The European Commission has approved Latvian plans to grant up to €39.7 million for the recapitalisation of the State Joint Stock Company Riga International Airport (Riga International Airport). The measures were approved under the State aid Temporary Framework.
Executive Vice-President Margrethe Vestager, in charge of competition policy, said: “Airports are among the companies that have been hit particularly hard by the coronavirus outbreak. With this measure, Latvia will contribute up to €39.7 million to reinforce Riga International Airport’s equity and support the company face the economic effects of the outbreak. At the same time, the State aid will come with strings attached to limit undue distortions of competition. We continue working closely with Member States to ensure that national support measures can be put in place in a coordinated and effective way, in line with EU rules.”
The Latvian recapitalisation measure
Riga International Airport is a company fully owned by the Latvian State. Its core business is the provision of aviation services (handling of aircraft, passengers and cargoes) but it also provides non-aviation services such as the lease of premises and land, and car parks. Riga International Airport 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 virus. These measures, together with the significant drop in travel demand, continue to deteriorate the financial situation of the company. As a result, Riga International Airport currently risks not being able to maintain its viability, with severe consequences for the connectivity of Latvia with the rest of Europe and third countries.
Latvia notified to the Commission, under the Temporary Framework, State recapitalisation measures in favour of Riga International Airport for up to €39.7 million, comprising:
- €35.2 million capital injection; and
- €4.5 million waived dividend payment for the 2019 financial year.
The Commission found that the recapitalisation measure notified by Latvia is in line with Article 107(3)(b) TFEU and the conditions set out in the Temporary Framework. In particular, as regards:
- Conditions on the necessity, appropriateness and size of the intervention: The measures will not exceed the minimum needed to ensure the viability of Riga International Airport and will not go beyond restoring its capital position before the coronavirus outbreak.
- Conditions on the State’s entry, remuneration and incentives to exit from the capital of the company: The recapitalisation aid will maintain the viability of Riga International Airport, whose insolvency would have serious consequences on Latvian employment and the economy. Latvia will receive an appropriate remuneration for the investment and there are additional mechanisms to incentivise Riga International Airport to redeem the State’s equity investment. Latvia submitted financial projections until fiscal year 2026 prepared by Riga International Airport to demonstrate the impact of the recapitalisation instruments. It also committed to work out a credible exit strategy within 12 months after the aid is granted, unless the State’s intervention is reduced below the level of 25% of equity by then. If seven years after receiving the recapitalisation aid the State’s intervention has not been redeemed, a restructuring plan for Riga International Airport will be notified to the Commission.
- Conditions regarding governance: Until the State has exited in full, Riga International Airport is subject to bans on dividends and share buybacks, other than in relation to the State. Moreover, until at least 75% of the recapitalisation is redeemed, a strict limitation of the remuneration of Riga International Airport’s management, including a ban on bonus payments, is applied. These conditions aim at incentivising an exit of the State as soon as the economic situation will allow.
- Acquisition ban: Until at least 75% of the recapitalisation is redeemed, Riga International Airport is in principle prevented from acquiring a stake of more than 10% in competitors or other operators in the same line of business.
- Public transparency and reporting: Riga International Airport 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 transformations.
The Commission concluded that the recapitalisation measures are necessary, appropriate and proportionate to remedy a serious disturbance in the economy of the Member States: the measure aims at restoring the financial position and liquidity of Riga International Airport in the exceptional situation caused by the coronavirus pandemic, while maintaining the necessary safeguards to limit competition distortions.
On this basis, the Commission approved the measure 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, 29 June, 13 October 2020 and 28 January 2021, 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 €225,000 to a company active in the primary agricultural sector, €270,000 to a company active in the fishery and aquaculture sector and €1.8 million 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 €1.8 million 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 €225,000 and €270,000 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 employees for 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.
(xii) Support for uncovered fixed costs for companies facing a decline in turnover during the eligible period of at least 30% compared to the same period of 2019 in the context of the coronavirus outbreak. The support will contribute to a part of the beneficiaries’ fixed costs that are not covered by their revenues, up to a maximum amount of €10 million per undertaking.
The Commission will also enable Member States to convert until 31 December 2022 repayable instruments (e.g. guarantees, loans, repayable advances) granted under the Temporary Framework into other forms of aid, such as direct grants, provided the conditions of the Temporary Framework are met.
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 2021. With a view to ensuring legal certainty, the Commission will assess before this date if it needs to be extended.
The non-confidential version of the decision will be made available under the case number SA.57756 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 Competition 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.