€400 million public loan to ailing airline Alitalia under EU investigation: an end to Alitalia’s nine lives?

On 28 February 2020, the European Commission officially triggered an in-depth investigation into a €400 million public loan to Alitalia – granted to the struggling airline by the Italian government – after complaints alleging the loan was not compatible with EU State aid rules.

In December 2019, the Italian government once again decided to keep the Italian airline afloat by granting a €400 million loan to help to streamline the company in an attempt to sell its assets to a potential buyer.

It was not the first time Alitalia had received a loan from the Italian government. The airline declared bankruptcy in April 2017, was placed into extraordinary administration and subsequently received a €900 million bridging loan from the Italian government. In April 2018, the European Commission opened an in-depth investigation into this public loan. This inquiry is ongoing and separate from the new investigation.

As regards the new investigation, the Italian government stated in 2019 that the €900 million loan did not constitute State aid because the loan would only apply until the company was sold. According to the government, it was “for the management of a sale process that unfortunately has taken a very long time”.

In both cases, the European Commission will assess “whether the loan constitutes State aid and, if it is the case, whether it complies with European rules on State aid to companies in difficulty”.

If the Italian government cannot prove that the intervention does not constitute State aid under EU law, its intervention will have to comply with the criteria laid down in the “Guidelines on State aid for rescuing and restructuring non-financial undertakings in difficulty”.

It is important to note that the European Commission’s decision to declare State aid incompatible with EU law depends on a multitude of factors and is made on a case-by-case basis. Therefore, Alitalia’s future will depend on the outcome of the Commission’s decision.

Airlines in difficulty have recently come to the attention of the European Commission. For instance, the Commission approved rescue aid in favour of Condor Airlines in September 2019. On 24 February 2020, the Commission approved Romania's plans to grant a temporary loan of approximately €36.7 million to TAROM as rescue aid. In the past few weeks, several complaints about a loan and tax deferral granted by the British government to Flybe were lodged before the Commission and on 5 March 2020, Flybe filed for administration and ceased all operations.

The coronavirus will have a further negative impact on the sector and additional public support will be necessary. However, to ensure the legal certainty of such measures and the future of the airlines concerned, strict conditions will have to be respected. State aid rules may be not ignored in such a competitive sector.