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Impact of COVID-19 on the aviation sector and the compatibility of crisis measures with competition law

| COVID-19 | Anti-Trust Law and European Union Law

The air sector constitutes a relevant economic activity with a strong impact on other economic sectors such as tourism or transport and on economic internationalisation itself, and is therefore more exposed than other sectors to global crises and vicissitudes. As this is a strategic area in the EU, and particularly in Spain, there is no doubt that urgent measures must be taken to mitigate the effects of the health crisis caused by the COVID-19 pandemic and, above all, to prevent the lack of liquidity generated by it from leading to the irremediable bankruptcy of the main companies in the sector.

At present, it is vitally important for airlines to have sufficient liquidity to enable them to meet the fixed costs and extraordinary expenses they face (from the refund of ticket prices for cancelled trips to the payment of aircraft leases), with hardly any revenue generated or with their activity practically halted for reasons beyond their control.

The impact caused by COVID-19 is unprecedented, not even similar to the international crisis triggered by the 9/11 attacks. In fact, according to the International Air Transport Association (IATA), airlines are facing losses of more than 250 billion euros or 45%. On the other hand, it should be remembered that the previous year was not particularly kind to the sector either, taking into account the disappearance of Thomas Cook, Airberlin, Adria Airways, Monarch or the recent bankruptcy of the British Fly Be, among other examples.

In line with the above, neither EU Member States nor the EU itself can remain indifferent to this potential bankruptcy of the sector, so the right to defend competition and the rules of the single market, especially the State aid regime, must be applied in the general and strategic interests that can safeguard the continuity of airlines once this crisis is over. All this, however, must be done in strict compliance with the values of a market economy and of the TFEU itself, thus avoiding, inter alia, discriminatory measures on the basis of nationality, artificial entry barriers or disincentives to innovation. 

With these aims in mind, at European level, the European Commission, at an informal meeting of European transport ministers held just a few days ago, recalled that the transport sector is one of the vital sectors for the Union, underlining the importance of Member States acting together in the fight against the coronavirus and also highlighting the importance of reaching solutions for the financial obligations assumed by companies in this sector. 

Returning to the specific air sector, on 20 March the European Council approved a mandate for the Presidency of that institution to negotiate with the European Parliament a temporary waiver of slots, as they are commonly known in the jargon of the area. In this regard, the EU is taking urgent action to temporarily suspend the airport slot requirements that currently oblige airlines to use at least 80% of their take-off and landing slots in order to maintain them the following year. A proposal to waive the "use-it-or-lose-it" rule until at least 24 October 2020 is thus being negotiated to help airlines cope with the sharp drop in demand. (See Proposal for a REGULATION OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL amending Regulation (EEC) No 95/93 on common rules for the allocation of slots at Community airports)

In line with our recent information note on State aid, there is no doubt that, in this situation, one of the most important economic measures for the air sector will be State aid, and even more so after the approval of the Temporary Framework in this area by the European Commission which establishes up to five types of aid in accordance with Article 107.3.b of the Treaty on the Functioning of the European Union (TFEU).

For her part, the Executive Vice-President of the European Commission, Ms. Margrethe Vestage, has recently declared that, under the protection of article 107.2.b of the TFEU, it would be possible to approve compensation for the damages caused by COVID-19 to airlines, regardless of the fact that they have received rescue aid in the last ten years, thus not applying the "one time, last time" principle.

Similarly, in the United States, an aid plan has already been approved to protect its airlines, based mainly on the granting of conditional loans to help airlines, for example, to meet the costs of paying employees' salaries, provided that the beneficiaries undertake not to dismiss them until 30 September, among other things. 

In Spain, for the time being, no specific measures have yet been approved for the sector, although ICO loans have been extended to the tourism sector, which has suffered the consequences of the bankruptcy of Thomas Cook, in accordance with the provisions of the recent Royal Decree-Law 7/2020 of 12 March. Notwithstanding the above, it is true that in the even more recent Royal Decree-Law 8/2020, of 17 March, we can find that a line of public guarantees of 100,000 million euros is foreseen to guarantee the liquidity of the companies. In this regard, last week the Council of Ministers already mobilised 20 billion of the initially planned amount, obtaining the approval of the European Commission in barely 24 hours from the notification by the Spanish Government, although it is true that, for the time being, this first batch of guarantees is focused on SMEs and the self-employed, but not exclusively.

On the other hand, it is worth noting the appearance of alternative measures such as, for example, the one recently adopted by the Norwegian Competition Authority, which has approved a temporary three-month exemption for the prohibition of anti-competitive agreements and practices in the field of competition law with the aim of guaranteeing the movement of goods and persons during the crisis. Thus, the possibility has been given for the airlines Norwegian and SAS (the main airlines in the Norwegian industry) to coordinate, provided that such coordination does not go beyond what is strictly necessary, as mentioned in the communication itself.

Finally, it is also worth mentioning that, during the past week, we have witnessed important rumours regarding a possible nationalisation of British Airways, by the British Government, although days later the Secretary of Transport stated that for the moment "there would be no extra aid for the air sector". However, no scenario can be ruled out for the time being. 

In short, taking into account the dynamics of recent weeks, it is likely that we will continue to see the approval of additional measures aimed at guaranteeing the continuity of the air sector, both at European and national level. Similarly, once the crisis has been overcome, we will undoubtedly see greater activity in the field of restructuring, since concentration between companies has always meant a greater possibility - not a guarantee - of continuity.

We hope the information is useful and of your interest. At Andersen Tax & Legal we have created a multidisciplinary team to deal with all the questions that may arise in this area or in relation to the COVID-19 and all the firm's professionals are at your disposal.


For more information please contact:

Isabel Martínez Moriel | Director in the area of Privacy, IT & Digital Business

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