set out in Article 107(2)(b) TFEU,
concerning aid ‘to make good the damage caused by natural disasters or exceptional occurrences’. Accordingly, State aid granted for the purposes of, and in accordance with, the conditions laid down by those derogating provisions, notwithstanding the fact that it has the characteristics and produces the effects [defined in Article 107(1) TFEU], is compatible with, or is capable of being declared compatible with, the internal market.”
“(36) It follows that, unless those derogating provisions are to be deprived of all practical effect, State aid which is granted in accordance with those requirements, that is to say, for the purposes of an objective recognised therein and within the limits of what is necessary and proportionate to the achievement of that objective, cannot be held to be incompatible with the internal market having regard solely to the characteristics or solely to the effects, [defined in Article 107(1) TFEU], or effects which are inherent in any State aid, that is to say, inter alia, for reasons relating to whether the aid is selective or distorts competition”
At this and several other points in the judgment, the Court of Justice cited its own first judgment of 28 September 2023 on the appeals lodged by Ryanair against Commission decisions authorising covid-19-related aid. See case C-320/21 P, Ryanair v Commission.
The Court concluded that “(37) aid cannot be considered incompatible with the internal market for reasons that are solely linked to whether the aid is selective or distorts or threatens to distort competition”.
Then the Court examined whether there was discrimination on the basis of nationality that would be incompatible with Article 107(2)(b) TFEU, since such discrimination is prohibited by Article 18 TFEU.
The Court of Justice stressed “(38) that the procedure provided for in Article 108 TFEU must never produce a result that is contrary to the specific provisions of the FEU Treaty. Accordingly, State aid which, as such or by reason of some modalities thereof, contravenes provisions or general principles of EU law cannot be declared compatible with the internal market”.
“(39) However, as regards Article 18 TFEU specifically, it is settled case-law that that article is intended to apply independently only to situations governed by EU law in respect of which the FEU Treaty lays down no specific prohibition of discrimination”.
“(40) Since, […], Article 107(2) and (3) TFEU provides for derogations from the principle, referred to in paragraph 1 of that article, that State aid is incompatible with the internal market, and thus allows, in particular, differences in treatment between undertakings, subject to fulfilment of the requirements laid down by those derogations, those derogations must be regarded as ‘special provisions’ provided for in the Treaties, within the meaning of the first paragraph of Article 18 TFEU”.
“(41) It follows that the General Court did not err in law in finding, […], that Article 107(2)(b) TFEU constituted such a specific provision and that it was necessary only to examine whether the difference in treatment brought about by the measure at issue was permitted under that provision.”
Indeed, this is an important question. If all State aid is inherently discriminatory, because it is selective, how do we know that compensatory aid produces discrimination that is not allowed by Article 107(2)(b)? We see in the next section that the Court skirts around this question.
What was the objective of the French scheme to exclude foreign airlines?
Ryanair claimed that the objective of the aid was to support only French airlines.
The Court of Justice held that “(46) contrary to what Ryanair maintains, it is not apparent from that decision that holding a French licence constituted an objective in itself of the aid scheme at issue, but rather that the holding of such a licence constituted, […], an eligibility criterion for that scheme.”
Then the Court went on to examine whether the criterion of being licensed in France was appropriate for the objective of the aid scheme. Ryanair claimed that the General Court by stating that the criterion of holding a French licence made it possible for the French authorities to control the manner in which the aid was used by the beneficiaries, in essence it provided a justification which did not appear in the Commission decision, with the result that the General Court substituted its own grounds for those relied on by the Commission in support of that decision.
The Court of Justice, first, acknowledged that “(54) it is, admittedly, true that, […] the General Court cannot under any circumstances substitute [its] own reasoning for that of the author of the contested act […] However, it should be noted that, […], the Commission refers to the fact that airlines which hold a French licence have their principal place of business in France and are subject there to regular monitoring of their financial situation. Accordingly, […], the General Court merely explained the reasoning of the decision at issue and, more specifically, drew some conclusions from the evidence set out therein, without, however, substituting the grounds of that decision.”
Ryanair disagreed with the reasoning of the General Court that, first, a Member State which granted a licence to an airline was able to control the use of the aid which it granted to that airline. Second, that that Member State was able to ensure that that airline paid the taxes the payment of which had been deferred. And, third, that airlines holding a licence have a closer link with the economy of the Member State which granted that licence. France claimed that it had sought to ensure that there was a permanent link between it and the airlines benefiting from the deferral.
The Court of Justice responded that the General Court relied on the conditions for licensing of airlines “(56) only in order to establish the specific nature and stability of the link between airlines holding an operating licence and the Member State which granted that licence, […] and, in particular, the financial checks exercised by the authorities of that Member State on those airlines. However, the fact that those checks do not relate specifically to the aid granted to airlines holding a French licence, or that checks on the use of that aid may also be carried out on airlines which do not hold a French licence, is irrelevant to the assessment of that link,
for the purposes of determining whether the eligibility criteria are appropriate for achieving the objective pursued by the aid scheme at issue, as Ryanair maintains.”
I find that this reply of the Court of Justice does not really address the essence of Ryanair’s argument which is that Member States can control how their State aid is used by the recipients through other means such as ex post audits. This is particularly true in the EU where tax authorities collaborate closely with their counterparts in other Member States. Therefore, under the guise of controlling the eligibility for aid and the use of the aid by the beneficiaries, France in practice excluded airlines that did not have their principal base there. This raises another question. Could France reasonably limit the aid to French airlines?
Why was the aid limited to licensed airlines in France?
Ryanair argued that airlines licensed in France were not more harmed by the pandemic than other airlines.
The General Court had held that, “in applying the criterion of a French licence, the Member State concerned, taking into account […] the fact that the Member States do not have unlimited resources, reserved the benefit of the aid scheme at issue to the airlines which were most severely affected by the travel restrictions and lockdown measures adopted by that Member State, which took effect, by definition, on its territory”.
The Court of Justice noted that “(61) the General Court referred, for the purposes of assessing the proportionality of the aid scheme at issue, to data produced by the Commission relating to flights in France, from France or to France, respectively, by airlines holding a French licence and by those not holding such a licence. The General Court inferred from those data, […], that those first airlines, which alone were eligible for the aid scheme at issue, were proportionately much more severely affected than the appellant, which, in the light of those data, generated only 8.3% of its business in France, going to France and coming from France, against 100% for some of the eligible airlines.”
“(62) It is not apparent […] that the abovementioned reasoning is wrong in law or based on a manifestly incorrect assessment which constitutes a distortion of the evidence.”
“(63) The objective of the aid scheme at issue was to provide compensation to airlines severely affected by the measures restricting travel which were taken as a result of the COVID-19 pandemic. In order to assess whether the eligibility criterion relating to the holding of a French licence made it possible to ensure the proportionality of that scheme, the General Court merely found, referring to the evidence adduced before it, that the companies holding such a licence were in fact the most affected by those measures.”
“(64) Second, the General Court cannot be criticised for having justified that eligibility criterion, […], by the fact that ‘the Member States do not have unlimited resources’, that statement being merely part of the explanation of the context in which that eligibility criterion was adopted.”
Indeed, it is very reasonable of Member States to apportion limited amount of aid according to the degree of harm caused by the restrictions in question. Holding a local licence is an imperfect method of apportioning aid according to the degree of harm caused by French travel restrictions. In fact, the restrictions mandated by France have a direct effect on cancelled flights which can be counted. There may be a correlation between holding a local licence and loss of revenue from cancellations but holding a local licence is still an imperfect method because EU airlines can fly between any pair of countries, as Ryanair does, which implies that they can also derive a certain proportion of their revenue from outside their country of origin. It follows that France may have subsidised also the loss of income of French airlines caused by travel restrictions in other countries. That was not the objective of the aid scheme.
The relationship between State aid rules and internal market freedoms
Next, the Court of Justice examined pleas concerning alleged infringement of the principle of the free provision of services [Article 56 TFEU].
The Court began its analysis by reiterating that “(82) the procedure under Article 108 TFEU must never produce a result which is contrary to the specific provisions of the Treaty. Accordingly, State aid which, as such or by reason of some modalities thereof, contravenes provisions or general principles of EU law cannot be declared compatible with the internal market.”
“(83) However, first, the restrictive effects which an aid measure has on the freedom to provide services still do not constitute a restriction prohibited by the Treaty, since it may be inherent in the very nature of State aid, such as its selective nature”.
“(84) Second, it is apparent from the case-law of the Court that, where the modalities of an aid measure are so indissolubly linked to the object of the aid that it is impossible to evaluate them separately, their effect on the compatibility or incompatibility of the aid viewed as a whole with the internal market must therefore of necessity be determined by means of the procedure prescribed in Article 108 TFEU”.
“(85) In the present case, […], although holding a French licence did not in itself constitute the objective of the aid scheme at issue, but rather an eligibility criterion for that scheme, that criterion was, as such, inextricably linked to the object of that scheme, which was, in general, to make good the damage in the air transport sector resulting from an exceptional occurrence, namely the COVID-19 pandemic, and, more specifically, to alleviate, by the grant of a deferral, the financial burden of airlines severely affected by the travel restrictions and lockdown measures taken by the French Republic in order to deal with that pandemic. It follows that the effect of that eligibility criterion of the aid scheme at issue on the internal market cannot be examined separately from the effect of the compatibility of that aid measure as a whole with the internal market by means of the procedure prescribed in Article 108 TFEU.”
“(86) It follows from the reasons set out above and from the case-law […] that the General Court did not err in law by holding, […], in essence that, in order to establish that the measure
at issue, because it benefited only airlines holding an operating licence issued by France, and not, inter alia, Ryanair, constituted an obstacle to the freedom to provide services, Ryanair should have demonstrated, in the present case, that that measure produced restrictive effects which went beyond those inherent in State aid granted in accordance with the requirements laid down in Article 107(2)(b) TFEU”.
“(87) The line of argument put forward by Ryanair […] seeks, as a whole, to criticise the aid scheme at issue in so far as only airlines holding a French licence were eligible for that scheme and the restrictive effects of that eligibility criterion on the free provision of services, even though such effects are inherent in the selective nature of that scheme.”
Was the aid proportional?
An interesting argument advanced by Ryanair was that the General Court failed to apply properly the criteria of appropriateness and proportionality, which, according to Ryanair, applied differently under Article 56 TFEU than with respect to Article 107 TFEU.
“(96) Having regard to the close link between the occurrence of the COVID-19 pandemic and the restrictive measures adopted by the French authorities in that context, […], there is no contradiction […] between the General Court’s assessment of the proportionality of the amount of the aid and its assessment of the proportionality of the eligibility criterion linked to the holding of a French licence.”
“(97) Ryanair submits, in essence, that the General Court erred in law in finding, […], that the Commission was not required, for the purposes of assessing the compatibility of the aid scheme at issue with the internal market under Article 107(2)(b) TFEU, and in particular its proportionality, to take into account the competitive advantage resulting for the beneficiaries from the exclusion of airlines not holding a French licence.”
“(99) Thus, in the case of the aid scheme at issue, namely aid in the form of a deferral of the payment of certain taxes to eligible beneficiaries, with deferred payment without interest, the amount of aid granted, which the Commission must take into account for the purposes of determining whether there has been any overcompensation of the damage suffered by the beneficiaries owing to the exceptional occurrence at issue, corresponds, in principle, in the light of the Communication from the Commission on the revision of the method for setting the reference and discount rates (OJ 2008 C 14, p.6) and as the Commission found in the decision at issue, to the amount of interest which the beneficiaries of the measure would have had to pay on the market in order to obtain equivalent liquidity. By contrast, for the purposes of that determination, the Commission must not take into account any advantages that the beneficiaries of that scheme may have indirectly derived from that aid, such as the competitive advantage alleged by Ryanair.”
The Court of Justice also dismissed other pleas of Ryanair alleging failure of the Commission to state reasons for its decision and failure of the Commission to open the formal investigation procedure.
