The European Commission has approved a €250 million Latvian measure to recapitalise airBaltic in the context of the coronavirus outbreak. The scheme was approved under the State aid Temporary Framework.

Executive Vice-President Margrethe Vestager, in charge of competition policy, said: “AirBaltic plays a key role for the Latvian economy. It contributes to foreign trade and to ensuring Latvia's domestic and international connectivity. The crisis has hit this airline, as many other companies in the aviation sector, particularly hard. The €250 million Latvian racapitalisation measure will help airBaltic weather the crisis. At the same time, the measure ensures that the State is sufficiently remunerated for the risk taxpayers assume, and that the support comes with strings attached, including a dividend ban as well as further measures to limit distortions of competition. We continue working in close contact and cooperation with Member States, to find workable solutions to mitigate the economic impact of the coronavirus outbreak, in line with EU rules.”

The Latvian recapitalisation measure

Latvia notified to the Commission under the Temporary Framework a €250 million recapitalisation of airBaltic.

With its main hub at Riga airport, airBaltic is the largest airline in Latvia. Its main shareholder is the Latvian State, which currently holds a participation of around 80%. After the recapitalisation, which will be carried in July 2020, the participation of the State will increase to above 96%.

The airline plays a major role in the Latvian economy, notably because it ensures essential connectivity services within Latvia and from/to Latvia to other European and international destinations. The company also contributes significantly to foreign trade, as several Latvian businesses rely on its air services to connect with business centres in Europe and worldwide.

In the second quarter of 2020, airBaltic has suffered substantial losses due to the coronavirus outbreak and the travel restrictions that Latvia and other countries had to impose to limit the spread of the coronavirus. As a result, airBailtic is currently facing an acute risk of default and insolvency.

The Commission found that the measure notified by Latvia is in line with the conditions set out in the Temporary Framework. In particular, as regards:

• Conditions on the necessity, appropriateness and size of intervention: The measure will not exceed the minimum needed to ensure the viability of airBaltic and will not go beyond restoring its capital position to before the coronavirus outbreak.
• Conditions on the State's entry in the capital of companies and remuneration: The State will receive an appropriate remuneration for the investment and there are additional mechanisms to incentivise airBaltic to buy back the State's equity participation obtained as a result of the recapitalisation, such as step-up mechanisms triggered if such participation is not redeemed after five and seven years.
• Conditions regarding governance: Until the State has exited in full from its equity investment resulting from the recapitalisation, airBaltic is subject to bans on dividends and share buybacks. Moreover, until at least 75% of the recapitalisation is redeemed, a strict limitation of the remuneration of their management, including a ban on bonus payments, is applied. These conditions also aim at incentivising airBaltic to buy out the shares owned by the State as soon as the economic situation allows.
• Acquisition ban: To ensure that airBaltic does not use the aid by the State to the detriment of fair competition in the Single Market, until at least 75% of the recapitalisation is redeemed, airBaltic is prevented from acquiring a stake of more than 10% in competitors or other operators in the same line of business.
• Public transparency and reporting: airBaltic will have to publish information on the use of the aid received, including on how the use of the aid received supports the company's activities in line with EU and national obligations linked to the green and digital transformation.

The Commission concluded that the recapitalisation measure will contribute to managing the economic impact of the coronavirus outbreak in Latvia.It is necessary, appropriate and proportionate to remedy a serious disturbance in the economy of a Member State, in line with Article 107(3)(b) TFEU and the conditions set out in the Temporary Framework.

On this basis, the Commission approved the measures under EU State aid rules.

Background

The Commission has adopted a Temporary Framework to enable Member States to use the full flexibility foreseen under State aid rules to support the economy in the context of the coronavirus outbreak. The Temporary Framework, as amended on 3 April, 8 May and 29 June2020, provides for the following types of aid, which can be granted by Member States:

(i) Direct grants, equity injections, selective tax advantages and advance payments of up to €100,000 to a company active in the primary agricultural sector, €120,000 to a company active in the fishery and aquaculture sector and €800,000 to a company active in all other sectors to address its urgent liquidity needs. Member States can also give, up to the nominal value of €800,000 per company zero-interest loans or guarantees on loans covering 100% of the risk, except in the primary agriculture sector and in the fishery and aquaculture sector, where the limits of €100,000 and €120,000 per company respectively, apply.

(ii) State guarantees for loans taken by companies to ensure banks keep providing loans to the customers who need them. These state guarantees can cover up to 90% of risk on loans to help businesses cover immediate working capital and investment needs.

(iii) Subsidised public loans to companies (senior and subordinated debt) with favourable interest rates to companies. These loans can help businesses cover immediate working capital and investment needs.

(iv) Safeguards for banks that channel State aid to the real economy that such aid is considered as direct aid to the banks' customers, not to the banks themselves, and gives guidance on how to ensure minimal distortion of competition between banks.

(v) Public short-term export credit insurance for all countries, without the need for the Member State in question to demonstrate that the respective country is temporarily “non-marketable”.

(vi)  Support for coronavirus related research and development (R&D) to address the current health crisis in the form of direct grants, repayable advances or tax advantages. A bonus may be granted for cross-border cooperation projects between Member States.

(vii)  Support for the construction and upscaling of testing facilities to develop and test products (including vaccines, ventilators and protective clothing) useful to tackle the coronavirus outbreak, up to first industrial deployment. This can take the form of direct grants, tax advantages, repayable advances and no-loss guarantees. Companies may benefit from a bonus when their investment is supported by more than one Member State and when the investment is concluded within two months after the granting of the aid.

(viii)  Support for the production of products relevant to tackle the coronavirus outbreak in the form of direct grants, tax advantages, repayable advances and no-loss guarantees. Companies may benefit from a bonus when their investment is supported by more than one Member State and when the investment is concluded within two months after the granting of the aid.

(ix) Targeted support in the form of deferral of tax payments and/or suspensions of social security contributions for those sectors, regions or for types of companies that are hit the hardest by the outbreak.

(x) Targeted support in the form of wage subsidies for employeesfor those companies in sectors or regions that have suffered most from the coronavirus outbreak, and would otherwise have had to lay off personnel.

(xi) Targeted recapitalisation aid to non-financial companies, if no other appropriate solution is available. Safeguards are in place to avoid undue distortions of competition in the Single Market: conditions on the necessity, appropriateness and size of intervention; conditions on the State's entry in the capital of companies and remuneration; conditions regarding the exit of the State from the capital of the companies concerned; conditions regarding governance including dividend ban and remuneration caps for senior management; prohibition of cross-subsidisation and acquisition ban and additional measures to limit competition distortions; transparency and reporting requirements.

The Temporary Framework enables Member States to combine all support measures with each other, except for loans and guarantees for the same loan and exceeding the thresholds foreseen by the Temporary Framework. It also enables Member States to combine all support measures granted under the Temporary Framework with existing possibilities to grant de minimis to a company of up to €25,000 over three fiscal years for companies active in the primary agricultural sector, €30,000 over three fiscal years for companies active in the fishery and aquaculture sector and €200,000 over three fiscal years for companies active in all other sectors. At the same time, Member States have to commit to avoid undue cumulation of support measures for the same companies to limit support to meet their actual needs.

Furthermore, the Temporary Framework complements the many other possibilities already available to Member States to mitigate the socio-economic impact of the coronavirus outbreak, in line with EU State aid rules. On 13 March 2020, the Commission adopted a Communication on a Coordinated economic response to the COVID-19 outbreak setting out these possibilities. For example, Member States can make generally applicable changes in favour of businesses (e.g. deferring taxes, or subsidising short-time work across all sectors), which fall outside State Aid rules. They can also grant compensation to companies for damage suffered due to and directly caused by the coronavirus outbreak.

The Temporary Framework will be in place until the end of December 2020. As solvency issues may materialise only at a later stage as this crisis evolves, for recapitalisation measures only the Commission has extended this period until the end of June 2021. With a view to ensuring legal certainty, the Commission will assess before those dates if it needs to be extended.

The non-confidential version of the decision will be made available under the case number SA.56943 in the State aid register on the Commission's competition website once any confidentiality issues have been resolved. New publications of State aid decisions on the internet and in the Official Journal are listed in the State Aid Weekly e-News.

More information on the Temporary Framework and other action the Commission has taken to address the economic impact of the coronavirus pandemic can be found here.