Introduction
On 2 April 2025, the General Court, in case T‑398/21, Ryanair v Commission, dismissed yet another appeal by Ryanair against a Commission decision on aid to airlines whose purpose was to redress the impact of covid-19.[1] In particular, Ryanair sought the annulment of Commission decision on SA.59158 concerning Polish State aid to LOT airlines.
The aid was authorised by the Commission under the 2020 Temporary Framework and involved two individual measures amounting to a total of PLN 2.9 billion [approximately EUR 650 million]. LOT is wholly state owned. The two aid measures comprised a subsidised loan of PLN 1.8 billion [approximately EUR 400 million] and a capital injection of PLN 1.1 billion [approximately EUR 250 million].
Many of the specific pleas of Ryanair concerned the interpretation of provisions of the Temporary Framework. Since that Framework has expired, this article reviews only the parts of the judgment that touch on broader issues of State aid.
Judicial review and discretion of the Commission
The General Court began its assessment by recalling the role of EU courts and the intensity of judicial review of Commission decisions.
“(11) The assessment of the compatibility of aid measures with the internal market, under Article 107(3) TFEU, falls within the exclusive competence of the Commission, subject to review by the Courts of the European Union”.
“(12) The Commission enjoys wide discretion, the exercise of which involves complex economic and social assessments […] Article 107(3) TFEU confers on the Commission broad discretion to allow aid by way of derogation from the general prohibition laid down in Article 107(1) TFEU, inasmuch as the determination, in those cases, of whether State aid is compatible or incompatible with the internal market raises problems which make it necessary to examine and appraise complex economic facts and conditions […] In that context, judicial review of the manner in which that discretion is exercised is confined to establishing that the rules of procedure and the rules relating to the duty to give reasons have been complied with, and to verifying the accuracy of the facts relied on and that there has been no error of law, manifest error in the assessment of the facts or misuse of powers”.
“(13) However, in the exercise of that discretion, the Commission may adopt guidelines in order to establish the criteria on the basis of which it proposes to assess the compatibility, with the internal market, of aid measures envisaged by the Member States. In adopting such guidelines and announcing by publishing them that they will apply to the cases to which they relate, the Commission imposes a limit on the exercise of that discretion and cannot, as a general rule, depart from those guidelines, at the risk of being found to be in breach of general principles of law, such as equal treatment or the protection of legitimate expectations”.
“(14) Accordingly, in the specific area of State aid, the Commission is bound by the guidelines and notices that it issues, to the extent that they do not depart from the rules in the Treaty […] It is therefore for the Courts of the European Union to determine whether the Commission has observed the rules which it adopted”.
“(15) Furthermore, in the context of the review conducted by the Courts of the European Union on complex economic assessments carried out by the Commission in the field of State aid, it is not for those Courts to substitute their own economic assessment for that of the Commission. However, the Courts of the European Union must, in particular, establish not only whether the evidence relied on is factually accurate, reliable and consistent but also whether that evidence contains all the relevant information which must be taken into account in order to assess a complex situation and whether it is capable of substantiating the conclusions drawn from it […] Likewise, the Courts of the European Union must review the Commission’s interpretation of information of an economic nature”.
“(16) Consequently, although the review carried out by the Courts of the European Union is limited as regards the complex economic and social assessments made by the Commission, […], that review is, by contrast, comprehensive as regards the evaluations made by the Commission which do not involve such assessments or as regards questions of a strictly legal nature.”
Then the General Court proceeded to examine the claim of Ryanair that the Commission had misapplied the Temporary Framework. As explained earlier, this article reviews only issues that are of broader relevance than the particular provisions of that Framework.
Aid in the common interest
Ryanair argued that the Commission was wrong to find that the measure at issue was in the common interest within the meaning of point 49(b) of the Temporary Framework.
The General Court recalled that “(42) point 49(b) of the Temporary Framework provides that the planned recapitalisation measure must be in the common interest. The existence of such a common interest may be shown if the measure at issue is aimed at avoiding social hardship and market failure due to a significant loss of employment, the exit of an innovative or a systemically important company, the risk of disruption to an important service, or similar situations duly substantiated by the Member State concerned”.
“(43) The Commission found that LOT was of systemic importance for the Polish economy in several respects, namely, in particular, for employment and connectivity, and that, therefore, it was in the common interest to intervene in order to prevent the negative effects of the potential bankruptcy of LOT.”
Inability to obtain market financing
Ryanair submitted that the Commission breached point 49(c) of the Temporary Framework by failing to establish that LOT was not able to find financing on the markets at affordable terms.
However, the General Court confirmed that “(66) that condition was satisfied on the ground, inter alia, that LOT, not being a listed company and at that time experiencing high operating losses that were weakening its equity and liquidity position, would be unlikely to get easy access to debt or equity markets at affordable terms and in the time frame needed to avoid a likely insolvency. In addition, the Commission took account of the fact that […], first, that LOT was unable to find financing from Polish banks in the absence of State intervention and, second, that it had adopted a horizontal State aid programme to counteract the negative consequences of the COVID-19 outbreak for large enterprises, but that the amount of aid needed by LOT exceeded the maximum ceilings of aid per beneficiary available to large undertakings under that programme.”
Was LOT an undertaking in difficulty?
Ryanair claimed that LOT was in difficulty before covid-19. The definition of “undertaking in difficulty” is laid down in Article 2(18) of Regulation 651/2014 [GBER].
First, the General Court observed that “(84) the Commission did indeed verify, […], that LOT and its subsidiaries were not considered on 31 December 2019 as being ‘undertakings in difficulty’ for the purposes of Article 2(18) of the GBER.”
The General Court found that “(87) as regards, […], the condition laid down in Article 2(18)(d) of the GBER, it provides that an undertaking may be classified as an undertaking in difficulty where it has received rescue aid and has not yet reimbursed the loan or terminated the guarantee, or has received restructuring aid and is still subject to a restructuring plan. In that regard, it should be observed that while LOT did in fact receive restructuring aid in 2014, it is apparent from its statement in intervention that it was no longer subject to a restructuring plan on 31 December 2019. As regards the rescue aid which it had also received in 2013, it must be observed that the applicants have not shown that the loan had not yet been reimbursed by 31 December 2019.”
Other less distortive measures?
Ryanair argued that the Commission failed to prove that there was no other less distortive intervention in favour of LOT than the recapitalisation at issue.
The General Court rejected that argument and went on to observe that “(99) according to the case-law, the Commission is not required to take a decision on every possible alternative measure. It is not required to prove positively that no other conceivable aid measure, which by definition would be hypothetical, would be more appropriate and less distortive to competition”.
However, the General Court acknowledged that “(100) it is true, as the applicants state, that according to the case-law, when there is a choice between several appropriate measures, recourse must be had to the least onerous and the disadvantages caused must not be disproportionate to the aims pursued […] However, there is nothing in the present case to indicate that the Commission was faced with a choice between several appropriate measures, as set out in that case-law.”
Proportionality of the aid
Ryanair argued that the Commission had miscalculated the amount of aid needed to ensure the viability of LOT and that LOT received more aid than it needed to survive in the short term.
The General Court observed that “(120) the Commission assessed whether the public support did not go beyond restoring LOT’s capital structure and concluded that that was not the case, since LOT’s net debt-to-equity ratio on 31 December 2021 was expected to be worse than on 31 December 2019.” In addition, “(121) the Commission, in assessing whether the public support was limited to the minimum needed to ensure LOT’s viability, […] found that […], in the absence of a State recapitalisation and liquidity measure, LOT would have consumed its available liquidity by December 2020, namely at the time when the decision was adopted. It stated […] that the measures at issue prevented LOT from running out of liquidity and, […], resulted in LOT having a positive cash position on 31 December 2021.”
The credit rating necessary for access to the financial markets
In the judgment there is an interesting analysis of the technical but important issue of the credit rating of the aid recipient.
“(127) As regards the applicants’ argument that the Commission used an inappropriate benchmark, namely an ‘investment grade’ credit rating, as the minimum necessary to enable an undertaking to access market financing (a ‘BBB’ rating), it should be observed that the Commission stated […] that a conservative approach was to compare LOT’s forecasted net debt-to-equity ratio with that of comparable airlines since the rated airlines had a credit rating below or very close to the ‘investment grade’ threshold, namely ‘BBB’, which is normally considered as the minimum rating that allows a company easily to get access to market financing. […] it explained that LOT’s expected net debt-to-equity ratio on 31 December 2021 remained higher than the highest ratio among the rated peer airlines which had received an ‘investment grade’ rating. It stated […] that LOT’s net debt-to-EBITDA ratio, calculated in accordance with International Financial Reporting Standards (IFRS), would not fall below the threshold of 3 to 3.5, usually used by rating agencies to determine the creditworthiness of companies, in the time horizon considered in the business model. […] the Commission stated that LOT’s forecasted equity-to-asset ratio would not exceed a threshold of between 10% and 20% during that same time horizon. On the basis of those three ratios, it concluded […] that the recapitalisation did not exceed the minimum required to ensure the viability of LOT and ensure its access to private capital markets at a later, […], date.”
In response to the counter-argument of Ryanair that airlines can also obtain market finance with a credit rating of Ba2 instead of the higher BBB, the General Court agreed with the Commission that the relevant issue was that with rating BBB, LOT would be able “(129) to find financing on the markets at affordable terms.”
The valuation of LOT’s equity
Another technical but also interesting issue was the valuation of LOT by the Commission in order to determine its equity needs and whether the Polish state was sufficiently remunerated.
First, the General Court summarised the methodology used by the Commission. “(151) The purchase price of LOT’s shares [had been determined] by means of a valuation of LOT’s equity given that it was not a listed company. More specifically, that price was determined as the average of the share price resulting from the three methods at issue.”
“(152) The Commission stated, […], that the first method determined the value of LOT’s shares as the present value of the expected cash flows accruing to shareholders, that is to say, the cash flows generated by the operation of the company net of debt inflows and outflows and interest costs. The second method, the adjusted net asset method, determined LOT’s equity value as the difference between the book value of its assets and liabilities on 31 August 2020 (pro forma balance sheet), adjusted for differences between market and book values. The third method, the multiplier method, determined the value of LOT’s equity as the product of its EBITDA and the enterprise value to EBITDA ratio of similar listed companies, net of LOT’s net debt.”
“(153) The Commission considered that it was a reasonable approach to combine the three methods at issue in order to value LOT’s equity, in particular considering the uncertainties surrounding company valuations.”
“(155) It must therefore be held that the approach adopted by the Commission in the present case was robust and consistent and made it possible, in particular, to take into consideration the uncertainties inherent in the valuation of undertakings.”
Article 107(3)(b) TFEU
Ryanair submitted several pleas alleging that the Commission misapplied Article 107(3)(b) TFEU.
The General Court, first, recalled that “(188) although the derogation from the principle that State aid is incompatible with the internal market, provided for in Article 107(3)(b) TFEU, must be interpreted strictly, the terms used to define that derogation must not, however, be construed in such a way as to restrict its scope unduly or to deprive it of its effects. A derogation must be interpreted in a manner consistent with the objectives which it pursues”.
“(189) It is in no way apparent from the wording of Article 107(3)(b) TFEU, read in the light of the objective of that provision, which is to allow Member States to remedy a serious disturbance in their economy, that aid may only be declared compatible with the internal market on the basis of that provision if it ensures, in itself, that the serious disturbance in the economy of a Member State is remedied. Aid may, as appropriate, be intended to remedy such a serious disturbance in the economy and contribute to achieving the objective expressly referred to in that provision without, however, being sufficient in itself to attain that objective”.
“(190) In order to be able to be declared compatible with the internal market pursuant to a derogation under Article 107(2) TFEU, an aid measure, inter alia, must only contribute to the attainment of an objective set out therein”.
“(191) If, in order to be able to seek to apply that provision, the Member States were required to grant aid to all undertakings of particular importance to their economy, in such a way that that aid alone guarantees that the serious disturbance in the economy is remedied, without being able to reserve that aid to a limited number of those undertakings, or even just one, those Member States would often be deterred from granting aid under that provision, because of the costs it would involve”.
“(192) It follows that the objective pursued by Article 107(3)(b) TFEU does not mean that a Member State cannot, without that being dictated by a desire to favour one undertaking over its competitors, choose, for objective reasons, to grant only a single undertaking the benefit of a measure adopted under that provision”.
“(193) Article 107(3)(b) TFEU does not require that the aid at issue be capable, in itself, of remedying the serious disturbance in the economy of the Member State concerned. State aid may be authorised under that provision, in the form of aid schemes or individual aid, provided that all the conditions for its application are met, if they contribute to remedying that serious disturbance in the economy”.
At this point, Ryanair referred to the aid that had been granted to financial institutions during the economic crisis ten years earlier in order to argue that LOT was not systemically important to the Polish economy.
In response, the General Court held that “(197) the fact that the beneficiaries of the aid in the cases falling within the Commission’s earlier practice cited by the applicants were ‘systemic’ undertakings, on account of their role in the banking system or in rail transport in the Member State concerned, or the fact that an aid beneficiary in an earlier case before the General Court had a unique position, does not in any way mean that Article 107(3)(b) TFEU lays down the condition that the beneficiaries of individual aid must have an equivalent status. Under that provision, the Commission must assess whether the aid in question is necessary, appropriate and proportionate to remedy a serious disturbance in the economy of the Member State concerned […] In the case at hand, the Commission concluded, […], that such was the case.”
The General Court concluded that “(200) the Commission established LOT’s importance for the Polish economy to the requisite legal standard and that the aid at issue contributed to remedying the serious disturbance in the Polish economy, in accordance with Article 107(3)(b) TFEU.”
Adverse discrimination
Ryanair repeated the claim it made in other appeals against similar Commission decisions that the aid to LOT infringed Article 18 TFEU which prohibits discrimination.
The General Court acknowledged that “(216) it is true 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 and that 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 […] However, as regards specifically the principle of non-discrimination on grounds of nationality laid down in Article 18 TFEU, 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”.
“(217) Since Article 107(2) and (3) TFEU provides for derogations from the principle, set out 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”.
“(218) It follows that, in the present case, it is necessary to examine only whether the difference in treatment brought about by the measures at issue is permitted under Article 107(3) TFEU. That examination means, first, that the objective of the measures at issue must satisfy the requirements laid down in that provision and, secondly, that the detailed rules for granting the measures at issue, namely, in the present case, that they benefit only LOT, are such as to enable that objective to be achieved and do not go beyond what is necessary to achieve it.”
“(221) In that regard, it is not disputed that the other airlines contributed to Poland’s connectivity and were affected by the COVID-19 pandemic and the resulting travel restrictions. However, it nevertheless remains the case, as the Commission submits, that Member States are under no obligation to grant aid to remedy the serious disturbance in an economy within the meaning of Article 107(3)(b) TFEU […] The Republic of Poland was therefore not required to grant aid to all the undertakings that contribute, to one degree or another, to the connectivity of its territory.”
“(222) In addition, given its major role in domestic and international connectivity and its economic and social weight in Poland, […], it must be held that ensuring the continuity of LOT’s economic activities was capable of contributing to remedying the serious disturbance in the Polish economy.”
“(223) Lastly, as regards the question whether the measures at issue go beyond what is necessary to achieve the objective pursued, the Commission stated, […], that the amount of the subsidised loan did not exceed 25% of the beneficiary’s annual turnover in 2019, that it would be limited to a period of six years and that it would be repaid by the end of 2026 at the latest. There is therefore no evidence to show that the amount of the loan is disproportionate, which, moreover, the applicants do not specifically contradict. As regards the recapitalisation measure, […], according to the analysis of the data carried out by the Commission, the recapitalisation did not exceed the minimum required to ensure LOT’s viability and did not go beyond restoring its capital structure to what it was on 31 December 2019, namely before the COVID-19 pandemic.”
“(224) The applicants […] claim that the measures at issue are disproportionate since they are intended only for LOT, even though its share of Poland’s international connectivity is limited to 26%. They argue that allocating the aid to all the airlines that were operating at that time in Poland, based on their market share, would have led to the objective of the measure being attained without any discrimination.”
“(225) In that regard, it should be observed that the Commission is under no obligation to examine whether the Republic of Poland, in addition to maintaining the viability of LOT, should have widened the circle of the beneficiaries of the aid since the contested decision establishes to the requisite legal standard the need to preserve LOT’s contribution to the Polish economy.”
Conclusion
None of the pleas of Ryanair was successful. Consequently, the General Court dismissed the appeal in its entirety. There are now several judgments of the General Court and the Court of Justice that make it amply clear that Member States are not obliged to grant State aid to all undertakings that are affected by a serious economic disturbance as long as the exclusion of some or many affected undertakings can be justified on objective reasons.
[1] The full text of the judgment can be accessed at:
