European Commission approves €650mn state aid for LOT

The European Commission has approved EUR650 million euro (USD795 million) state aid to LOT Polish Airlines (LO, Warsaw Chopin) to compensate the flag carrier for losses suffered due to the COVID-19 pandemic. The aid will consist of a EUR400 million (approximately PLN1.8 billion zlotys; USD490 million) subsidised loan granted by the state-owned Polish Development Fund (Polski Fundusz Rozwoju) and a capital injection of EUR250 million (approximately PLN 1.1 billion; USD305 million) through the subscription of newly issued shares taken up by the Polish treasury. The six-year loan will be granted to the carrier by the end of January 2021, although the Commission said the deadline is the end of June 2021. It amounts to 25% of the airline’s 2019 revenue, the maximum level permitted under the EU’s COVID-related temporary state aid framework. In turn, the recapitalisation will not change the ownership of the airline. LOT is currently wholly-owned by the Polish Aviation Group – PGL, which in turn is a wholly state-owned enterprise. In return for the fresh capital injection’s approval, the Polish government committed to preparing a detailed repayment plan within the next 12 years. If seven years after receiving the recapitalisation aid the State’s intervention is not reduced below 15% of LOT’s overall equity, a restructuring plan for LOT will be notified to the Commission. The carrier was also banned from cross-subsidising any other firms requiring state aid and acquiring stakes over 10% in any other air transport companies until the recapitalisation is paid off. Until at least 75% of the recapitalisation is redeemed, management salaries for LOT and its subsidiaries will be capped while bonuses will be banned. LOT previously warned that it needed state aid by the end of the year to avoid insolvency.