The European Commission has opened a formal investigation under EU state aid rules to examine whether the restructuring plan of Czech Airlines (CSA) is suitable to restore the company's long-term viability and whether the proposed reduction in activities will be sufficient to off-set the distortive effect of the aid it received. The opening of an in-depth investigation gives competitors and other interested third parties, as well as, of course, the government and airline concerned, the possibility to comment on the measures under examination. It does not prejudge the outcome of the investigation.
Commission Vice-President in charge of competition policy Joaquín Almunia said: “Rescue and restructuring aid is one of the most distortive types of State support. When this happens, the Commission must make sure the company contributes its fair share of the burden and that it is ultimately viable without further State support."
The Commission has opened an in-depth investigation, to verify whether the measures notified in the context of the restructuring of the Czech national flag carrier Czech Airlines are in line with the EU rescue and restructuring aid guidelines. The measures comprise a loan of CZK 2.5 billion (around 94 million euro) granted by the State-owned undertaking Osinek under allegedly preferential conditions (see ongoing case C6/2010), its later de-collateralisation and transformation into equity capital and; a potential guarantee for the purchase of an airplane.
A company in difficulty may receive state aid under strict conditions, which are set in the 2004 EU guidelines on rescue and restructuring aid (see IP/04/856, MEMO/04/172). The aid must be accompanied by a restructuring plan that will restore the long-term viability of the company on the basis of realistic assumptions. As rescue and restructuring aid is one of the most distortive types of state support, it must be accompanied by measures compensating the distortive effect of aid, such as reduction in capacity, in market presence or in entry barriers. Finally, the beneficiary needs to make a significant own contribution to the costs of restructuring.
At this stage, the Commission has, in particular, doubts about:
-when exactly Czech Airlines became a firm in difficulties. Under the information presently available, the Commission considers it has been in difficulty since at least the second half of 2009 when it started a restructuring process;
-the extent to which, the Prague Airport, with which the government plans to merge with Czech Airlines, could contribute to the restructuring process;
-whether the loan from Osinek can be considered as being part of a single restructuring operation together with the other measures;
-the adequacy of the restructuring plan to restore the long-term viability of Czech Airlines;
-whether the proposed compensatory measures will adequately address the distortions of competition brought about by the aid;
-whether the company's proposed but not yet implemented own contribution to the restructuring costs can be considered as genuine and whether its proportion in the restructuring costs would not be altered by the merger;
-whether the aid would not provide surplus cash for activities not linked to the restructuring.
The opening of a formal investigation procedure is common for state interventions in the aviation sector, in particular where the beneficiary seems to be in a difficult financial situation. It gives interested third parties, Member States and competitors the possibility to submit comments on a series of measures carried out in a highly competitive market.
The Commission in the past has had to analyse and set conditions to rescue and restructuring aid to many Europe's flag carriers to ensure they contributed their share of the restructuring burden and were viable without further State support. In December it also stared an in-depth probe into aid to Hungary's Malev and it is monitoring past decisions. For ongoing cases and past decisions go to:
The non-confidential version of the CSA opening decision will be published in the Official Journal of the European Union and will be made available under the case number SA.30908 (N 176/2010) in the State Aid Register on the DG Competition website once any confidentiality issues have been resolved. New publications of state aid decisions on the internet and in the Official Journal are listed in the State Aid Weekly e-News.