Introduction
During the covid-19 pandemic Member States granted State aid to undertakings they considered important for their economies or for maintaining their connectivity with the rest of the world. Ryanair appealed against multiple Commission decisions authorising that aid. Ryanair succeeded in some of its challenges on technical issues. It lost all other cases on issues of principle.
On 6 June 2024, the Court of Justice, in case C-441/21 P, Ryanair v Commission, dismissed another appeal by Ryanair against the judgment of the General Court in case T-628/20, Ryanair v Commission, by which the General Court dismissed its action for annulment of Commission decision authorising the Spanish State aid scheme SA.57659 on the basis of Article 107(3)(b) TFEU. The purpose of that scheme was to provide solvency support to strategic undertakings with permanent links to the Spanish economy that had been affected by covid-19.
For that purpose, Spain set up a fund to provide financing in the form of purchase of financial instruments and securities issued by non-financial undertakings. The budget for the aid scheme was fixed at EUR 10 billion, financed by the state budget.
In order to benefit from the aid scheme, undertakings had to fulfil a number of cumulative eligibility criteria. In essence, applicants had to be:
- Non-financial undertakings established in and having their principal place of business in Spain.
- Of systemic or strategic importance as a result of their links with public health and safety or their influence over the whole economy, their innovation, or the essential nature of the services.
- At risk of ceasing operations or having serious difficulties remaining in business in the absence of public support.
- Without access to private funding from banks and financial markets.
This article reviews only the findings of the Court of Justice on issues of principle raised in Ryanair’s pleas.
Discrimination
Ryanair argued that the Spanish scheme breached the principle of non-discrimination on grounds of nationality.
After recalling the definition of the concept of State aid, the Court of Justice explained that “(36) the requirement of selectivity arising from Article 107(1) TFEU presupposes that the Commission will establish that the economic advantage, understood in the broad sense, arising directly or indirectly from a particular measure specifically benefits one or more undertakings. It falls to the Commission to show, in particular, that the measure in question creates differences between undertakings which, with regard to the objective of the measure, are in a comparable situation. It is necessary therefore that the advantage be granted selectively and that it be liable to place certain undertakings in a more favourable situation than that of others”.
In other words, without referring to “discrimination”, the Court of Justice confirmed that a State aid measure differentiates between similar or comparable undertakings and it is for the Commission to prove the existence of differential treatment.
Then, it went on to note that “(37) 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(3)(b) TFEU, concerning aid ‘to remedy a serious disturbance in the economy of a Member State’. 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 [selective] effects […], is compatible with, or is capable of being declared compatible with, the internal market.”
“(38) It follows that, unless those derogating provisions are to be deprived of all practical effect, State aid which is granted in accordance with those conditions, 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, […], 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”.
The findings of the Court are indisputable. State aid which is inherently discriminatory can be compatible with the internal market, but only if it is necessary and proportionate.
The Court of Justice added another qualification.“(39) 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”.
“(40) 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 TFEU lays down no specific prohibition of discrimination”.
“(41) 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”.
“(42) It follows that the General Court did not err in law in finding, […], that Article 107(3)(b) TFEU constituted such a special provision and that it was necessary only to examine whether the difference in treatment brought about by the aid scheme at issue was permitted under that provision.”
An aspect not explicitly considered by the Court of Justice here is the extent of discrimination that may be compatible with Article 107(2) or (3). But it indirectly picked up when it examined Ryanair’s plea concerning the appropriateness of the Spanish measure. In previous judgments on Ryanair appeals, the Court held that Member States may limit the aid even to single beneficiary. That is, they are not obliged to grant State aid to all undertakings affected by an exceptional occurrence or a serious economic disturbance.
Appropriateness
Ryanair argued that the aid scheme, by limiting the aid to undertakings established in Spain and having the principal place of business there, was not appropriate for the objective it sought to achieve.
The Court of Justice rejected that argument on the grounds that it “(58) already had occasion to recognise that an eligibility criterion linked to the establishment of the undertakings in receipt of aid, intended to ensure a permanent link between the economy of the Member State concerned and those undertakings, could be appropriate to achieve the objective of remedying the serious disturbance in the economy of that Member State”.
Indeed, State aid may be limited to those undertakings that have a connection with the granting Member State. But, here the Court could have considered whether the requirement for undertakings to have their principal place of business in Spain was excessive. This seems to go beyond having a link to the local economy and, therefore, to constitute an infringement of Article 49 TFEU according to which undertakings may choose the form of their establishment in another Member State. Since, however, the Court of Justice was examining the correctness of the findings of the General Court, it was also the task of Ryanair to demonstrate any errors in the reasoning of the General Court.
Freedom to provide services and the freedom of establishment
Next, the Court of Justice examined the pleas of Ryanair concerning breach of the principles of the freedom to provide services and the freedom of establishment. With respect to their relevance to State aid issues, the Court of Justice clarified the following.
“(78) The procedure under Article 108 TFEU must never produce a result which 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.”
“(79) However, first, the restrictive effects which an aid measure has on the freedom to provide services or the freedom of establishment 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”.
But, is the inherent restrictiveness of State aid not in any way capped, constrained or modulated by the freedom to provide services or of establishment?
“(80) 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”.
This is correct as far as the procedure is concerned. That is, when State aid is indissolubly linked to non-competition provisions of the Treaty, the Commission must first determine whether those other provisions are infringed. If they are, then the Commission must prohibit the aid and then decide whether to initiate the infringement procedure laid down in Article 258 TFEU. This is because, first, the Commission has discretion whether to lodge legal proceedings against Member States and, second, only EU courts are empowered to confirm whether an infringement has been committed. At any rate, however, the Commission must formulate a clear view as to whether non-competition provisions of the Treaty are infringed, regardless of whether it initiates the infringement procedure of Article 258 TFEU.
Then, the Court of Justice went on to note that “(81) in the present case, the requirement relating to the principal place of business in Spain was not in itself the objective of the aid scheme at issue, but an eligibility criterion for that aid scheme. However, that criterion was, as such, indissolubly linked to the object of that aid scheme, which consisted of remedying the serious disturbance in the Spanish economy caused by the COVID-19 pandemic. It follows that the effect of that criterion on the internal market cannot be examined separately from the effect of the compatibility of that aid scheme as a whole with the internal market by means of the procedure prescribed in Article 108 TFEU.”
“(82) It follows from the reasons set out above and from the case-law referred to in paragraph 38 of the present judgment that the General Court did not err in law by holding, […], in essence that, in order to establish that the aid scheme at issue constituted, because the aid in question benefited only airlines that have their principal place of business in Spain and not, inter alia, Ryanair, an obstacle to the freedom to provide services, the appellant should have demonstrated, in the present case, that that aid scheme produced restrictive effects which went beyond those inherent in State aid granted in accordance with the requirements laid down in Article 107(3)(b) TFEU”.
“(83) The line of argument put forward by Ryanair […] seeks, as a whole, to criticise, first, the aid scheme at issue in so far as only airlines that have their principal place of business in Spain were eligible for that aid scheme and, second, the restrictive effects of that eligibility criterion on the freedom to provide services and the freedom of establishment, even though such effects are inherent in the selective nature of that aid scheme.”
Since the Court considered the restrictive effects to be inherent in the aid measure, it rejected Ryanair’s plea.
Three comments are in order here. First, State aid is compatible with the internal market when it is an “appropriate” means of state intervention in the economy. This entails that the aid and the chosen form of the aid must be the least distortionary or the least restrictive. Whether an aid measure is appropriate depends on its objective. If the objective can be achieved by a less distortionary intervention, then the aid measure in question is not appropriate. Since the objective of the Spanish aid measure was to provide solvency to important undertakings for the Spanish economy, it was largely irrelevant whether the potential aid recipients had their principal place of business in Spain. It follows that, given its objective, the Spanish measure generated unnecessary distortions because it excluded undertakings which could be important to the economy without having their principal place of business in Spain.
Second, even though it was Ryanair that had to show that the General Court committed an error, it was rather obvious that a measure limited to undertakings with the principal place of business in Spain was more restrictive than an alternative measure that was open to any important company for the economy of Spain regardless of whether its principal place of business was elsewhere.
Third, it appears that, given the right of Member States, confirmed by the Court of Justice in earlier judgments, to determine the circle of aid beneficiaries, whatever restrictive effects are generated by aid measures with limited number of beneficiaries are still compatible with the internal market, as long as the measures are necessary (to address an exceptional occurrence or a serious economic disturbance) and appropriate. Whether they are appropriate depends on their defined objective and scope. A narrow measure will exclude many potential beneficiaries. But, such an exclusion and the caused distortion of competition will be inherent in the measure. Therefore, despite the magnitute of the distortion, the measure can be compatible with Article 107(3)(b) or 107(2)(b), without infringing either the freedom to provide services or the freedom of establishment. Consequently, by this reasoning the Court of Justice has made Article 49 (freedom of establishment) and Article 56 (freedom to provide services) TEFU largely irrelevant to State aid measures, regardless of the magnitude of the distortion they cause.
Weighing the positive and negative effects of State aid
Ryanair complained that the General Court should have demanded that the Commission had weighed the beneficial effects of aid against its adverse effects on trade and competition when it examined the compatibility of that aid.
The response of the Court of Justice was that its judgment in case C-494/18 P, Austria v Commission “(92) highlighted the differences between the wording of Article 107(3)(b) TFEU and Article 107(3)(c) TFEU, and noted, in particular, that only the first of those provisions laid down the condition that the aid at issue must pursue an objective of common interest. The Court concluded from this that Article 107(3)(c) TFEU did not make the compatibility with the internal market of aid granted under that provision subject to such a condition.”
“(93) For a similar reason based on a comparison of the wording of the provisions concerned, as the General Court held, in essence, […], in the absence of any reference in Article 107(3)(b) TFEU to demonstrating that there was no effect on trading conditions to an extent contrary to the common interest and, therefore, to the need to weigh up the beneficial effects and the adverse effects of the aid concerned, that provision cannot be interpreted as requiring the Commission to carry out such a balancing for the purposes of assessing the compatibility with the internal market of the aid referred to in that provision, unlike Article 107(3)(c) TFEU”.
“(94) That difference in the assessment of the compatibility of the aid referred to in Article 107(3)(b) TFEU and that referred to in Article 107(3)(c) TFEU can be explained by the particular nature of the aid referred to in Article 107(3)(b) TFEU, which pursues objectives of an exceptional nature and of particular weight consisting either in promoting the execution of an important project of common European interest or in remedying a serious disturbance in the economy of a Member State. Aid measures which contribute to the attainment of one of those objectives, provided that they are necessary and proportionate, may therefore be considered to ensure a fair balance between their beneficial effects and their adverse effects on the internal market and are therefore in the common interest of the European Union”.
“(95) Therefore, since Article 107(3)(b) TFEU reflects the balancing of the effects of State aid referred to in that provision carried out by the authors of the FEU Treaty, the Commission is not required to carry out a new balancing of those effects when it examines the compatibility of aid which is envisaged to be granted on the basis of that provision”.
Conclusions
The Court of Justice also rejected several other pleas of Rynair on procedural issues and alleged failure of the Commission to fully reason in accordance with Article 296 TFEU. As a result it dimissed the appeal in its entirety.
In essence, the Court confirmed its earlier judgments on appeals by Ryanair against Commission decisions authorising State aid to its rivals on the basis of Article 107(3)(b) and Article 107(2)(b). It is now clear that Member States may limit State aid to one or a few undertakings. Such a limitation, even if discriminatory, is inherent in the concept of State aid. As long as it does not go beyond what is necessary to achieve the objectives of the aid, it is compatible with Article 107(2) or (3).
