EU Commission opens investigation into €1bn Danish and Swedish support measure to recapitalise SAS in context of Covid-19

The European Commission has opened an in-depth investigation to assess whether a Danish and Swedish recapitalisation measure of approximately €1 billion (SEK 11 billion) in favour of SAS AB (‘SAS’) is in line with EU State aid rules. The measure was initially approved on 17 August 2020 by the Commission under the State aid COVID Temporary Framework, but subsequently annulled by the judgment of the General Court of 10 May 2023.

SAS is a major network airline operating in Denmark, Sweden and Norway. It has its main hub at Copenhagen airport and, under normal circumstances, provides two-thirds of intra-Scandinavian air connectivity. It also contributes to over 30% and 25% of Denmark’s and Sweden’s international traffic, respectively. In 2020, SAS was at risk of default and insolvency due to the coronavirus pandemic and the travel restrictions in place to limit the spread of the virus.

The Commission’s investigation

On 11 August 2020, Denmark and Sweden notified to the Commission a recapitalisation measure of approximately €1 billion (SEK 11 billion) in favour of SAS. The recapitalisation by the two Member States comprises:

• Around SEK 2 billion (approximately €194 million) equity participation through the subscription of new shares, shared between Denmark and Sweden;
• Up to around SEK 3 billion (approximately €292 million) equity participation through the subscription and underwriting of new shares in a rights issue, shared between Denmark and Sweden; and,
• SEK 6 billion (approximately €583 million) newly issued State hybrid notes with the features of an equity instrument non-convertible into shares, of which SEK 2.5 billion (approximately €243 million) is allocated to Sweden and SEK 3.5 billion (approximately €340 million) is allocated to Denmark.

On 17 August 2020, the Commission approved the recapitalisation measure notified by Denmark and Sweden. The Commission found the measure to be compatible with EU State aid rules, in particular with Article 107(3)(b) of the Treaty on the Functioning of the European Union (‘TFEU’) and the conditions set out in the COVID Temporary Framework.

In its judgment of 10 May 2023, the General Court annulled the 2020 Commission’s decision. The General Court considered that the recapitalisation measure granted to SAS did not meet one of the conditions set out in the COVID Temporary Framework. In particular, it ruled that the Commission failed to require the inclusion of a step-up mechanism (or an alternative mechanism with the same effect as a step-up mechanism) to ensure that Denmark and Sweden would receive a sufficient remuneration for their investment and that SAS would have incentives to buy back the shares acquired by Denmark and Sweden as soon as possible.

Following the General Court’s judgment, the Commission will now carry out a more in-depth investigation in order to assess further the recapitalisation measure. The Commission aims at adopting a final decision on this case in the coming months.

At this stage, the Commission takes the preliminary view that the recapitalisation measure is in line with Article 107(3)(b) TFEU and the conditions set out in the COVID Temporary Framework, with the exception of the absence of a step-up mechanism (or an alternative mechanism with the same effect as a step-up mechanism).

The opening of an in-depth investigation gives Denmark and Sweden, as well as interested third parties, the opportunity to submit comments. It does not prejudge in any way the outcome of the investigation.

Background

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.

In particular, (i) investment support towards a sustainable recovery can be granted to support private investment as a stimulus to overcome an investment gap accumulated in the economy due to the crisis; and (ii) solvency support can be used to leverage private funds and make them available for investments in small and medium-sized enterprises (SMEs). They may still be put in place until 31 December 2023.

In addition, the COVID Temporary Framework already provides for a flexible transition, under clear safeguards, in particular for the conversion and restructuring options of debt instruments, such as loans and guarantees, into other forms of aid, such as direct grants, until 30 June 2023.

The COVID Temporary Framework complements the ample possibilities for Member States to design measures in line with existing EU State aid rules. For example, EU State aid rules enable Member States to help companies cope with liquidity shortages and needing urgent rescue aid. Furthermore, Article 107(2)(b) TFEU enables Member States to compensate companies for the damage directly caused by an exceptional occurrence, such as the coronavirus outbreak.

The non-confidential version of the decision 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.

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