You are here

European Commission's decision on CAIR

09/01/2015 18:28
Cyprus Airways needs to pay back state aid of about 100 million euros it has received in breach of EU state aid rules., European Commission has ruled out. According to the Commission, a restructuring aid package of over €100 million for Cyprus` ailing flag carrier Cyprus Airways gave the company an undue advantage over its competitors in breach of EU state aid rules. Cyprus Airways therefore needs to pay back all incompatible aid received. In particular, the Commission found that Cyprus Airways had no realistic perspective of becoming viable without continued state subsidies.

Commissioner Margrethe Vestager, responsible for Competition, said that "Cyprus Airways has received large quantities of public money since 2007 but was unable to restructure and become viable without continued state support. Therefore, injecting additional public money would only have prolonged the struggle without achieving a turn-around. Companies need to be profitable based on own merits and their ability to compete and cannot and should not rely on taxpayer money to stay in the market artificially."

The Commission found that Cyprus Airways had been in economic difficulties for many years and repeatedly benefited from public support measures.

Under the applicable EU guidelines on the rescue and restructuring of companies in difficulty, a company can only receive restructuring aid once over a period of ten years ("one time, last time" principle). This is to avoid that market players rely on public money instead of running an effective business and competing on the merits. Cyprus has provided no evidence that Cyprus Airways faced exceptional and unforeseeable circumstances that would justify an exemption from this principle.
The Commission also found that Cyprus Airways` restructuring plan is based on unrealistic assumptions and does not sufficiently reflect different market scenarios. The proposed restructuring measures do not appear appropriate to address the circumstances that led to Cyprus Airways` difficulties. Moreover, the proposed restructuring period is longer than what the Commission has authorised in other airline restructuring cases.

Finally, in order to avoid the moral hazard of bailing out inefficient players with taxpayer money, under EU state aid rules any company that receives restructuring aid has to sufficiently contribute itself to the cost of restructuring. The Commission found that Cyprus Airways` own contribution is significantly below the level of 50% required by the guidelines.

For all these reasons, the Commission concluded that Cyprus Airways was unable to become viable in the long term without continued state support.

The repeated public support measures have already procured a considerable economic advantage to the airline that its competitors, who had to operate without such public money, did not have. In order to remedy this distortion of competition, Cyprus Airways now needs to return the aid received to Cypriot taxpayers. This will re-establish the situation that existed on the market prior to the granting of the aid, thereby canceling out or at least alleviating the distortion of competition brought about by the aid.