June 18
2021
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10th June 2021
Competition & State Aid Covid-19

Analysis: “Judgment of the General Court, Ryanair v Commission (Condor)” by Fernando Pastor-Merchante

The judgment of the General Court in the Ryanair v Commission (Condor) (T-665/20) case offers some interesting insights on the interplay between the rules that govern two types of State aid: State aid granted to make good the damage caused by exceptional occurrences such as the COVID-19 outbreak (Article 107(2)(b) TFEU), and rescue and restructuring aid in favour of firms in difficulty (Article 107(3)(c) TFEU).

The case has its origins in the decision of the German Federal Government to grant two state-guaranteed loans with subsidised interest rates to Condor. The objective of the loan was to make up for the losses incurred by this airline as a result of the sharp drop in air passenger travel brought about by the COVID-19 outbreak. Following Germany’s notification, the Commission decided to greenlight the plan on the ground that it was covered by Article 107(2)(b) TFEU. Ryanair brought an annulment action against that decision, in yet another episode of its multifront battle against State aid schemes for the airline sector approved during the COVID-19 pandemic. In this case, the action was successful, as the General Court quashed the contested decision on the ground of inadequate reasoning.

According to settled case law, the amount of aid granted under Article 107(2)(b) TFEU cannot exceed what is necessary to make good the damage inflicted upon the beneficiary by the exceptional occurrence at stake. In order to verify that the State aid received by Condor met this standard, the contested decision quantified and compared the amount of the aid and the amount of the damages suffered by Condor as a result of the COVID-19 outbreak. The General Court did not take issue with the overall methodological approach of the Commission. However, it did take issue with the inclusion, amongst the damages suffered by Condor, of the additional costs incurred as a result of the extension of its own insolvency proceedings.

Indeed, Condor used to belong to the Thomas Cook Group, which went bankrupt in September 2019. The group’s collapse led Condor to file for insolvency proceedings. One of the restructuring measures adopted in that context was the launch of a bidding process for the sale of the company. Several offers were submitted and a purchase agreement with one of the bidders was actually signed in January 2020. However, the bidder decided to withdraw from the agreement in March 2020, as the COVID-19 outbreak was starting to hit Europe.

Was the withdrawal of the offer and the prolongation of Condor’s insolvency proceedings a direct consequence of the pandemic? In the judgment, the Court does not rule out that this may be the case. However, it censures the Commission for its failure to explain ‘how the additional costs incurred in connection with the extension of Condor’s insolvency proceedings were directly caused by the cancellation or rescheduling of its flights as a result of the travel restrictions imposed in the context of the COVID‑19 pandemic’. Thus, the judgment demands from the Commission a better analysis of the causal link between the pandemic and the frustration of Condor’s sale.

The judgment can thus be read as a signal of the Court’s commitment to avoid the use of the COVID-19 outbreak as an alibi to rescue firms in difficulty. Yet, from the perspective of Ryanair’s fight against State aid granted to its competitors, this may be a pyrrhic victory. First, the General Court does not take issue with the finding that the main objective of the loans was to make good the losses suffered by Condor as a result of the COVID-19 outbreak, which qualifies as an exceptional occurrence under Article 107(2)(b) TFEU. Second, the General Court suspends the effect of its own judgment and gives the Commission two months to adopt a new decision. This may be an indication of the Court’s belief that the Commission can easily correct its reasoning flaws.

 

Fernando Pastor-Merchante is Assistant Professor of Law at IE University. He is the author of The Role of Competitors in the Enforcement of State Aid Law (Hart, 2017).

 

 

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