EU court orders re-evaluation of aid for Germany’s Condor

The General Court of the European Union annulled, on June 9, the European Commission’s approval of EUR550 million euro (USD670 million) worth of German state aid to Condor (DE, Frankfurt Int’l), questioning the legal basis of just 3% of the amount. In the ruling, the court ordered the Commission, the EU’s top administrative body with wide competencies in the area of competition and state aid, to re-evaluate its decision from April 2020. For the time being, the ruling has no impact on Condor as the court explicitly said that pending a new EC decision, the annulment of the original approval is suspended, and the airline would not have to return any funds. The court, acting on a legal petition filed by Ryanair, did not question the legality of the state aid as such but rather expressed doubts concerning the method used to calculate the amount approved. In particular, the court said that EU law permitted for state aid compensating for the damages caused by extraordinary circumstances and conceded that the pandemic was clearly such a circumstance, as argued by the Commission. As such, EUR259.7 million (USD316.5 million) in aid disbursed as direct compensation for the cost of cancellations and the rescheduling of flights caused by border closures was not questioned by the court. However, the Commission also approved a further EUR17 million (USD20.7 million) to compensate Condor for the necessary extension of its insolvency proceedings caused by the withdrawal of Polish Aviation Group – PGL as a prospective investor. “The contested decision does not 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. The fact that those costs were or were not foreseeable at that time does not demonstrate that they were directly caused by [the pandemic],” the court ruled. The judges also said the Commission had failed to explain how it had assessed the additional costs caused by the extension of the insolvency proceedings. It also did not provide a sufficient explanation of how LOT Polish Airlines parent PDL’s decision, to back out of the acquisition was linked to the pandemic. The Commission will now have two months to draw up a new decision concerning the aid. Should it fail to meet the deadline, the suspension of the annulment of the original decision will be lifted, effectively forcing Condor to return the funds. For its part, Ryanair has welcomed the ruling. “The German government aid to Condor – both in 2019 and 2020 – went against the fundamental principles of EU law and has distorted the market to the detriment of consumers. Today’s ruling is an important victory for consumers and competition,” the Irish LCC said. Condor initially obtained a EUR380 million (USD463 million) bridge loan from the federal and state governments to help it weather the Winter 2019/20 season as a stand-alone carrier, following the bankruptcy of its erstwhile parent Thomas Cook Group. As the pandemic hit Europe in March 2020, the airline could not secure a new investor or repay the loan by its own means. In April 2020, it received fresh aid of EUR550 million (USD670 million), which included funds to repay the outstanding amount of the 2019 bridge loan and EUR267.1 million (USD325.5 million) in fresh aid compensating for the damage suffered due to the pandemic. Last month, Condor finally secured a new investor, Attestor Capital. In May, the General Court issued similar rulings concerning state aid to KLM Royal Dutch Airlines and TAP Air Portugal, also acting upon Ryanair’s complaint. The judges similarly did not halt aid or order its return but mandated the Commission to come up with a better justification for its approval.