After an in-depth investigation, the European Commission has concluded that restructuring aid amounting to CZK 2.5 billion (€100 million) granted to the Czech state-owned air carrier Czech Airlines is in line with EU state aid rules.
The European Commission found that the restructuring plan adequately addresses the financial problems of Czech Airlines. A significant capacity reduction, efficient cost and revenues management and the sale of assets should ensure the company’s long-term viability without continued state support, whilst avoiding undue distortions of competition.
Joaquín Almunia, Vice-president of the European Commission in charge of competition policy, stated: “I am satisfied that the revised restructuring plan now complies with our strict conditions. The aid will help Czech Airlines to become viable again while minimising its negative impact on competition in the aviation sector.”
The Czech authorities had notified their intention to restructure Czech Airlines with the help of state aid in May 2010. In June 2010, a debt-to-equity swap of a CZK 2.5 billion (€100 million) loan from the state-owned company Osinek was carried out in favour of Czech Airlines. The Commission opened an in-depth investigation in February 2011 because it had doubts whether the restructuring plan notified by the Czech authorities was suitable to restore the company’s viability and to offset the distortions of competition brought about by the aid.
The Commission’s investigation found that the revised restructuring plan, covering a period of five years, is based on realistic assumptions and should enable Czech Airlines to become viable again within a reasonable timeframe. The Commission concluded that the proposed capacity reduction, the sale of planes and the surrender of landing slots at European airports will avoid any undue distortion of competition. Moreover, Czech Airlines will adequately contribute to the costs of restructuring by selling subsidiaries, aircraft and other assets as well as securing a private bank loan for an aircraft lease.
The Commission therefore concluded that the measure is in line with the requirements of the 2004 EU Rescue and Restructuring Guidelines.
Background
Rescue and restructuring aid is highly distortive of competition as it artificially keeps a company in the market that would otherwise have exited it. The EU Rescue and Restructuring Guidelines therefore set out a number of criteria to ensure that such aid only goes to companies that have a realistic viability prospect and that take measures to alleviate the distortions of competition brought about by the state support.
In particular, the guidelines require a sound restructuring plan that enables the beneficiary to become viable in the long-term on the basis of realistic assumptions. This is meant to avoid that a company keeps asking for public support instead of competing on its own merits. As public funding gives a company an economic advantage that its competitors do not have, the plan must foresee measures to reduce the distortions of competition created by the state support, such as a reduction of capacity or market share. Furthermore, to avoid free riding on taxpayers’ money, the beneficiary needs to make a significant own contribution to the costs of restructuring. Finally, restructuring aid may be granted only once over a period of ten years (‘one time, last time’ principle).
In March 2012, the Commission had authorised a loan of CZK 2.5 billion (€100 million) which the state-owned company Osinek had granted to Czech Airlines in April 2009, because it was granted on market conditions. The present decision concerns the debt-to-equity swap of this loan carried out in June 2010.
Tatiana is the news coordinator for TravelDailyNews Media Network (traveldailynews.gr, traveldailynews.com and traveldailynews.asia). Her role includes monitoring the hundreds of news sources of TravelDailyNews Media Network and skimming the most important according to our strategy.
She holds a Bachelor's degree in Communication & Mass Media from Panteion University of Political & Social Studies of Athens and she has been editor and editor-in-chief in various economic magazines and newspapers.
