EU court backs Ryanair’s challenge against Lufthansa state bailout

Ryanair on Wednesday won its challenge against Lufthansa’s 2020 state bailout, as Europe’s second-highest court cited errors in EU competition regulators’ decision to approve the German government’s rescue package.

Lufthansa has already repaid the aid in full, which could limit any immediate impact of the ruling. Lufthansa chief executive Carsten Spohr has said that taxpayers made a profit on the transaction when the German government sold its stake in the airline.

The Irish airline welcomed the rulings on what it called “discriminatory” state aid.

“While the Covid-19 crisis caused serious damage to all airlines, many national governments, including Germany, Sweden and Denmark, rushed through discriminatory subsidy schemes for their former flag carriers, ignoring other airlines that contribute to the economy and the connectivity of the European Union,” the airline said in a statement.

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The German airline said it would analyse the ruling and then decide on a further course of action. In total, Lufthansa received some €9 billion of state aid during the pandemic, the bulk of it from Germany, which obtained a 20 per cent stake in carrier, with contributions from Switzerland, Austria and Belgium.

The ruling is a blow to the EU executive, with potential implications for future bailouts at a time when several member states are pushing to ease state aid rules to make it easier for states to support strategically important sectors.

A Commission spokesperson acknowledged that “a quick decision was made” because the request was made during the worst of the Covid-19 pandemic and that “it’s very important during times of crisis to be able to act quickly.”

The European Commission cleared Lufthansa’s €6 billion recapitalisation subject to a ban on dividends, share buy-backs and some acquisitions until the state support was paid back.

Lufthansa and several other European airlines received state aid following a protracted travel slump due to the Covid-19 pandemic, all of which were approved by the EU executive subject to conditions.

Ireland’s Ryanair and German peer Condor subsequently challenged the EU decision on Lufthansa. It was one of several legal cases brought by Ryanair against the aid provided to its rivals and cleared by the Commission under easier rules aimed at helping EU government prop up companies hit by the pandemic.

In 2021, the airline lost its case against state aid granted to Air France and Sweden’s SAS.

“The General Court annuls the decision of the Commission to approve the recapitalisation of Lufthansa by Germany, amounting to €6 billion, in the context of the Covid-19 pandemic,” the Luxembourg-based tribunal said.

Judges said the Commission “committed several errors, in particular, by considering that Lufthansa was unable to obtain financing on the markets for the entirety of its needs”.

They said the EU competition enforcer also failed to require a mechanism incentivising Lufthansa to buy back Germany’s shareholding as quickly as possible and erred by denying that Lufthansa held significant market power at certain airports.

Additionally, the court said the Commission erred “by accepting various commitments that do not ensure that effective competition on the market is preserved”.

The Commission did not say whether it intended to appeal the ruling. “We need to of course look at the various different arguments put forward by the court,” the spokesperson said. “We will look at those in detail. And based on our analysis, we’ll decide on our next step.”

Ryanair also won a separate bid to topple the EU’s 2020 approval of similar aid to SAS.

“One of the EU’s greatest achievements is the creation of a single market for air transport,” Ryanair said in its statement. “The European Commission’s approval of the German recapitalisation aid to Lufthansa and the Swedish and Danish recapitalisation aid to SAS went against the fundamental principles of EU law. Today’s judgments confirm that the Commission must act as a guardian of the level playing field in air transport and cannot sign-off discriminatory State aid under political pressure by national governments.

“During the Covid-19 pandemic over €40 billion in discriminatory State subsidies has been gifted to EU flag carriers. Unless halted by the EU courts in line with today’s ruling, this State aid spree will distort the market for decades to come.

“The Court’s intervention is a triumph for fair competition and consumers across the EU.”

The Commission can appeal to the Court of the Justice of the European Union (ECJ), Europe’s highest, on points of law. – Reuters / Bloomberg