EC reaffirms EUR 1.2 billion TAP state aid and reviews restructuring aid
TAP Air Portugal (TP, Lisbon) will not have to repay 1.2 billion euros ($ 1.4 billion) in emergency state rescue aid granted last year by the European Commission ( CE), securing the airline’s immediate status as restructuring efforts continue the flagship for long-term stability.
This follows an EC decision on July 16, 2021 to re-approve the rescue loan to TAP. This happens despite the fact that the European General Court (EGC) – in a case brought by Irish low-cost airline Ryanair (FR, Dublin Int’l) – on May 19, 2021, overturned the original EC decision on 10 June 2020, to grant the loan. “We have adopted a new decision re-approving emergency aid for the Portuguese airline TAP. In this way, the rescue aid already paid to TAP will not have to be repaid, as efforts continue to develop a solid restructuring plan that will ensure the long-term viability of TAP without the need for continued support from the State ”, explained Margrethe, Executive Vice-President of the EC. Vestager. As previously reported, Ryanair argued that the aid was anti-competitive, rewards inefficiency and reversed the pace of air transport liberalization in Europe.
In its ruling, EGC said that the Commission did not indicate in its ruling whether TAP’s holding company, TAP SGPS, was part of a larger group of companies and the possible implications for its financial difficulties. “The General Court gave the Commission the possibility of adopting a new decision within two months in order to correct these deficiencies. The decision adopted today re-approves the emergency aid and specifies in more detail the reasons for the approval of the aid, in the context of the situation of the TAP group and its shareholders in June 2020 ”, declared the THIS.
At the same time, the Commission said it was reassessing whether Portugal could grant the airline an additional 3.2 billion euros (US $ 3.7 billion) in restructuring aid as notified on 10 June 2021, she said. This followed a separate ruling on July 16, following which the EC examined whether the new restructuring aid complied with EU rules on state aid to troubled firms. Portugal and interested third parties would have the opportunity to present their case. “We will maintain a constructive dialogue with the Portuguese authorities on this issue,” Vestager said in a statement.
Support from the Portuguese state is expected to take the form of equity and quasi-equity measures worth around € 2.7 billion ($ 3.2 billion), which would include the loan of rescue of 1.2 billion euros to be converted into equity. Portugal would provide, from 2022, additional support of around 512 million euros ($ 602 million), in the form of a state guarantee to secure commercial loans, in case TAP cannot. access financial markets in 2023-2025, as currently planned.
The overhaul plan involves around 2,000 job cuts by 2022, wage cuts of up to 25%, a reduced fleet and road network, and the sale of non-core assets.
In its review, the EC stated that it would specifically consider the following:
- Could TAP contribute proportionately to the restructuring costs in order to reduce the burden on the Fiscus?
- Whether the restructuring plan was accompanied by appropriate measures to avoid an anti-competitive situation.
EU state aid rules allow Member States to support companies in difficulty, under certain strict conditions. Rescue aid can be granted for a maximum of six months, after which it must be repaid or Member States must submit a restructuring plan to the EC, which it assesses against state aid rules. For restructuring aid to be approved, the plan must ensure that the viability of the company can be restored without continued state support, that the company contributes sufficiently to its restructuring costs and that distortions of competition created by the aid are corrected by compensatory measures.