State aid: Commission approves €462 million Portuguese support to compensate TAP for damage suffered due to coronavirus outbreak

The European Commission has found a €462 million Portuguese support measure in favour of Transportes Aéreos Portugueses, S.A. (“TAP”) to be in line with EU State aid rules. The measure aims at compensating the airline for the damage suffered due to the coronavirus outbreak between 19 March and 30 June 2020.

Executive Vice-President Margrethe Vestager in charge of competition policy, said: “This measure will enable Portugal to compensate TAP for the damage it suffered as a direct result of the travel restrictions that Portugal and other destination countries had to implement to limit the spread of the coronavirus. Separately, our assessment of the restructuring plan for the company submitted by Portugal is ongoing. We continue being in close and constructive contacts with the Portuguese authorities in this context.” 

TAP is a subsidiary of Transportes Aéreos Portugueses, SGPS, S.A. (“TAP SGPS”), a holding company controlled by the Portuguese State, which, in addition to TAP, also owns other companies active in air passenger and cargo transportation, catering and handling services, maintenance, repair and operations in Portugal and Brazil. TAP, in addition to being the largest subsidiary of TAP SGPS, is the largest airline based in Portugal. In 2019, it accounted for more than 50% of the arrivals and departures at Lisbon International Airport. TAP is a major economic operator in the country, as well as a significant employer.

Portugal notified to the Commission an aid measure to compensate TAP for the damage it suffered between 19 March and 30 June 2020 as a direct result of the containment measures and travel restrictions that Portugal and other destination countries had to introduce to limit the spread of the coronavirus. The support will take the form of a €462 million loan that may be converted into capital and disbursed to TAP in one or several instalments.

In order to ensure that there will be no overcompensation, the measure provides that Portugal, by September 2021, Portugal will review and report back to the Commission on the amount of actual damage suffered, following independent verification based on the company’s audited accounts. Any public support received by TAP in excess of the actual damage will have to be returned to Portugal.

The Commission assessed the measure under article Article 107(2)(b) of the Treaty on the Functioning of the European Union (TFEU), which enables the Commission to approve State aid granted to compensate specific companies or specific sectors for the damages directly caused by exceptional occurrences. The Commission considers that the coronavirus outbreak qualifies as an exceptional occurrence, as it is an extraordinary, unforeseeable event having a significant economic impact. As a result, exceptional interventions by the Member States to compensate for the damages directly linked to the outbreak are justified.

The Commission found in particular that the Portuguese measure will compensate damage that is directly linked to the coronavirus outbreak. It also found that the measure is proportionate, as the compensation does not exceed what is necessary to make good the damage.

On this basis, the Commission concluded that the Portuguese measure is in line with EU State aid rules.

Background

On 10 June 2020, the Commission approved, under EU State aid rules, €1.2 billion Portuguese rescue aid to TAP SGPS. The rescue aid, which took the form of a loan and loan guarantees and was notified by Portugal and approved by the Commission under the State said Guidelines on rescue and restructuring, provided the company with the necessary resources to address its immediate liquidity needs. In line with the Guidelines on rescue and restructuring, the Portuguese authorities committed that TAP would reimburse the loan or submit a restructuring plan within six months, to ensure future viability of TAP. The Commission is currently assessing the restructuring plan submitted by Portugal in this context under a separate procedure.

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:

• Member States can 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.
• State aid rules based on Article 107(3)(c) TFEU enable Member States to help companies cope with liquidity shortages and needing urgent rescue aid.
• 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.

In case of particularly severe economic situations, such as the one currently faced by all Member States due the coronavirus outbreak, EU State aid rules allow Member States to grant support to remedy a serious disturbance to their economy. This is foreseen by Article 107(3)(b) TFEU of the Treaty on the Functioning of the European Union.

On 19 March 2020, the Commission adopted a State aid Temporary Framework based on Article 107(3)(b) TFEU 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 was amended on 3 April, 8 May, 29 June, 13 October 2020 and 28 January 2021 and will be in place until the end of December 2021. With a view to ensuring legal certainty, the Commission will assess before this date if it needs to be extended.

Companies that were already in financial difficulty before the coronavirus outbreak, i.e. on 31 December 2019 are not eligible to receive support under the Commission’s State aid Temporary Framework, which is aimed at supporting otherwise viable companies. Other forms of support, for example support under Article 107(2)(b) TFEU, are also available to companies that were already experiencing financial difficulties before the coronavirus outbreak.

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.

The non-confidential version of the decision will be made available under the case number SA.62304 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 Competition Weekly e-News.