State aid: Commission approves €750 million German State guarantee scheme for the Travel Insolvency Fund in the context of the coronavirus outbreak

The European Commission has approved, under EU State aid rules, a €750 million German scheme in the form of a State guarantee for loans that may be taken out by the Travel Insolvency Fund (‘the Fund’), to reimburse travellers in case of insolvency of package travel organisers.

Executive Vice-President Margrethe Vestager, in charge of competition policy, said: “The package travel industry has been hit hard by the coronavirus outbreak. In order to ensure that consumers are protected at all times, this €750 million German State guarantee scheme ensures that sufficient support is available to refund consumers for travel services cancelled due to the pandemic, in case package travel organisers become insolvent. We continue working in close cooperation with Member States to find workable solutions to mitigate the economic impact of the coronavirus outbreak, in line with EU rules.”

The German support measure

Under the Package Travel Directive, package travel organisers are required to ensure that travellers will be reimbursed for sums they have already paid for services, which were not ultimately provided, either fully or in part, because of insolvency of the organiser. For this purpose, Germany will set up the Travel Insolvency Fund, financed by contributions from package travel organisers, which will be operational as of 1 November 2021.

Germany notified to the Commission a €750 million State guarantee to ensure that sufficient resources are available for the refund of consumers for cancelled travel services, in cases where package travel organisers become insolvent and available assets in the Fund are insufficient to cover the consumer refunds.

Under the scheme, the aid will take the form of a State guarantee on future loans that may be taken out by the Fund in case of insolvency of participating package travel organisers. The aid will cover 100% of the loan amounts, on condition that the overall amount guaranteed does not exceed the target capital of €750 million minus the assets of the Fund and the collaterals provided by the package travel organisers.

The Commission assessed the measure under EU State aid rules, and in particular Article 107(3)(b) of the Treaty on the Functioning of the European Union (TFEU), which enables the Commission to approve State aid measures implemented by Member States to remedy a serious disturbance in the economy of a Member State.

The Commission found that the scheme notified by Germany is compatible with the principles set out in the TFEU. In particular, (i) the guarantee fee premiums to be paid by the Fund are in line with those set in the Temporary Framework; (ii) the guarantee is limited in time, i.e. until 31 October 2027 at the latest; and (iii) the guarantee will not exceed 100% of the loan amounts.

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

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

Background

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, as amended on  3 April, 8 May, 29 June, 13 October 2020 and 28 January 2021, 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; (ii) State guarantees for loans taken by companies; (iii) Subsidised public loans to companies, including subordinated loans; (iv) Safeguards for banks that channel State aid to the real economy; (v) Public short-term export credit insurance;(vi) Support for coronavirus related research and development (R&D); (vii) Support for the construction and upscaling of testing facilities; (viii) Support for the production of products relevant to tackle the coronavirus outbreak; (ix) Targeted support in the form of deferral of tax payments and/or suspensions of social security contributions; (x) Targeted support in the form of wage subsidies for employees; (xi) Targeted support in the form of equity and/or hybrid capital instruments; (xii) Support for uncovered fixed costs for companies facing a decline in turnover in the context of the coronavirus outbreak.

The Temporary Framework will be in place until the end of December 2021. With a view to ensuring legal certainty, the Commission will assess before those dates if it needs to be extended.

This 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 non-confidential version of the decision will be made available under the case number SA.63063 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.

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.