The European Commission has approved a recapitalisation of SAS amounting to approximately €833 million (SEK 9.5 billion) granted in October 2020. The measure is approved under the State aid COVID Temporary Framework. That recapitalisation measure was part of a larger recapitalisation package, which also involved a significant participation of private investors, including the conversion of outstanding privately-held debt instruments into equity.
On 11 August 2020 Denmark and Sweden notified to the Commission, under the COVID Temporary Framework, a State recapitalisation of SAS of up to €1 billion at the time (up to SEK 11 billion). On 17 August 2020, the Commission adopted a decision finding that this measure complied with EU State aid rules. Given high interest from private investors, the recapitalisation ultimately amounted to approximately EUR 833 million (SEK 9.5 billion), of which approximately €460 million (SEK 5.25 billion) was provided by Denmark and approximately €373 million (SEK 4.25 billion) by Sweden.
On 10 May 2023, the General Court annulled the decision on the grounds that the recapitalisation did not include a step-up mechanism to increase the remuneration of the States and incentivise their exit in line with the COVID Temporary Framework. On 4 July 2023, the Commission opened an in-depth investigation to assess further this issue.
In today’s decision, the Commission found that the mechanism put forward by SAS complies with the COVID Temporary Framework and has therefore approved the measure, under the condition that such mechanism is put in place within two months from the notification of the present decision to those Member States.
The recapitalisation by the two Member States comprises:
- Approximately €175 million (around SEK 2 billion) equity participation through the subscription of new shares, shared between Denmark and Sweden.
- Approximately €526 million (SEK 6 billion) newly issued State hybrid notes with the features of an equity instrument non-convertible into shares, of which approximately €219 million (SEK 2.5 billion) is allocated to Sweden and approximately €307 million (SEK 3.5 billion) is allocated to Denmark.
- Approximately 131 million (around SEK 1.5 billion) equity participation through the subscription and underwriting of new shares in a rights issue, shared between Denmark and Sweden.
The Commission’s assessment
The Commission found that measure notified by Denmark and Sweden is in line with Article 107(3)(b) TFEU and the conditions set out in the COVID Temporary Framework. In particular, as regards:
- Conditions on the necessity, appropriateness and size of the intervention: The measure does not exceed the minimum needed to ensure the viability of SAS and does not go beyond restoring its capital position. When assessing the proportionality of the recapitalisation measure, the Commission took also into account the other State aid measures in favour of the company in the context of the coronavirus outbreak.
- Conditions on the States’ entry, remuneration and incentives to exit from the capital of the company: Denmark and Sweden will receive an appropriate remuneration for the investment, and the States commit to implement a step-up mechanism to incentivise SAS to redeem the States’ equity participations and the new State hybrid notes obtained as a result of the recapitalisation. Denmark and Sweden submitted a business plan prepared by SAS to redeem, by fiscal year 2025, the recapitalisation instruments. If six years after receiving the recapitalisation aid the States’ intervention is not reduced below 15% of SAS’s overall equity, a restructuring plan for SAS will be notified to the Commission.
- Conditions regarding governance: Until the States have exited in full, SAS and its subsidiaries are subject to bans on dividends and share buybacks, other than in relation to the States. Moreover, until at least 75% of the recapitalisation is redeemed, a strict limitation of the remuneration of SAS’s management, including a ban on bonus payments, is applied.
- Prohibition of cross-subsidisation and acquisition ban: To ensure that SAS does not unduly benefit from the recapitalisation aid by the States to the detriment of fair competition in the Single Market, SAS cannot use the aid to support economic activities of its integrated companies that were in economic difficulties already on 31 December 2019. Moreover, until at least 75% of the recapitalisation is redeemed, SAS is, with limited exceptions, prevented from acquiring a stake of more than 10% in competitors or other operators in the same line of business.
- Public transparency and reporting: SAS will have to publish information on the use of the aid received, including on how the aid supports the company’s activities in line with EU and national obligations linked to the green and digital transformations.
On this basis, the Commission approved the measure under EU State aid rules, concluding that it complied with the COVID Temporary Framework, as amended.
Background
SAS is a major network airline operating in Denmark, Sweden and Norway. It has its main hub at Copenhagen airport and, prior to the COVID-19 outbreak, provided two-thirds of intra-Scandinavian air connectivity, while contributing to over 30% and 25% of Denmark’s and Sweden’s international traffic, respectively.
In the second quarter of 2020, SAS suffered substantial losses due to the coronavirus outbreak and the travel restrictions that Denmark, Sweden and other countries imposed to limit the spread of the coronavirus. Despite the State aid already granted to the company by Denmark and Sweden (SA.56795, SA.57061 and SA.56774), the significant drop in travel demand and the measures implemented to limit the spread of the virus further deteriorated the financial situation of the airline.
On 19 March 2020, the Commission adopted the State aid COVID 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 COVID Temporary Framework has been amended on 3 April, 8 May, 29 June, 13 October 2020, 28 January and 18 November 2021.
As announced in May 2022, the COVID Temporary Framework has not been extended beyond the set expiry date of 30 June 2022, with some exceptions.
The non-confidential version of the decisions will be made available under the case numbers SA.58342 and SA.57543 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.
Quotes
SAS plays a key role for the connectivity and economy of Scandinavian countries. As many other companies active in the aviation sector, SAS has been severely hit by the COVID-19 crisis. Following an in-depth investigation, the Commission has found that the €833 million in public support from Denmark and Sweden to recapitalise SAS is in line with State aid rules under the condition that a step-up mechanism is put in place. The mechanism will increase the remuneration of the States and incentivises SAS to buy back the shares acquired by Sweden and Denmark in due course.