European Commission approves an aid of 73 million EUR in favour of Alitalia

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On 29 December 2020, the European Commission authorised an Italian aid of 73.02 million EUR in favour of Alitalia. The objective of this measure is to compensate for the damage suffered by the Italian carrier on 19 routes due to the COVID-19 pandemic between 16 June and 31 October 2020. This is the second aid measure in favour of the company since the beginning of the pandemic.

Alitalia, which had been in serious financial difficulty for some time, was declared bankrupt in April 2017 and has since been placed under provisional administration. In this context, Alitalia was able to benefit from a 900 million EUR bridging loan from the Italian State. At the end of 2019, the Italian State, in a new attempt to save the national airline, granted an additional public loan of 400 million EUR to Alitalia (see our article of 9 March 2020). The European Commission opened in-depth investigations in 2018 and 2020 into these public loans because of doubts about their compatibility with European state aid rules.

Since the start of the coronavirus pandemic, Alitalia has, as all airlines, undergone a drastic reduction in services, which has led to significant operating losses, in particular on international and intercontinental flights.

The travel restrictions due to the coronavirus have caused a catastrophic financial loss for Alitalia as well as for all airlines. Indeed, revenues in March were down 76.5% on the previous year to around 44 million EUR.

On 4 September 2020, the Commission had already approved a subsidy of 199.45 million EUR in favour of Alitalia as compensation for the damage suffered from 1 March 2020 to 15 June 2020 as a result of government restrictions and containment measures taken by Italy and other destination countries to limit the spread of the coronavirus. This aid is based on Article 107(2) TFEU which allows Member States to grant "aid to make good the damage caused by natural disasters or exceptional occurrences". In this respect, the Commission confirmed that the COVID-19 pandemic was an "exceptional occurrence" within the meaning of this provision, due to its exceptional and unforeseeable nature, as well as its major repercussions on the economy. The Commission therefore considers that it is justified for Member States to take exceptional measures to remedy the damage linked to this pandemic. This legal basis allows aid to be granted to companies in difficulty, such as Alitalia, which are excluded from aid under the Temporary Framework for State Aid Measures to support the economy in the current context of the COVID-19 outbreak .

The Italian State has decided to grant a new subsidy of 73.02 million EUR, which it has notified in draft form to the Commission. The new aid measure is intended to compensate Alitalia for the damage suffered on 19 specific routes between 16 June 2020 and 31 October 2020 as a result of the emergency measures adopted by the States to contain the COVID-19 pandemic.

In the present case, the Commission found that the Italian measure would compensate Alitalia for the damage suffered that is directly linked to the coronavirus epidemic, given that the loss of profitability on the 19 routes as a result of the containment measures during the period in question can be considered as damage directly linked to the exceptional event. It also considered that the measure was proportionate, given that the quantitative "routes by routes" analysis presented by Italy adequately identified the damage attributable to the containment measures and that, therefore, the compensation did not exceed the amount necessary to remedy the damage on these routes.

On this basis, the Commission concluded that the new Italian compensation measure is in line with EU state aid rules.

It should be recalled that many other aids have already been authorised by the European Commission on the basis of Article 107(2)(b) TFEU in the air transport sector. In March and April 2020, the Commission approved the French aid scheme aimed at deferring the payment of certain aeronautical taxes as well as aid from Denmark and Sweden to the airline SAS. In May 2020, the Commission gave the go-ahead for the public loan guaranteed by the German government for Condor. In August 2020, the Commission had also approved, on the basis of Article 107(2)(b) TFEU, Romania's public guarantee in favour of the airline Blue Air. Finally, in September and October 2020, the Commission authorised the Italian subsidy to Alitalia and the Romanian aid to Tarom.

The aviation industry continues to be one of the sectors particularly affected by the impact of the coronavirus epidemic. Despite the use of an exceptional legal framework allowing the Commission to authorise generous aid to air transport players, the aviation sector will take several years to return to its pre-COVID-19 level of activity. Indeed, according to IATA forecasts, the capacity of the European air sector will be sharply reduced in the medium term, at least until 2023 or even 2024.