Introduction
State aid to rescue a company and finance its restructuring is considered to be the most distortionary form of aid. However, it is allowed only to prevent serious social harm and only after notification to and assessment by the Commission. The compatibility assessment is always exhaustive and seeks to establish, among other things, whether State aid is the only possible option and whether the contribution of shareholders is sufficient.
In this context, on 5 February 2025, in case T-743/21, Ryanair v Commission, the General Court examined whether the rescue of TAP, the Portuguese airline, could have been carried out by the group to which it belonged instead of the state.[1] The case arose from an action for annulment lodged by Ryanair against the revised Commission decision SA.57369.
The Commission had initially authorises the aid in June 2020 [the initial decision]. In May 2021, after an appeal by Ryanair, the General Court, in case T-465/20, Ryanair v Commission annulled the initial decision. The General Court found that the Commission had not considered thoroughly the implications of the fact that TAP belonged to a company group. However, the GC allowed the effects of the decision to be suspended pending the adoption of a new decision by the Commission.
A couple of months later, in July 2021, the Commission adopted a revised decision, by which it again authorised the aid.
Conditions for eligibility of rescue aid
First, Ryanair disputed that TAP was eligible for rescue aid, given that it was a member of the TAP group.
The General Court, first, recalled the relevant provision of the Rescue & Restructuring guidelines [RRG]. “(41) According to point 22 of the Guidelines, ‘a company belonging to or being taken over by a larger business group is not normally eligible for aid under these guidelines, except where it can be demonstrated that the company’s difficulties are intrinsic and are not the result of an arbitrary allocation of costs within the group, and that the difficulties are too serious to be dealt with by the group itself.’”
“(43) In the present case, […], it should be noted that, at the time when the measure at issue was notified, half of the beneficiary’s shares were held by Participações Públicas SGPS SA (‘Parpública’), which managed the Portuguese State’s shareholdings. Atlantic Gateway SGPS Lda (‘AGW’) held 45% of the beneficiary’s shares while 5% of the shares were owned by other shareholders. AGW itself had several shareholders. Accordingly, Mr Humberto Pedrosa held 50% of the shares in AGW through HPGB SGPS, SA and Mr David Neeleman also owned 50% of the shares through DGN Corporation and Global Azulair Projects SGPA, SA.”
“(45) In the present case, the Autoridade de Concorrência (Competition Authority, Portugal) has already found on several occasions that the two individual shareholders, through their companies, HPGB and DGN, exercised joint control over the beneficiary. […] the Commission acknowledged, […], that the two individual shareholders of AGW were partner enterprises of the beneficiary, pursuant to Article 3(2) of the Annex to Commission Recommendation 2003/361/EC of 6 May 2003 concerning the definition of micro, small and medium-sized enterprises […] Fourth, the Commission verified, […], the capacity of Mr Neeleman and Mr Pedrosa to cover the beneficiary’s financial needs. It therefore implicitly considered that they belonged to the group.”
The General Court states here that AGW exercised control over TAP, but AGW’s shareholding accounted for only 45% of TAP’s shares. Also it is not clear why the fact that the two individual shareholders were partner enterprises of TAP, in the meaning of the SME definition, is relevant here.
Then, the General Court pointed out that “(48) the term ‘group’ within the meaning of point 22 of the Guidelines is not defined.” “(49) As regards the context of which point 22 of the Guidelines forms part, it should be noted that the words ‘larger business group’ in point 21(b) of those guidelines contain a reference to footnote 28, which states as follows: ‘To determine whether a company is independent or forms part of a group, the criteria laid down in [the] Annex […] to Recommendation [2003/361] will be taken into account.’”
“(50) Article 3(2) of the Annex to Recommendation 2003/361 provides, inter alia, that ‘partner enterprises’ are enterprises which are not classified as linked enterprises within the meaning of paragraph 3 of that annex and between which there is the following relationship: an enterprise (upstream enterprise) holds, either solely or jointly with one or more linked enterprises within the meaning of paragraph 3 of that annex, 25% or more of the capital or voting rights of another enterprise (downstream enterprise).”
“(51) Article 3(3) of that annex states as follows: ‘“Linked enterprises” are enterprises which have any of the following relationships with each other:
(a) an enterprise has a majority of the shareholders’ or members’ voting rights in another enterprise;
(b) an enterprise has the right to appoint or remove a majority of the members of the administrative, management or supervisory body of another enterprise;
(c) an enterprise has the right to exercise a dominant influence over another enterprise pursuant to a contract entered into with that enterprise or to a provision in its memorandum or articles of association;
(d) an enterprise, which is a shareholder in or member of another enterprise, controls alone, pursuant to an agreement with other shareholders in or members of that enterprise, a majority of shareholders’ or members’ voting rights in that enterprise.”
“(52) The Commission examined, first, […], whether the beneficiary, Parpública and AGW were linked enterprises within the meaning of Article 3(3) of the Annex to Recommendation 2003/361 and, second, […], whether those three companies together constituted a group within the meaning of point 22 of the Guidelines.”
Then the General Court concluded that “(53) the Commission did not err in law or make an error of assessment in finding, […], that the conditions set out in Article 3(3) of the Annex to Recommendation 2003/361 were satisfied in the present case as regards Parpública, AGW and the beneficiary and that those companies could be regarded as linked within the meaning of that provision. The Commission took into account the joint control exercised by AGW and Parpública over the beneficiary. As is apparent […], the shareholders’ agreement concluded between Parpública and AGW provided for an equal distribution of the rights to appoint the members of the beneficiary’s board of directors between those two companies. It is also apparent […] that operational decisions could be taken by a majority of eight of the 12 votes cast by the members of the board of directors. Lastly […], for the adoption of resolutions concerning strategic matters, that a qualified majority is required in the event of a tie.”
“(54) The Commission relied on the existence of joint control, […], in order to conclude that the beneficiary, Parpública and AGW formed a single economic entity. According to the case-law, two companies form a single economic entity, in particular, where one exercises decisive influence over the other […] Decisive influence may also be exercised by two companies together if they exercise joint control over another company”.
“(55) The Commission did not err in law or make an error of assessment in concluding, […], that the beneficiary belonged to a group within the meaning of point 22 of the Guidelines. In those circumstances, the Commission was right to state, […], that it was not necessary for it to determine whether the ultimate shareholders of AGW, namely Mr Neeleman and Mr Pedrosa, also belonged to that group. The Commission was entitled to conclude that the beneficiary belonged to a group within the meaning of that point of the Guidelines on the basis of its relationship with Parpública and AGW.”
Intrinsic financial difficulties
Next, Ryanair argued that the Commission wrongly concluded that TAP’s difficulties were intrinsic.
First, the General Court confirmed the Commission’s interpretation that “(62) the part of the sentence ‘except where it can be demonstrated that the company’s difficulties are intrinsic and are not the result of an arbitrary allocation of costs within the group’ in point 22 of the Guidelines merely sets out one and the same condition which is to be interpreted as meaning that the difficulties of an undertaking belonging to a group must be regarded as being intrinsic if they are not the result of an arbitrary allocation of costs within that group”
Then the General Court explained that “(63) the purpose of point 22 of the Guidelines is to prevent a group of undertakings from offloading its costs, debts or liabilities onto an entity within the group, thus making it eligible for rescue aid, whereas it would not be otherwise.”
“(70) According to the information in the contested decision, the beneficiary’s difficulties arose from its performance and management before the start of the COVID-19 pandemic. Those difficulties were aggravated by that pandemic.” “(71) In addition, there was no evidence to suggest that the financial difficulties faced by the beneficiary resulted from an arbitrary allocation of costs within the group, let alone from an allocation from Mr Neeleman and Mr Pedrosa through AGW, the direct shareholder of the beneficiary. […] the Commission found in the contested decision that AGW and the beneficiary did not have shared functions and that their accounts were not consolidated, with the result that it would have been impossible for AGW and, by extension, for Mr Neeleman and Mr Pedrosa to allocate costs to the detriment of the beneficiary.”
Then, the General Court added that “(73) although the Commission has used a different method of examination in other previous decisions, that does not mean that it is required to do so in the same way in the present case. The legality of the contested decision must be assessed solely in the context of Article 107(3)(c) TFEU, and not in the light of an alleged previous decision-making practice of the Commission”.
Serious difficulties
Ryanair alleged that the Commission wrongly found that the beneficiary’s difficulties were too serious to be dealt with by the group itself.
The General Court, first, recalled that “(79) according to point 22 of the Guidelines, a rescue aid measure may be granted to an undertaking belonging to a group of companies if its difficulties are too serious to be dealt with by the group itself.”
“(80) In the present case, […], the Commission found that Parpública was not in a position to assist the beneficiary as it had limited budgetary resources. Moreover, since the latter is a State undertaking, each contribution was automatically classified as State aid. The Commission considered that AGW was also unable to resolve the beneficiary’s difficulties, since it was a vehicle company with no economic activity of its own. […] the indirect individual shareholders of AGW, Mr Neeleman and Mr Pedrosa, were not in a position, even in part, to resolve the difficulties faced by the beneficiary. The amount of the measure at issue was substantial and the companies of the two shareholders were also active in the transport sector and also suffered significant reductions in revenue during the COVID-19 pandemic.”
No market funding
Ryanair claimed that TAP could have attracted other private funding through borrowing on the market.
The General Court pointed out that “(89) according to point 8 of the Guidelines, set out in the introductory part of those guidelines, ‘undertakings should only be eligible for State aid when they have exhausted all market options’.”
Then it noted that “(90) despite the fact that the beneficiary was still able to raise funds in 2019, the rating agencies had steeply reduced its rating in the context of the COVID-19 pandemic.” “(92) The Commission’s position that it was virtually impossible to raise funds on the market is plausible. It is also necessary to take into account the nature of the aid, namely rescue aid which had to be granted as a matter of urgency and for a relatively short period, that is to say, a maximum of six months.”
Objective of common interest
Ryanair alleged that the Commission wrongly concluded that the aid contributed to an objective of common interest.
The General Court reiterated the well-established principle that “(101) the Commission can declare aid compatible with Article 107(3) TFEU only if it contributes to the attainment of one of the objectives mentioned therein, something which, under normal market conditions, the recipient firms would not achieve by their own actions.”
Then the General Court stressed that “(102) as regards, more specifically, the application of Article 107(3)(c) TFEU in the case of rescue aid, it follows from point 43 of the Guidelines that the mere fact of preventing an undertaking from exiting the market is not sufficient to justify the use of such aid. It must be demonstrated, in particular, that the aid pursues an objective of common interest in that its purpose is to avoid social hardship or address market failure.” “(103) In order to give concrete expression to the wording of point 43 of the Guidelines, point 44 thereof provides that the Member State must demonstrate that the failure of the beneficiary would be likely to involve serious social hardship or severe market failure. Point 44(a) to (g) of the Guidelines sets out seven examples of situations in which it is established that the aid pursues a common interest.” “(105) The mere fact that point 44(b) of the Guidelines refers ‘for example’ to ‘a national infrastructure provider’ does not in any way mean that the scope of that point is limited to services that are of importance at the national level or of importance to the entire economy of a Member State. In addition, it should be noted that point 44(b) of the Guidelines does not require that it is impossible to replicate an important service; it is sufficient that it is ‘hard’ to do so”.
“(107) In the present case, […], the Commission found that the measure at issue pursued the objectives set out in point 44(b) and (c) of the Guidelines.” “(108) The Commission noted in the contested decision that TAP Air Portugal provided connectivity within Portugal, in particular as regards the connection of mainland Portugal with its outermost regions, with Portuguese communities outside Portugal and with Portuguese-speaking countries. […] The Commission found that, if the beneficiary had exited the market, it would have been even more difficult for a large number of undertakings in the tourism sector to overcome the consequences of the COVID-19 pandemic. The Commission also explained that, in view of the problems associated with the COVID-19 pandemic, the services of TAP Air Portugal could not have been provided in the short term by another operator and the connectivity of Portugal would no longer have been guaranteed. TAP Air Portugal is important for the Portuguese economy and, moreover, a significant employer with 10000 direct employees and at least 110000 indirect employees.”
Appropriate measure
Ryanair argued that the rescue aid was not an appropriate measure.
As a matter of general principle, Member States must ensure that aid is awarded in a form that allows the objective to be achieved in the least distortive way and in the case of undertakings in difficulty, the aid should be appropriate for addressing the beneficiary’s difficulties.
“(121) Point 55 of the Guidelines lists the conditions which rescue aid must satisfy in order to be authorised by the Commission. First of all, it is important that the rescue aid measure is limited in time. In that regard, point 55(d)(ii) of the Guidelines provides, inter alia, that Member States must undertake to communicate to the Commission, within a maximum period of six months, either proof that the loan has been repaid in full or, provided that the beneficiary can be described as an undertaking in difficulty, a restructuring plan as set out in section 3.1.2 of the Guidelines.”
“(122) Point 56 of the Guidelines provides as follows: ‘The level of remuneration that a beneficiary is required to pay for rescue aid should reflect the underlying creditworthiness of the beneficiary, discounting the temporary effects of both liquidity difficulties and State support, and should provide incentives for the beneficiary to repay the aid as soon as possible. The Commission will therefore require remuneration to be set at a rate not less than the reference rate set out in the Reference Rate Communication for weak undertakings offering normal levels of collateralisation (currently 1-year IBOR plus 400 basis points)”.
The General Court acknowledged that “(125) it is true that point 56 of the Guidelines requires that ‘remuneration […] be set at a rate not less than the reference rate set out in the Reference Rate Communication for weak undertakings offering normal levels of collateralisation’. However, as the Commission has pointed out, the threshold referred to in point 56 of the Guidelines applies irrespective of the collateral provided to the State concerned by the undertaking in difficulty.
It is difficult to infer from point 56 of the RRG that the quality of collateral offered by the aid beneficiary is irrelevant.
Proportionality
Ryanair claimed that the aid was not proportional in the sense that it exceeded the minimum amount needed.
“(137) As regards the proportionality of rescue aid, point 60 of the Guidelines provides as follows: ‘Rescue aid must be restricted to the amount needed to keep the beneficiary in business for six months. In determining that amount, regard will be had to the outcome of the formula set out in Annex I. Any aid exceeding the result of that calculation will only be authorised if it is duly justified by the provision of a liquidity plan setting out the beneficiary’s liquidity needs for the coming six months.’”
“(143) The liquidity plan is based on a prospective analysis drawn up in the context of an unprecedented and uncertain situation. […] It cannot be inferred […] that the liquidity needs set out in the liquidity plan were overestimated.”
“(144) As regards the planned amount of the loan in question, it is apparent from the contested decision that that amount was based on the liquidity plan drawn up by the Portuguese Republic. The Commission assessed that plan, which was based on revenue and cost projections that were part of the uncertainty that prevailed at the time regarding all projections about an airline’s activities. It found that the liquidity plan did not include uncommon or illegitimate expenses such as the financing of structural measures or the expansion of activities beyond earlier commitments.”
The General Court clarified, “(145) however, […], it cannot be ruled out that the need for liquidity during those six months also includes the payment of instalments due during that period under earlier commitments concerning the replacement of aircraft. The non-repayment of such instalments could lead to the insolvency of the undertaking in difficulty, which would clearly run counter to the objective pursued”.
Negative effects
Ryanair complained that the Commission mis-assessed the negative effects of the aid on competitors by not considering the discriminatory nature of the aid and its impact on the freedom to provide services and freedom of establishment.
First, the General Court confirmed that “(151) the Commission enjoys a wide discretion in the application of Article 107(3) TFEU”.
Then it went on to dismiss the complaints of Ryanair for the same reasons that similar complaints were rejected by the General Court and the Court of Justice in recent judgments on appeals lodged by Ryanair against aid granted to other airlines on the basis of Article 107(2)(b) TFEU and Article 107(3)(b) TFEU. The General Court applied that case law, by analogy, to individual aid granted on the basis of Article 107(3)(c).
The General Court also rejected the claim of Ryanair that its procedural rights were infringed because the Commission had failed to open the formal investigation procedure. According to the Court, the Commission had not encountered any serious difficulties in assessing the aid, which would have raised doubts about its compatibility with the RRG and Article 107(3)(c).
[1] The full text of the judgment can be accessed at:
