State aid: Commission approves EUR 119.3 million French restructuring aid for Air Austral and EUR 17.5 million compensation for damage suffered as a result of the coronavirus pandemic

The European Commission, pursuant to the EU rules on State aid, has authorised France's plan to pay (i) restructuring aid of EUR 119.3 million to enable the airline Air Austral to return to viability; and (ii) EUR 17.5 million in aid to compensate the company for damage suffered as a result of the coronavirus pandemic between 17 March and 30 June 2020.

Set up in October 1990 and based on Réunion, Air Austral is a French airline company that ensures territorial continuity between Réunion, and other neighbouring islands in the Indian Ocean (Mayotte in particular) and mainland France. With a fleet of eight aircraft, it also operates services to destinations in the countries of the Southwest of the Indian Ocean and in Asia.

The restructuring aid

After the approval by the Commission of rescue aid in the form of a EUR 20 million loan from the French State to Air Austral on 18 January 2022, France formally notified the Commission of restructuring aid amounting to EUR 119.3 million aimed at funding a restructuring plan for the airline.

Today the Commission approved the restructuring aid for Air Austral along with the restructuring plan pursuant to Article 107(3)(c) of the Treaty on the Functioning of the European Union (TFEU) and the Guidelines on State aid for rescuing and restructuring non-financial undertakings in difficulty.

According to the Commission, the plan makes it possible to ensure the long-term viability of the airline and thereby prevent it from being wound up, which would cause considerable harm to Réunion as an outermost and assisted region. Moreover, the public funding of the restructuring plan complies with the principle of proportionality, as the beneficiary will contribute towards its funding through its own or private sources of funds, it makes it possible for the airline to return to long-term viability and affects trade between Member States to only a very limited extent.

The Commission took into account, in particular, the measures aimed at limiting distortions in competition, namely: (i) the limitation on the number of seats offered by Air Austral; (ii) a limitation on the number of routes operated by the airline; (iii) the ban on acquiring stakes in other undertakings; and (iv) the establishment of business agreements with other airline companies that ask to do so. These measures will continue to apply throughout the duration of the restructuring plan, which will run from January 2022 to March 2025.

The compensation

France notified the Commission of an aid measure amounting to EUR 17.5 million to compensate Air Austral for damage it suffered between 17 March and 30 June 2020 as a direct result of the travel restrictions in place to limit the spread of the coronavirus. Because of these travel restrictions, the airline incurred significant operating losses and experienced a steep decline in traffic and profitability over this period.

The Commission assessed the measure under Article 107(2)(b) TFEU, which enables the Commission to approve State aid measures granted by Member States to compensate specific companies or sectors for the damage directly caused by exceptional occurrences, such as the coronavirus outbreak. The Commission found in particular that the French measure will make good the damage that is directly linked to the coronavirus outbreak. It also found the measure to be proportionate, as the compensation does not exceed what is necessary to make good the damage.

On this basis, the Commission concluded that the French measure is in line with EU State aid rules.