Introduction
On 9 November 2022, the General Court followed its previous judgments in cases concerning compensation for damage caused by the covid-19 pandemic to rule, in case T-111/21, Ryanair v European Commission, that Member States were free to choose to whom to grant State aid.[1]
Ryanair had sought the annulment of Commission decision SA.55373 concerning damage compensation to Croatia Airlines resulting from closures after the outbreak of the pandemic in 2020.
The compensation was individual aid granted by Croatia to Croatia Airlines in the form of a direct grant. The legal basis for the grant was Article 107(2)(b) TFEU. The purpose of the compensation was to make good the damage suffered by that airline from covid-19 related travel restrictions. The amount of the aid was HRK 88.5 million kuna (HRK) [approximately EUR 11.7 million].
The aid was approved by the Commission in November 2020 without initiating the formal investigation procedure.
Legal standing
Ryanair claimed at the outset that it had legal standing both as an interested party and as a competitor of Croatia Airlines. It was directly affected by the aid and therefore could challenge the merits of the Commission decision.
The General Court accepted that Ryanair had standing as an interested party, in the meaning of Regulation 2015/1589, to have its procedural right protected, but rejected the claim that Ryanair was directly affected so that it could challenge the merits of the decision. [paragraphs 9-34 of the judgment].
In order to protect its procedural rights, Ryanair had to prove that the Commission should have had serious doubts about the compatibility of the aid with Article 107(2)(b) and should have opened the formal investigation procedure.
Normally, it is easier for a competitor to claim that its procedural rights are violated by the Commission’s authorisation of the aid without opening the formal investigation procedure and inviting comments from all interested parties. However, when it comes to cases of compensation on the basis of Article 107(2)(b) where the discretion of the Commission is limited because the Treaty itself declares aid to be compatible with the internal market, it is much more difficult for a competitor to prove that the Commission should have had doubts. For example, the Commission would make a mistake it would fail to notice that the amount of aid exceeded the amount of the damage. But, this has not yet happened, at least in recent memory.
The General Court neatly summarised the legal standing of Ryanair and the acceptability of the various pleas it could raise as follows.
“(36) The action, […], which seeks expressly to secure respect for the applicant’s procedural rights, is admissible, in view of the applicant’s status as a party concerned within the meaning of Article 108(2) TFEU. The applicant may, in order to preserve the procedural rights which it enjoys under the formal investigation procedure, rely only on pleas which show that the assessment of the information and evidence which the Commission had or could have had at its disposal during the preliminary examination phase of the notified measure ought to have raised doubts as to the compatibility of that measure with the internal market”.
“(37) The action, […], alleging an infringement of the obligation to state reasons, is also admissible in so far as the failure to fulfil the obligation to state reasons is a breach of essential procedural requirements and is a matter of public policy which must be raised by the EU judicature of its own motion and does not relate to the substantive legality of the contested decision”.
“(38) The action, […], in so far as they seek to call into question the merits of the contested decision, is not admissible to that extent, given that the applicant does not have standing to bring proceedings in that regard in order to challenge the merits of the contested decision.”
“(39) That being said, it should be borne in mind that the applicant is entitled, in order to demonstrate the infringement of its procedural rights on account of the doubts that the measure at issue should have raised as to its compatibility with the internal market, to put forward arguments aimed at demonstrating that the Commission’s finding as to the compatibility of that measure with the internal market was incorrect, which, a fortiori, is such as to establish that the Commission should have harboured doubts in its assessment of the compatibility of that measure with the internal market.”
How to prove that the Commission should have had doubts as to the compatibility of the aid
Ryanair alleged that the Commission carried out an insufficient examination of the aid measure during the preliminary examination stage.
The General Court, first, noted that “(45) Article 4 of Regulation 2015/1589 shows in that regard that, in so far as the measure notified by the Member State concerned does in fact constitute aid, it is the presence or absence of ‘doubts’ as to the compatibility of that measure with the internal market that enables the Commission to decide whether or not to initiate the formal investigation procedure at the end of its preliminary examination.”
“(46) The concept of doubts […] is objective in nature. Whether or not such doubts exist requires investigation of both the circumstances under which the contested measure was adopted and its content. That investigation must be conducted objectively, comparing the grounds of the decision with the information available to the Commission when it took a decision on the compatibility of the aid at issue with the internal market. It follows that judicial review by the General Court of the existence of serious difficulties will, by nature, go beyond consideration of whether or not there has been a manifest error of assessment”.
“(47) The information ‘available’ to the Commission includes that which seemed relevant to the assessment to be carried out and which could have been obtained, upon request by the Commission, during the preliminary examination stage […] Although it may thus be necessary for the Commission, where appropriate, to go beyond a mere examination of the matters of fact and law brought to its knowledge, it is not, on the other hand, for the Commission, on its own initiative and in the absence of any evidence to that effect, to seek all information which might be connected with the case before it, even where such information is in the public domain”.
“(48) The onus is on the applicant to prove the existence of doubts”.
Calculation of the damage
Ryanair claimed that the Commission made errors in assessing the damage caused by the covid-19 pandemic to Croatia Airlines.
The General Court, first, observed that “(57-58) only economic damage caused by natural disasters or exceptional occurrences may be compensated for under” Article 107(2)(b) […] It follows that aid likely to exceed the losses incurred by the beneficiaries of that aid is not covered by Article 107(2)(b) TFEU”.
The Commission calculated the damage suffered by Croatia Airlines as follows. The relevant period in which damage was incurred was between 19 March and 30 June 2020 – the period of the ban on air travel. The number of flights operated by the airline during the relevant period had decreased by 77% in comparison to the same period in 2019. [These calculations are based on the fundamental assumption that the two periods are similar.]
The damage was the net loss sustained during the period in 2020, which was equal to the loss of revenue minus avoided costs, net of Croatia Airlines’ profit margin. The loss of revenue was the reduction in revenue in comparison to the same period in 2019 [about EUR 53.2 million]. Those avoided costs [about EUR 38.5 million] included the lower direct costs [or variable costs such as fuel], reduced indirect costs as result of management measures adopted by that airline, and lower cost of depreciation, and other financial costs. The net result [i.e. net loss] was EUR 14.6 million.
The amount of compensation only covered 80.4% of the net loss. [Member States are not obliged to cover the full amount of the damage.]
The General Court found these calculations to reflect the actual situation of Croatia Airlines at the relevant time period and went on to reject the argument of Ryanair. [paragraphs 70-73]
Different causes of damage
Next Ryanair claimed that the Commission did not distinguish between the damage caused by covid-19 and the airline’s losses due to its pre-existing financial difficulties.
The General Court began its assessment by drawing attention to the need to ensure that “(77) the occurrence giving rise to the damage, […], must be the determining cause of the damage which the aid at issue is intended to remedy and must be directly responsible for causing that damage. A direct link will only exist where the damage is the direct consequence of the occurrence in question without being dependent on the interposition of other causes. Accordingly, it is incumbent on the Commission to examine with particular care whether the occurrence was really the decisive cause of the damage suffered by the beneficiary of the aid concerned or, on the contrary, some of the damage suffered was due to the beneficiary’s pre-existing difficulties”.
Then the Court noted that “(78) Croatia Airlines recorded net losses for 2018 and 2019, that is to say, even before the outbreak of the COVID‑-19 pandemic.” However, “(79) even if the applicant’s argument that Croatia Airlines encountered financial difficulties even before the outbreak of the COVID-19 pandemic appears to be well founded, it must be held that its line of argument does not show that the method used by the Commission for calculating the damage did not constitute an appropriate method for ensuring that the aid at issue compensated only for the damage suffered by Croatia Airlines as a result of the travel restrictions due to the COVID-19 pandemic and not the financial losses of that undertaking which existed prior to the outbreak of that pandemic.”
“(81) It is apparent that the method used by the Commission to calculate the damage suffered by Croatia Airlines is based on the assumption that, if there had been no restrictive measures linked to the COVID-19 pandemic, Croatia Airlines’ operating revenues and costs during the period from 19 March to 30 June 2020 would have been the same as those recorded during that same period in 2019. The applicant’s line of argument does not show that the Commission’s hypothesis is incorrect or that, at the very least, the Commission was confronted with serious difficulties which obliged it to initiate the formal investigation procedure. […] the Commission was entitled to take operational revenues and costs recorded during the period between 19 March and 30 June 2019 as the reference value for the calculation of the damage suffered by Croatia Airlines and that counterfactual scenario appeared to be prudent.”
The Court added that “(83) even on the assumption that Croatia Airlines may be legally classified as an undertaking in difficulty, within the meaning of Section 2.2 of the Guidelines on State aid for rescuing and restructuring non-financial undertakings in difficulty, that classification does not in itself reveal any overcompensation, given that undertakings with such status may also benefit from aid on the basis of Article 107(2)(b) TFEU.”
The only way for Ryanair to succeed in proving that the Commission made a calculation error or used the wrong methodology would have been to demonstrate that Croatia Airlines’ financial difficulties would have worsened in 2020 in the absence of covid-19. Then a simple comparison between 2020 and 2019, which is based on the assumption that what happened in 2019 would also have happened in 2020, would have been wrong. But is it correct that Member States and the Commission simply assume that the performance in 2020 would replicate the performance in 2019 in the absence of the pandemic? What should be the standard assumption – that market conditions change or that they remain the same? The case law accepts that, in calculating damage in the context of Article 107(2)(b), the standard assumption is that market conditions do not change unless it can be shown that developments should be expected.
Should aid be granted to all airlines that suffer damage?
Ryanair contended that aid granted on the basis of Article 107(2)(b) TFEU should have been extended to all airlines operating in Croatia at that time.
The General Court stressed that “(94) in order to assess the compatibility of that aid measure with the internal market in the light of Article 107(2)(b) TFEU, the Commission was under no legal obligation to assess the damage caused by the COVID-19 pandemic to other airlines, which are competitors of Croatia Airlines.”
“(95) For the purposes of applying Article 107(2)(b) TFEU, the Commission must ascertain, first, whether a natural disaster or an exceptional occurrence has occurred; second, the existence of a direct causal link between the damage and the natural disaster or exceptional occurrence […] and, third, the absence of overcompensation […] If those three conditions are fulfilled, the Commission is required, under Article 107(2)(b) TFEU, to declare the aid measure at issue compatible with the internal market, without there being any need for it to examine the effects of that aid on competition or to assess the damage caused by the exceptional occurrence to other economic operators”.
“(96) Furthermore, it does not follow from Article 107(2)(b) TFEU that Member States are obliged to make good the entirety of the damage caused by an exceptional occurrence, such that they similarly cannot be required to grant aid to all of the victims of that damage either”.
Competitive advantage for Croatia Airlines?
Ryanair complained that the Commission did not take into account the competitive advantage that the compensation had given to Croatia Airlines.
The General Court noted that “(100) for the purposes of assessing the compatibility of aid with the internal market, the advantage procured by that aid for the recipient does not include any economic benefit the recipient may have enjoyed as a result of exploiting the advantage. That benefit may not be the same as the advantage constituting the aid, and there may indeed be no such benefit, but that cannot justify a different assessment of the compatibility of the aid with the internal market”.
Principle of non-discrimination
Ryanair argued that the fact the aid was an individual measure infringed the principle of non-discrimination.
The General Court, first, recalled that “(105) State aid which contravenes provisions of the Treaty or the general principles of EU law cannot be declared compatible with the internal market”.
Then the General Court noted that “(107) the principle of non-discrimination requires that comparable situations must not be treated differently and that different situations must not be treated in the same way unless such treatment is objectively justified”.
“(108) The elements which characterise different situations, and hence their comparability, must in particular be determined and assessed in the light of the subject matter and purpose of the EU act which makes the distinction in question. The principles and objectives of the field to which the act relates must also be taken into account”.
The General Court also reminded us that “(109) the principle of proportionality, which is one of the general principles of EU law, requires that acts adopted by EU institutions do not exceed the limits of what is appropriate and necessary in order to attain the legitimate objectives pursued by the legislation in question […]; where there is a choice between several appropriate measures, recourse must be had to the least onerous measure and the disadvantages caused must not be disproportionate to the aims pursued”.
Then the General Court applied the above principles to the case at hand and held that “(110) the aid measure at issue is intended solely to compensate Croatia Airlines for the damage suffered by that airline as a result of the imposition of travel restrictions adopted by the Croatian authorities.”
This statement appears to suggest, counterintuitively, that individual measures are not discriminatory because their objective is to compensate only one undertaking.
Nonetheless, the General Court acknowledged that “(111) it is true, as the applicant correctly submits, that all airlines operating in Croatia were affected by those restrictions and that as a consequence they, like Croatia Airlines, have all suffered damage resulting from the halting of air transport activities following the introduction of the aforementioned restrictions.”
“(112) However, the fact remains, as the Commission correctly submits in its defence, that there is no requirement for Member States to grant aid to make good the damage caused by an ‘exceptional occurrence’ within the meaning of Article 107(2)(b) TFEU.”
That is true. No Member State is obliged to grant State aid. But, the pertinent question here is whether, once a Member State decides to compensate one undertaking, the aid may not be extended to any other undertaking that is in a comparable situation.
Moreover, “(114) an aid measure may be directed at making good the damage caused by an exceptional occurrence, in accordance with Article 107(2)(b) TFEU, irrespective of the fact that it does not make good the entirety of that damage.”
Again, Member States are free not to compensate the full amount of the damage, but should they also be free to exclude completely from the circle of beneficiaries undertakings that have suffered similar damage? Apparently, the answer is “yes”.
The General Court inferred from the above reasoning that “(115) it does not follow from either Article 108(3) TFEU or from Article 107(2)(b) TFEU that Member States are obliged to make good the entirety of the damage caused by an exceptional occurrence, such that they similarly cannot be required to grant aid to all of the victims of that damage.”
However, the Treaty is silent on either point [i.e. full compensation or compensation of all those who have suffered damage] and the Court could easily have reached a different conclusion such as that, in compliance with the principle of non-discrimination, aid that compensates less than the full amount of the damage must nevertheless be granted pro rata to all undertakings in the same situation. Contrary to what the Court claims, the limitation of the beneficiaries does not logically follow from the limitation of the amount of aid per beneficiary.
However, the General Court did go on to address the fact that the aid was an individual measure.
“(116) Individual aid, such as the aid at issue, by definition benefits only one company, to the exclusion of all the other companies, including those in a situation comparable to that of the recipient of that aid. Consequently, such individual aid, by its nature, brings about a difference in treatment, or even discrimination, which is nevertheless inherent in the individual character of that measure. To argue, as the applicant does, that the grant of the aid at issue is contrary to the principle of non-discrimination amounts, in essence, to calling into question systematically the compatibility of any individual aid with the internal market solely on account of its inherently exclusive and thus discriminatory nature, even though EU law allows Member States to grant individual aid, provided that all the conditions laid down in Article 107 TFEU are met”.
“(117) In any event, even if, as the applicant claims, the difference in treatment established by the aid measure at issue, in so far as it benefits only Croatia Airlines, may amount to discrimination, it is necessary to ascertain whether it is justified by a legitimate objective and whether it is necessary, appropriate and proportionate in order to attain that objective. In so far as Article 107(2)(b) TFEU constitutes the legal basis of the contested decision, it is necessary to ascertain whether that difference in treatment is permitted in the light of the abovementioned provision. That examination requires, first, that the objective of the aid measure at issue satisfies the requirements laid down in that provision and, second, that the conditions for granting that measure, namely, in the present case, that it benefits only Croatia Airlines, are such as to enable that objective to be achieved and do not go beyond what is necessary to achieve it.”
“(118) As regards the objective of the aid measure at issue, the applicant does not dispute that compensation […] makes it possible to remedy the damage caused by that pandemic. Nor does the applicant dispute that the COVID-19 pandemic constitutes an exceptional occurrence within the meaning of Article 107(2)(b) TFEU.”
“(119) As regards the conditions for granting the aid measure at issue, it is apparent from a document provided by the applicant that Croatia Airlines held the largest share of the Croatian market in seats for 2019, namely 29%, the applicant coming only fourth with a market share of 7%.”.
“(120) The Republic of Croatia drew attention, in its statement in intervention, to Croatia Airlines’ strategic role in the Croatian transport infrastructure, in particular during the crisis period. It also emphasised the fact that that airline operated throughout the year, while the applicant was active on the Croatian market only for a limited period during the summer and only in coastal airports.”
“(121) In view of the significance of Croatia Airlines, especially as regards its contribution to the connectivity of Croatia throughout the year, it must be concluded that the grant of the aid measure at issue only to Croatia Airlines was an appropriate measure to achieve the objective of remedying the damage caused by the travel ban and by the other restrictive measures adopted in the context of the COVID-19 pandemic.”
The conclusion drawn by the Court in the above paragraph does not follow logically from its premise. It is true that Croatia Airlines, by being the largest airline to serve Croatia suffered the largest amount of damage. But that does not prove that the compensation it received either remedied the damage suffered by whole market or caused by the whole travel ban.
The proportionality of the aid
Next the General Court turned its attention to the argument put forth by Ryanair that the aid had breached the principle of proportionality.
The conclusion that the aid was appropriate to remedy the damage “(122) is not called into question by the applicant’s argument that the grant of the entire aid to Croatia Airlines is disproportionate, in so far as that airline has suffered only a fraction of the damage caused to airlines by the COVID-19 pandemic.”
“(123) Croatia Airlines, because of its essential role for Croatia’s air transport connectivity, was affected more by the abrupt halting of air transport activities than the other airlines in that country. In particular, as regards the applicant, it is not apparent […] that it played as important a role in that air transport connectivity as Croatia Airlines.”
Of course, this not what Ryanair had argued. It did not dispute the importance of Croatia Airlines to Croatia. Its claim was about the amount of aid granted to different airlines.
“(124) As regards the question whether the aid measure at issue goes beyond what is necessary to attain the objective pursued, it should be noted that the amount of that aid is lower than that of the damage caused to Croatia Airlines […] Therefore, that measure does not go beyond what is necessary to achieve the legitimate objective it pursues.”
The General Court referred to the amount of aid granted to Croatia Airlines, while Ryanair meant that other undertakings that suffered damage did not receive anything.
“(125) Consequently, it must be held that the difference in treatment in favour of Croatia Airlines is appropriate for the purpose of making good the damage resulting from the abrupt halting of air transport activities in Croatia as a result of the imposition of travel bans and other containment measures in the context of the COVID-19 pandemic and does not go beyond what is necessary to achieve that objective.”
Proportionate division of aid?
The General Court concluded its analysis of the proportionality of the aid by examining whether aid should have been divided pro rata among airlines. It concluded that that was not required.
“(126) It should also be added that the applicant has not established that sharing the amount of the aid at issue between all the airlines operating in Croatia (on the basis of their market share) would not have deprived that measure of its practical effect.”
Indeed it is very well possible that granting small amounts of aid to several airlines may not have been enough to make any tangible difference for anyone of them. But this is an issue that the Commission should have examined and the burden of proof should fall on the Member State that limits the aid only to a single beneficiary.
Freedom of establishment and freedom to provide services
Ryanair contended that the granting of aid to a single airline made it more difficult for it to establish or carry out business in Croatia.
The General Court, first, explained how the Treaty provisions apply to air transport.
It noted that “(129) the provisions of the FEU Treaty concerning freedom of establishment are aimed at ensuring that foreign nationals and companies are treated in the host Member State in the same way as nationals of that State”.
In addition, “(130) the free provision of services precludes the application of any national legislation which has the effect of making the provision of services between Member States more difficult than the provision of services purely within one Member State, irrespective of whether there is discrimination on the grounds of nationality or residence […] However, it should be pointed out that, pursuant to Article 58(1) TFEU, freedom to provide services in the field of transport is governed by the provisions of the title relating to transport, namely Title VI of the FEU Treaty. The freedom to provide services in the field of transport is therefore governed, in the primary law, by a special legal regime […] Consequently, Article 56 TFEU, which enshrines the free provision of services, does not apply as such to the air transport sector”.
“(131) Therefore, measures liberalising air transport services may only be adopted under Article 100(2) TFEU”.
Then the General Court turned its attention to the case at hand and acknowledged that “(133) while it is true that the aid measure at issue relates to individual aid which benefits Croatia Airlines only, the applicant has not established how that exclusive character is such as to deter it from establishing itself in Croatia or from providing services to and from that country. In particular, the applicant is not in a position to identify the matters of fact or of law which would result in that measure producing restrictive effects going beyond those triggering the prohibition in Article 107(1) TFEU, but which, […], are nevertheless necessary and proportionate to make good the damage caused to Croatia Airlines by the exceptional occurrence that is the COVID‑19 pandemic, in accordance with the requirements laid down in Article 107(2)(b) TFEU.”
“(134) Consequently, the aid measure at issue cannot constitute a restriction on the freedom of establishment or the free provision of services.”
Failure to state reasons
Ryanair argued that the Commission failed to provide reasons to justify why Croatia Airlines was distinguished from other airlines.
The response of the General Court was a bit circular. “(146) The difference in treatment between the beneficiary of the aid measure at issue and other economic operators which did not receive aid and who are in a situation comparable to that of that beneficiary is inherent in the individual nature of that measure […] It has also been held that Member States are not required to grant aid to all victims of damage caused by an exceptional occurrence referred to in Article 107(2)(b) TFEU. In the light of that legal analysis, the Commission was not required to explain in the contested decision why it considered that the grant of the aid at issue solely to Croatia Airlines was lawful.”
In addition, “(147) the Commission was not required to determine the value of the competitive advantage conferred on Croatia Airlines by the grant of the aid at issue … There is therefore no failure to state reasons as regards the calculation of the damage suffered by Croatia Airlines.”
Conclusions
Since the General Court rejected all the pleas of Ryanair, it dismissed the appeal in its entirety. Even though, however, this judgment is consistent with its previous judgments in 2021 on covid-19 rated State aid, they address issues that, hopefully, the Court of Justice will clarify in its judgments on the appeals brought by Ryanair. For example, may aid for compensation of damage be limited to a single undertaking to the exclusion of all other undertakings that have suffered similar damage? Is the proportionality of the aid in relation to the damage suffered by an undertaking the same as the proportionality of the aid in terms of its scope; i.e. the circle of potential beneficiaries that have suffered similar damage?
[1] The full text of the judgment can be accessed at:
