State aid: Commission approves €30 million Estonian measure to support Nordica in the context of the coronavirus outbreak

The European Commission has approved a €30 million Estonian measure to provide a share capital increase and a subsidised interest loan to the state-owned aviation company “Nordica Aviation Group AS” (“Nordica”). The scheme was approved under the State aid Temporary Framework.

Executive Vice-President Margrethe Vestager, in charge of competition policy, said: “Nordica plays a key role in the Estonian economy and connectivity. It is the largest employer in the national aviation sector. The company has suffered substantial losses since the beginning of the coronavirus outbreak, which has hit hard the aviation sector. This measure provides both an equity injection and a subsidised interest loan, and it ensures that Nordica con continue its activities whilst limiting distortions of competition.”

The Estonian support measures

Estonia notified to the Commission under the Temporary Framework a share capital increase of €22 million, as well as a subsidised interest loan of €8 million to the company, resulting in a measure with a total amount of €30 million.

Nordica has established business partnerships with major airlines in Northern and Eastern Europe and therefore plays a key role in Estonia’s connectivity. Nordica has suffered significant losses due to the severe disruption of air passenger transport caused by the emergency measures necessary to limit the spread of the coronavirus. This had an adverse impact on the company’s financial position and, as a result, Nordica is facing severe liquidity issues, as well as the risk of insolvency by the end of the year.

The Commission found that the scheme notified by Estonia is in line with the conditions set out in the Temporary Framework. In particular:

• On the share capital increase, (i) the amount does not exceed the minimum needed to ensure Nordica’s viability and does not go beyond restoring its capital structure to before the coronavirus outbreak, (ii) the State will receive an appropriate remuneration for the investment and the exit strategy ensures an incentive for the state being redeemed the value of aid granted within a period of 7 years, (iii) until at least 75% of the recapitalisation is redeemed, Nordica is subject to bans on non-mandatory coupon payments on bonds and hybrid instruments held by third parties, (iv) until at least 75% of the recapitalisation is redeemed, a strict limitation of the remuneration of their management, including a ban on bonus payments, is applied and Nordica is prevented from acquiring a stake of more than 10% in competitors or other operators in the same line of business.
• On the subsidised interest loan, (i) the amount is linked to the liquidity needs for the foreseeable future, (ii) the interest rates applicable to the debt will fully comply with the reference rate and credit risk margins as laid down in the Temporary Framework, (iii) the loan is limited to a maximum six-year duration.

The Commission concluded that the measure is necessary, appropriate and proportionate to remedy a serious disturbance in the economy of a Member State, in line with Article 107(3)(b) TFEU and the conditions set out in the Temporary Framework.

On this basis, the Commission approved the measures under EU State aid rules.

Background

The Commission has adopted a Temporary Framework to enable Member States to use the full flexibility foreseen under State aid rules to support the economy in the context of the coronavirus outbreak. The Temporary Framework, as amended on 3 April, 8 May and 29 June 2020, provides for the following types of aid, which can be granted by Member States:

(i) Direct grants, equity injections, selective tax advantages and advance payments of up to €100,000 to a company active in the primary agricultural sector, €120,000 to a company active in the fishery and aquaculture sector and €800,000 to a company active in all other sectors to address its urgent liquidity needs. Member States can also give, up to the nominal value of €800,000 per company zero-interest loans or guarantees on loans covering 100% of the risk, except in the primary agriculture sector and in the fishery and aquaculture sector, where the limits of €100,000 and €120,000 per company respectively, apply.

(ii) State guarantees for loans taken by companies to ensure banks keep providing loans to the customers who need them. These state guarantees can cover up to 90% of risk on loans to help businesses cover immediate working capital and investment needs.

(iii) Subsidised public loans to companies (senior and subordinated debt) with favourable interest rates to companies. These loans can help businesses cover immediate working capital and investment needs.

(iv) Safeguards for banks that channel State aid to the real economy that such aid is considered as direct aid to the banks’ customers, not to the banks themselves, and gives guidance on how to ensure minimal distortion of competition between banks.

(v) Public short-term export credit insurance for all countries, without the need for the Member State in question to demonstrate that the respective country is temporarily “non-marketable”.

(vi)   Support for coronavirus related research and development (R&D) to address the current health crisis in the form of direct grants, repayable advances or tax advantages. A bonus may be granted for cross-border cooperation projects between Member States.

(vii)  Support for the construction and upscaling of testing facilities to develop and test products (including vaccines, ventilators and protective clothing) useful to tackle the coronavirus outbreak, up to first industrial deployment. This can take the form of direct grants, tax advantages, repayable advances and no-loss guarantees. Companies may benefit from a bonus when their investment is supported by more than one Member State and when the investment is concluded within two months after the granting of the aid.

(viii)  Support for the production of products relevant to tackle the coronavirus outbreak in the form of direct grants, tax advantages, repayable advances and no-loss guarantees. Companies may benefit from a bonus when their investment is supported by more than one Member State and when the investment is concluded within two months after the granting of the aid.

(ix) Targeted support in the form of deferral of tax payments and/or suspensions of social security contributions for those sectors, regions or for types of companies that are hit the hardest by the outbreak.

(x) Targeted support in the form of wage subsidies for employees for those companies in sectors or regions that have suffered most from the coronavirus outbreak, and would otherwise have had to lay off personnel.

(xi) Targeted recapitalisation aid to non-financial companies, if no other appropriate solution is available. Safeguards are in place to avoid undue distortions of competition in the Single Market: conditions on the necessity, appropriateness and size of intervention; conditions on the State’s entry in the capital of companies and remuneration; conditions regarding the exit of the State from the capital of the companies concerned; conditions regarding governance including dividend ban and remuneration caps for senior management; prohibition of cross-subsidisation and acquisition ban and additional measures to limit competition distortions; transparency and reporting requirements.

The Temporary Framework enables Member States to combine all support measures with each other, except for loans and guarantees for the same loan and exceeding the thresholds foreseen by the Temporary Framework. It also enables Member States to combine all support measures granted under the Temporary Framework with existing possibilities to grant de minimis to a company of up to €25,000 over three fiscal years for companies active in the primary agricultural sector, €30,000 over three fiscal years for companies active in the fishery and aquaculture sector and €200,000 over three fiscal years for companies active in all other sectors. At the same time, Member States have to commit to avoid undue cumulation of support measures for the same companies to limit support to meet their actual needs.

Furthermore, the Temporary Framework complements the many other possibilities already available to Member States to mitigate the socio-economic impact of the coronavirus outbreak, in line with EU State aid rules. On 13 March 2020, the Commission adopted a Communication on a Coordinated economic response to the COVID-19 outbreak setting out these possibilities. For example, Member States can make generally applicable changes in favour of businesses (e.g. deferring taxes, or subsidising short-time work across all sectors), which fall outside State Aid rules. They can also grant compensation to companies for damage suffered due to and directly caused by the coronavirus outbreak.

The Temporary Framework will be in place until the end of December 2020. As solvency issues may materialise only at a later stage as this crisis evolves, for recapitalisation measures only the Commission has extended this period until the end of June 2021. With a view to ensuring legal certainty, the Commission will assess before those dates if it needs to be extended.

The non-confidential version of the decision will be made available under the case number SA.57586 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.

More information on the Temporary Framework and other action the Commission has taken to address the economic impact of the coronavirus pandemic can be found here.