State aid: Commission approves €1.2 billion Portuguese urgent liquidity support to TAP

The European Commission has approved, under EU State aid rules, Portugal’s plans to grant a €1.2 billion rescue loan in favour of Transportes Aéreos Portugueses SGPS S.A. (“TAP”). The measure will provide TAP with the necessary resources to address its immediate liquidity needs, without unduly distorting competition in the Single Market.

Executive Vice President Margrethe Vestager, in charge of competition policy, said: “This €1.2 billion Portuguese rescue aid will help TAP Air Portugal face its liquidity needs and pave the way for its restructuring to ensure its long-term viability. In a sector that has been hit particularly hard by the coronavirus outbreak, the measure will help avoiding disruptions for passengers. With the progressive lifting of travel restrictions and the upcoming touristic season, it also indirectly benefits the Portuguese tourism sector and economy as a whole. We continue working closely with Member States to find solutions to support companies in these difficult times in line with EU rules.”

The Portuguese support measure

TAP Air Portugal, which is part of the TAP Group, ultimately controlled by Transportes Aéreos Portugueses SGPS S.A. (“TAP”), is a major network airline operating in Portugal. With a fleet of 105 planes, TAP Air Portugal served 95 destinations in 38 countries in 2019, carrying over 17 million passengers from its main hub, Lisbon, and other Portuguese airports to various international destinations.

On 9 June 2020, Portugal notified the Commission of its intention to grant a €1.2 billion rescue loan to TAP. The measure aims at providing TAP with sufficient resources to address its immediate liquidity needs, with a view of preparing a plan for the long-term viability of the company.

TAP has been facing financial difficulties already before the coronavirus outbreak, i.e. on 31 December 2019. Since the start of the coronavirus outbreak, TAP Air Portugal, as many other companies in the aviation sector, has suffered a significant reduction of its services, resulting in high operating losses. These result from the imposition of travel restrictions by Portugal and by many destination countries to limit the spread of the coronavirus.

TAP is not eligible to receive support under the Commission’s State aid Temporary Framework, aimed at supporting otherwise viable companies. The Commission therefore assessed the measure under its Guidelines on rescue and restructuring, which enable Member States to support companies in difficulty, provided, in particular, that the public support measures are limited in time and scope and contribute to an objective of common interest.

Rescue aid can be granted for maximum six months to give a company time to work out solutions in an emergency situation. In particular, the Portuguese authorities have committed that TAP will reimburse the loan or submit a restructuring plan within six months, to ensure future viability of TAP.

The Commission found that the measure will help avoiding disruptions for passengers in particular in view of the easing of travel restrictions and the upcoming touristic season. It will therefore indirectly support the Portuguese tourism sector, which has been hit hard by the coronavirus outbreak. At the same time, the strict conditions attached to the loan in terms of remuneration and use of the funds and its duration limited to six months will reduce the distortion of competition potentially triggered by the State support to a minimum.

On this basis, the Commission therefore concluded that the measure is compatible with EU State aid rules.

Background

Financial support from EU or national funds granted to health services or other public services to tackle the coronavirus situation falls outside the scope of State aid control. The same applies to any public financial support given directly to citizens. Similarly, public support measures that are available to all companies such as for example wage subsidies and suspension of payments of corporate and value added taxes or social contributions do not fall under State aid control and do not require the Commission’s approval under EU State aid rules. In all these cases, Member States can act immediately.

When State aid rules are applicable, Member States can design ample aid measures to support specific companies or sectors suffering from the consequences of the coronavirus outbreak in line with the existing EU State aid framework. On 13 March 2020, the Commission adopted a Communication on a Coordinated economic response to the COVID-19 outbreak setting out these possibilities. In this respect, for example:

• State aid rules based on Article 107(3)(c) TFEU, such as the Commission’s Guidelines on rescue and restructuring aid enable Member States to support companies (including those in difficulty before 31 December 2019) facing acute liquidity shortages and financial difficulties linked to or aggravated by the coronavirus outbreak and needing urgent rescue aid.
• Member States can also compensate specific companies or specific sectors (in the form of schemes) for the damage suffered due and directly caused by exceptional occurrences, such as those caused by the coronavirus outbreak. This is foreseen by Article 107(2)(b)TFEU.
• This can be complemented by a variety of additional measures, such as under the de minimis Regulation and the General Block Exemption Regulation, which can also be put in place by Member States immediately, without involvement of the Commission.

The non-confidential version of the decision will be made available under the case number SA.57369 in the State aid register on the Commission’s 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.