Thomas Bugeja, Fenech & Fenech Advocates

A series of emergency measures were announced by the European Commission (“EC”) in coordination with the European Parliament, Council and the European Central Bank to cater for the Covid-19 pandemic, particularly (i) the shock resulting from China’s initial economic contraction in Q1 2020 (ii) the supply shock to the EU and global economy related to mass disruptions in supply chain and absence from workplace (iii) the negative impact on consumer demand and consumer confidence and (iv) the liquidity impact on EU companies and firms.

Apart from urgent economic measures put in place to assist EU Member States (“MS”) in fighting the contagion itself, EU law permits a number of emergency state aid measures to assist companies facing acute liquidity needs and bankruptcy.

In terms of Article 107(3)(c) TFEU,  state aid is compatible with the internal market and is not prohibited if its purpose is to “to facilitate the development of certain economic activities or of certain economic areas, where such aid does not adversely affect trading conditions to an extent contrary to the common interest;”. The EC considers that emergency aid and temporary assistance (such as loans and guarantees to all types of companies) given by EU Member States (MS) in such extraordinary circumstances is therefore allowed at this juncture . Companies which are not yet in difficulty can also be assisted by MS if they face liquidity problems due to unforeseen circumstances (such as the COVID-19 outbreak), subject to applicable conditions, notably with regard to the level of compensation that the beneficiary of such loan would be required to pay to obtain the State guarantee or loan.

In line with the “one time, last time” principle, companies that have already received state aid support in the past 10 years should generally not be eligible for further state aid (and this in order to avoid unviable companies being “artificially” kept afloat) however, the EC appears willing to accept exceptions to this rule (in emergency circumstances such as this pandemic) in case of an individual notification. This may be of relevance and importance to Air Malta, for example, which had already benefitted from State Aid and which is now facing unprecedented hardship as a result of the suspension of flights and the closure of the airport in Malta.

The Rescue and Restructuring Guidelines also allow EU MS to establish special support schemes for SMEs and state-owned companies, to assist them with liquidity problems for up to 18 months (as was done in Ireland as part of Brexit-preparedness measures). Such support schemes have already been established in a number of EU MS such as France, Germany and Poland and others. Similar measures have also been announced in Malta, pending further implementation details.

Aid to compensate companies for damages suffered as a result of the COVID-19 outbreak

Article 107(2)(b) TFEU also allows the Commission to approve State Aid measures taken by EU MS to assist companies suffering damages in exceptional occurrences. In order for Article 107(2)(b) to apply such circumstances need to be (i) unforeseeable; (ii) of significant scale/ impact; and (iii) extraordinary (i.e. differ sharply from the conditions under which the market normally operates).

In its press conference, the EC has declared that it considers the COVID-19 outbreak  to qualify as such and therefore a number of measures under Article 107(2)(b) TFEU can be implemented to assist companies in hard-hit sectors such as tourism, aviation and catering (which are suffering significantly due to this outbreak). In so doing, EU MS can draw upon past experiences in developing such schemes  (e.g. the assistance given to airlines following the 9/11 attacks in 2001 and the Icelandic volcanic ash occurence) where some MS covered up to  60% of the economic damages and losses suffered by airlines and airports due to such extraordinary circumstances.

Aid to compensate damages suffered due to cancellation of events

In terms of the above-mentioned provisions of the TFEU, MS can also choose to compensate companies cancelling events such festivals, sport events, fairs or concerts due to exceptional circumstances such as the Covid-19 outbreak. Denmark has already filed a notification in this sense to aid organisers of events (of a certain scale) which had to be cancelled due to COVID-19. This was approved by the EC within 24 hours of the notification. Other MS will certainly be submitting similar notifications to assist companies in their territory on the same basis.

We are not aware of any similar schemes being announced in Malta, however a series of economic measures are due to be published in detail in the coming days.

Ghost-flights, airport slots and the “use it or lose it” principle

Council Regulation (EEC) No 95/93 of 18 January 1993 on common rules for the allocation of slots at

Community airports established the “Use it or Lose it” rule, whereby airlines which fail to use at least 80% of their allocated airport slots within a given schedule may lose their precedence (“grandfather rights”) for scheduling over the next year.

In light of the drastic decline in consumer demand and the imposition of mandatory quarantine rules and flight bans throughout the EU, most airlines operating in the EU have resorted to operating so-called ‘ghost flights’ at very low load factors, simply to protect their ‘grandfather slot rights’. This is in turn worsening financial losses and causing unneccessary environmental damage over the European skies apart from posing a degree of additional health risk.

The EC is therefore proposing a new directly applicable Regulation amending the current Regulation (EEC) no 95/93, through which airport slots which are not used by airlines due to the Covid-19 outbreak (between 1 March 2020 and 30 June 2020) would still be deemed to have been operated by the airline to which these slots would have originally been allocated– thus eliminating the need for ‘ghost-flights’ currently being operated by European airlines. In turn any re-allocation of vacated slots by the authorities would be done on an ‘ad hoc’ basis, without affecting the position of the airlines vacating such slots.

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 ©Fenech & Fenech Advocates 2020 

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