EC reaffirms €1.2bn TAP state aid, reviews restructuring aid

TAP Air Portugal (TP, Lisbon) will not have to repay EUR1.2 billion euros (USD1.4 billion) in emergency state rescue aid granted last year by the European Commission (EC), securing the airline’s immediate status while efforts continue to restructure the flag carrier for long-term stability.

This follows a decision by the EC on July 16, 2021, to re-approve the rescue loan to TAP. This comes in spite of the European General Court (EGC) – in a case brought by Irish budget carrier Ryanair (FR, Dublin Int’l) – on May 19, 2021, having overturned the EC’s initial decision on June 10, 2020, to award the loan. “We have adopted a new decision re-approving the emergency aid in favour of the Portuguese airline TAP. In this way, the rescue aid already paid to TAP will not have to be repaid, while efforts continue to develop a solid restructuring plan that will guarantee TAP’s long-term viability without the need for continued state support,” explained EC Executive Vice President Margrethe Vestager. As previously reported, Ryanair had argued the aid had been anti-competitive, rewarded inefficiency, and had reversed the clock on air transport liberalisation in Europe.

In its ruling, the EGC said the Commission had not indicated, in its decision, whether TAP’s holding company, TAP SGPS, belonged to a larger group of companies and the possible implications for its financial difficulties. “The General Court gave the Commission the possibility to adopt a new decision within two months in order to correct these deficiencies. The decision adopted today re-approves the emergency aid and specifies in more detail the reasons for the approval of the aid, in the context of the situation of the TAP Group and its shareholders in June 2020,” the EC stated.

Meanwhile, the Commission said it was re-assessing if Portugal may grant the airline another EUR3.2 billion (USD3.7 billion) in new restructuring aid as notified on June 10, 2021, she said. This followed a separate decision on July 16, following which the EC was reviewing if the new restructuring aid was in line with European Union rules on state aid granted to firms in difficulty. Portugal and interested third parties would have the opportunity to present their case. “We will maintain a constructive dialogue with the Portuguese authorities on this issue,” Vestager said in a statement.

The Portuguese state support is expected to take the form of equity and quasi-equity measures worth about EUR2.7 billion (USD3.2 billion), which would include the EUR1.2 billion rescue loan to be converted into equity. Portugal would grant, from 2022, additional support of around EUR512 million (USD602 million), in the form of a state guarantee to secure commercial loans, in case TAP could not access financial markets in 2023-2025, as currently forecast.

The overhaul plan involves around 2,000 job cuts by 2022, pay cuts of up to 25%, a reduced fleet and route network, and the sale of non-core assets.

In its review, the EC said it would in particular look at the following:

• Whether TAP could proportionately contribute to the restructuring costs to reduce the burden on the Fiscus;
• Whether the restructuring plan was accompanied by appropriate measures to prevent an anti-competitive situation.

EU state aid rules allow member states to support firms in difficulty, under certain strict conditions. Rescue aid may be granted for a maximum of six months, whereafter it must be repaid or member states must submit a restructuring plan to the EC, which it assesses under the state aid rules. For the restructuring aid to be approved, the plan must ensure that the company’s viability can be restored without continued state support, that the company sufficiently contributes to its restructuring costs, and that the distortions of competition created by the aid are corrected through compensatory measures.