European Commission probes EUR 321 million aid to German airline


Final decision could have game-changing implications for European airlines in receipt of state aid.

Final decision could have game-changing implications for European airlines in receipt of state aid.

The European Commission yesterday confirmed that it has launched a full investigation into a EUR 321.2 million restructuring plan for Condor, the Frankfurt-based German charter airline, with the aim of determining whether the aid aligns with EU state aid rules. The plan, initially sanctioned in July 2021 under the state aid Rescue and Restructuring Guidelines, was later annulled by the General Court’s judgment on 8 May 2024.

Condor, primarily serving the leisure travel market, offers air transport services to individual passengers and tour operators from its German hubs. The airline filed for insolvency in September 2019 following the liquidation of its parent company, the Thomas Cook Group.

In 2021, the Commission approved a restructuring measure worth EUR 321.2 million to facilitate Condor’s return to viability. The measure included a EUR 90 million debt write-off on a state-guaranteed EUR 550 million public loan from the German development bank KfW, a restructuring of the repayment conditions of the remaining loan used for financing restructuring costs, and a EUR 20.2 million debt write-off on interest due by Condor for coronavirus compensation received.

However, the General Court annulled the Commission’s 2021 decision on 8 May 2024, holding that the Commission failed to assess whether Germany received adequate remuneration for the debt write-offs granted to Condor. Specifically, the Court maintained that the Commission should have evaluated whether the German taxpayer received sufficient benefits and that the deal ensured that former shareholders and subordinated debt holders adequately shared the restructuring burden to reduce the aid amount.

EU state aid rules, specifically the Rescue and Restructuring Guidelines, allow Member States to support companies in difficulty under certain conditions. Rescue and restructuring aid is among the most distortive forms of aid as it favours companies that would otherwise exit the market. The Guidelines permit aid only under strict conditions, requiring the company to undergo an in-depth restructuring to ensure its return to long-term viability, that the company, its owners and subordinated debt holders contribute sufficiently to the cost of restructuring to ensure adequate burden sharing and prevent moral hazard, that measures are implemented to limit the possible distortions of competition triggered by the aid, and that the measure contributes to an objective of common interest.

The consequences for Condor following the investigation could be huge. Should the investigation conclude that the state aid was not justified, Condor might be required to repay the funds, not only jeopardising the airline’s financial stability but also presenting broader implications for the aviation industry as a whole.

 

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