EUROPEAN COMMISSION
Brussels, 17.3.2021 C(2021) 1936 final
In the published version of this decision, some PUBLIC VERSION information has been omitted, pursuant to articles 30 and 31 of Council Regulation (EU) This document is made available for 2015/1589 of 13 July 2015 laying down information purposes only. detailed rules for the application of Article 108
of the Treaty on the Functioning of the European Union, concerning non-disclosure of information covered by professional secrecy. The omissions are shown thus […]
Subject: State Aid SA.59132 (2021/N) – Finland – COVID-19: aid to Finavia
Excellency,
1. PROCEDURE
(1) On 21 October 2020, the Republic of Finland (“Finland”) pre-notified to the Commission aid in favour of Finavia Oyj and its subsidiaries (“Finavia” or “the company”), a Finnish airport manager company that is not publicly listed1.
(2) On 26 February 2021, Finland notified aid in the form of a damage compensation, a recapitalisation and a subordinated loan (respectively “the Damage Compensation”, “the TF Recapitalisation” and “the Subordinated Loan”, and together “the Measures”)2. The aid was notified under three legal bases, each covering a defined aid amount:
(a) the Damage Compensation falling under Article 107(2)(b) of the Treaty on the Functioning of the European Union (“TFEU”) which takes the form of a recapitalisation;
1 Following informal exchanges with the Commission, Finland submitted additional information on 23 October; on 5, 9 and 27 November; on 11, 21 and 23 December 2020; on 5, 7, 14, 20, 25, 27 and 28 January and 2, 4, 11 and 17 February 2021.
2 Finland then submitted additional information on 9, 11, 15, 16 and 17 March 2021.
Ulkoministeri Pekka HAAVISTO Merikasarmi PL 176, FIN - 00161 Helsinki
Commission européenne/Europese Commissie, 1049 Bruxelles/Brussel, BELGIQUE/BELGIË - Tel. +32 22991111 (b) the TF Recapitalisation falling under section 3.11 of the Temporary Framework for State aid measures to support the economy in the current COVID-19 outbreak, as amended (“the Temporary Framework”)3; and
(c) the Subordinated Loan falling under section 3.3 of the Temporary Framework.
(3) Finland exceptionally agrees to waive its rights deriving from Article 342 of the Treaty on the Functioning of the European Union (“TFEU”), in conjunction with Article 3 of Regulation 1/19584, and to have this Decision adopted and notified in English.
2. DESCRIPTION OF THE MEASURES
2.1. Objective and necessity of the Measures
(4) The Measures aim at compensating the damage directly caused by the COVID-19 outbreak as well as at restoring Finavia’s equity and its access to liquidity in the context of the COVID-19 outbreak that led to severe disturbances of the economy of Finland. The losses of Finavia principally result from containment measures adopted by governments to prevent the spread of the COVID-19 outbreak, and individuals’ and firms’ decisions to reduce their travels.
(5) Specifically, the Damage Compensation first aims at compensating the losses suffered by Finavia as a result of the COVID-19 outbreak due to the containment measures adopted at national and global level to prevent the spread of the COVID-19 between 16 March and 30 June 2020 (“the Compensation Period”). This is further detailed in sections 2.1.1 and 2.1.2.
(6) On top of that, the TF Recapitalisation and the Subordinated Loan aim at restoring the financial situation of Finavia at the horizon 2021-2022, with a view to ensuring that
3 Communication from the Commission - Temporary framework for State aid measures to support the economy in the current COVID-19 outbreak, 19 March 2020, OJ C 91I, 20.3.2020, p. 1, as amended by Communication from the Commission C(2020) 2215 final of 3 April 2020 on the Amendment of the Temporary Framework for State aid measures to support the economy in the current COVID-19 outbreak, OJ C 112I , 4.4.2020, p. 1 and by Communication from the Commission C(2020) 3156 final of 8 May 2020 on the Amendment of the Temporary Framework for State aid measures to support the economy in the current COVID-19 outbreak, OJ C 164, 13.5.2020, p. 3, by Communication from the Commission C(2020) 4509 final of 29 June 2020 on the Third Amendment of the Temporary Framework for State aid measures to support the economy in the current COVID-19 outbreak, OJ C 218, 2.7.2020, p. 3, by Communication from the Commission C(2020) 7127 final of 13 October 2020 on the Fourth Amendment of the Temporary Framework for State aid measures to support the economy in the current COVID-19 outbreak and amendment to the Annex to the Communication from the Commission to the Member States on the application of Articles 107 and 108 of the Treaty on the Functioning of the European Union to short-term export-credit insurance, OJ C 340 I, 13.10.2020, p. 1 and by Communication from the Commission C(2021) 564 final of 28 January 2021 on the Fifth Amendment to the Temporary Framework for State aid measures to support the economy in the current COVID-19 outbreak and amendment to the Annex to the Communication from the Commission to the Member States on the application of Articles 107 and 108 of the Treaty on the Functioning of the European Union to short-term export-credit insurance, OJ C 34, 1.2.2021, p. 6.
4 Regulation No 1 determining the languages to be used by the European Economic Community, OJ 17, 6.10.1958, p. 385.
2 the disruptions caused by the COVID-19 outbreak do not undermine Finavia’s viability and liquidity. This is further explained in section 2.1.3.
2.1.1. Travel restrictions and containment measures linked to the COVID-19 outbreak between March and July 2020
2.1.1.1. Travel restrictions adopted by Finland
(7) According to Finland, the Measures (specifically the Damage Compensation) are first justified by the losses directly suffered by Finavia from 16 March to 30 June 2020 due to the COVID-19 outbreak and the containment measures adopted at national and global level.
(8) On 12 March 2020, the Finnish government adopted the first general restrictions to contain the spread of the COVID-19 outbreak. Until further notice, the authorities decided to cancel all public events with more than 500 attendees; advise employees to work remotely if their tasks could be carried out from home; advise citizens to discontinue non-essential work-related travel and to postpone holiday travel; restrict all non-essential activities5. On 14 March 2020, the Finnish Ministry of Foreign Affairs announced the closure of the Finnish borders with effect as of 19 March 2020 and issued a warning inviting all Finnish citizens travelling abroad to return immediately to Finland6.
(9) On 16 March 2020, the Finnish government declared a state of emergency and adopted the first travel restrictions concerning travel from/to all of the Member States as well as third countries. The public authorities suspended with immediate effect all passenger transport to Finland with the exception of returning Finnish citizens and persons residing in Finland7. As of 27 March 2020, the Government decided to restrict traffic between the capital region and other regions in Finland. Those domestic and international travel restrictions covered an initial period until 13 April 2020, but the authorities later tightened8 them and prolonged them until 13 May 20209. Between 16 March and 13 May 2020, the authorities reduced travel to essential traffic based on a list of critical occupations introduced by the Ministry of Economic Affairs and Employment. The tasks listed as justified essential traffic were those characterised as critical to the security of the supply chain or for specific industries. As 14 May 2020, the Finnish government expanded the list of exceptions to the general travel
5 See press release of the Finnish Government of 12 March 2020: https://valtioneuvosto.fi/en/- /10616/government-decides-on-recommendations-to-curb-the-spread-of-coronavirus.
6 See press release of the Finnish Ministry of Foreign Affaires of 14 March 2020: https://valtioneuvosto.fi/en/-/ulkoministerio-ala-matkusta-ulkomaill-2.
7 See press release of the Finnish government of 16 March 2020: https://valtioneuvosto.fi/en/-/10616/hallitus- totesi-suomen-olevan-poikkeusoloissa-koronavirustilanteen-vuoksi. The Finnish government applied a full prohibition of all travels starting as of 18 March 2020 for all transports (https://valtioneuvosto.fi/en/- /1410869/suomen-rajaliikennetta-aletaan-rajoittaa-elakkeella-olevia-rajavartijoita-ja-poliiseja-voidaan- kutsua-toihin).
8 See press release of the Ministry of Interior of 7 April 2020: https://valtioneuvosto.fi/en/-/1410869/suomen- rajaliikenteen-rajoituksia-jatketaan-ja-karanteenimaarayksia-tiukennetaan.
9 See press release of the Finnish government of 30 March 2020: https://valtioneuvosto.fi/en/-/10616/hallitus- jatkaa-poikkeusoloihin-liittyvia-toimia-13-toukokuuta-saakka.
3 restrictions by allowing essential business travel from abroad but only for people having an employment contract in Finland.
(10) On 14 May 2020, the Finnish government decided to prolong border controls for all internal (Schengen countries) and external (non-Schengen countries) borders until 14 June 2020. On 29 May 2020, the Finnish government started to ease the restrictions on domestic travels10 and the internal lockdown restrictions.
(11) On 11 June 2020, the Finnish government outlined the future new rules for travel restrictions, following a strategy aiming at gradually lifting the travel restrictions based on the continuous monitoring of the COVID-19 epidemiological situation.
(12) As a result, the Finnish government first allowed cross-border traffic with countries with similar epidemiological situations as Finland11. On 15 June 2020, Finland lifted all travel restrictions with Estonia, Iceland, Latvia, Lithuania, Norway and Denmark12. Non-essential travels to/from all other Member States and Schengen Associated States13, as well as all travels to/from third countries, remained prohibited14. In addition, the Finnish authorities recommended Finnish citizens and residents in Finland to avoid non-essential travels abroad except for the countries for which no travel restrictions applied.
(13) On 8 July 202015, the Finnish authorities decided to lift as of 13 July 2020 the restrictions on traffic to all Member States and Schengen Associated States that registered no more than eight new cases of the disease per 100,000 persons in the previous 14 days. The measure took effect on 13 July 2020. On that basis, on 13 July 2020, Finland lifted all travel restrictions from/to the Netherlands, Belgium, Italy, Austria, Greece, Liechtenstein, Malta, Germany, Slovenia, Slovakia, Switzerland and Hungary, but left in place the existing travel restrictions for the rest of the Member States and Schengen Associated States (i.e., prohibition of non-essential travels). For third countries, Finland maintained the prohibition on all travels with the exception of the countries figuring in Annex I to the Council Recommendation on the temporary
10 See press release of the Finnish government of 29 May 2020: https://valtioneuvosto.fi/en/-/10616/hallitus- linjasi-kotimaassa-voi-matkailla-kun-noudattaa-terveys-ja-turvallisuusohjeita.
11 See press release of the Ministry of Interior of 12 June 2020: https://valtioneuvosto.fi/en/- /1410869/valtioneuvoston-paatos-rajaliikenteen-rajoituksista-15-6-alkaen.
12 However, Denmark and Iceland continued to maintain restrictions on entry from foreign countries respectively until 27 June 2020 and 1 July 2020 (see https://www.schengenvisainfo.com/news/denmark-to- reopen-for-majority-of-european-countries/ and https://www.government.is/news/article/2020/06/12/Changes-in-travel-restrictions-untill-1-July/).
13 For Member States and Schengen Associated States, the public authorities allowed only return traffic to Finland, commuting and other essential traffic. This included travels for a family or personal reason or travel to a property, private residence or holiday residence in Finland. Return traffic referred to Finnish citizens, citizens of the EU and Schengen States living in Finland and their family members, and to third- country nationals staying in Finland with a residence permit.
14 For third countries, only return traffic to Finland and transit traffic at Helsinki Airport were allowed; only family members of Finnish citizens could enter the country.
15 See press release of the Finnish government of 8 July 2020: https://valtioneuvosto.fi/en/- /10616/government-updates-policies-on-internal-border-control-and-travel-restrictions.
4 restriction on non-essential travel into the EU and the possible lifting of such restriction16.
2.1.1.2. Travel restrictions recommended by the European Union and implemented by other Member States
(14) At Union level, on 16 March 2020 the Commission invited Member States to apply a coordinated restriction on non-essential travel from third countries to the Union for an initial period of 30 days to contain the spread of the virus.17 The Commission subsequently extended its recommendation twice until 15 June 202018. On 11 June 2020 the Commission further recommended to prolong the travel restrictions, with a perspective for re-allowing travel for certain third countries as of 1 July 2020.19 The Commission recommendations were directed to the “EU+” States (30 States in total)20.
(15) Most Member States reopened their borders with other Member States and the Schengen Associated States as of mid-June 2020,21 thereby following the recommendation of the Commission to lift the internal borders controls and restrictions on free movement within the Union by 15 June 2020.22
2.1.2. Direct impact of the travel restrictions and containment measures on Finavia
(16) Finland submits that the COVID-19 outbreak and the related travel restrictions severely hit Finavia as airport manager of 21 airports in Finland.
(17) According to Finland, the adoption of the border restrictions and containment measures as of 16 March 2020 strongly affected Finavia’s operations. Table 1 shows the fall in traffic and aircraft movements registered between 1 and 31 March 2020, before and after the first travel restrictions and containment measures were adopted. Finavia’s revenues and the passenger traffic dropped by 80% in the second half of
16 Council Recommendation (EU) 2020/912 of 30 June 2020 on the temporary restriction on non-essential travel into the EU and the possible lifting of such restriction, ST/9208/2020/INIT, OJ L 208I , 1.7.2020, p. 1. The list included inter alia Japan and Thailand. China was also included but subject to confirmation of reciprocity.
17 COM(2020) 115, 16 March 2020.
18 COM(2020) 148, 8 April 2020; COM(2020) 222, 8 May 2020.
19 COM(2020) 399 final.
20 The “EU+ area” includes all Schengen Member States (as well as Bulgaria, Croatia, Cyprus and Romania), as well as the four Schengen Associated States. (Iceland, Liechtenstein, Norway, and Switzerland). The inclusion of Ireland and the UK was subject to their alignment decision.
21 This was the case on 10 June 2020 for Slovakia, Latvia and Cyprus; 12 June 2020 for Portugal; 13 June 2020 for Romania and Poland; 15 June 2020 for Austria, Belgium, Croatia, Finland, France, Germany, Greece, the Netherlands, Czechia and Sweden; on 17 June 2020 for Bulgaria; on 21 June 2020 for Spain and on 27 June 2020 for Denmark.
22 Communication of 11 June 2020 from the Commission to the European Parliament, the European Council and the Council on the third assessment of the application of the temporary restriction on non-essential travel to the EU, COM/2020/399 final.
5 March 2020 compared with the first half of the month following the closure of the Finnish borders announced on 14 March 2020.
Table 1 – Finavia’s traffic and revenue indicators between 15 February and 31 March 2020 1-15 March 2020 Delta 2019 16-31 March 2020 Delta 2019
Passenger traffic 796 821 - 26% 159 238 -86%
Aircraft 10 754 -5% 4 063 -67% movements
Revenues (Mln 18 +6.5% 3,6 -80% EUR)
Source: Finavia
(18) Finland states that the lockdown measures had a severe impact on Finavia’s activities between March and June 2020. Table 2 shows the significant reduction of Finavia’s operations between March and June 2020 compared with 2019.
Table 2 – Finavia’s passenger traffic and aircraft movements in March-June 2020 and 2019 March April May June Number of passengers
2019 2 188 829 2 116 152 2 246 630 2 328 876 2020 954 375 25 029 45 043 99 971 % decrease -56% -99% -98% -96% Aircraft movements
2019 23 492 21 945 23 828 22 732 2020 14 817 2 622 3 370 4 755 % decrease -37% -88% -86% -79% Source: Finavia
(19) Table 3 provides an overview of Finavia’s monthly revenues during the lockdown period from March to June 2020 compared with the same period in 2019.
Table 3 – Finavia’s monthly revenues between March and June 2020 by comparison with 2019 (mln EUR) March April May June
2019 34.3 30.4 31.3 31.7
2020 21.7 4.4 4.7 7.4
Source: Finavia
(20) It follows from Table 1 to Table 3 that Finavia’s traffic and revenues decreased by more than 80% between March and June 2020 compared with the same period in 2019.
6 (21) According to Finland, despite the limited easing of the travel bans on domestic and international air services in Finland respectively as of 29 May and 15 June 2020, Finavia’s activities were still low in June 2020 compared with the previous year. As shown in Table 4, Finavia’s total traffic in June 2020 represented 4% of its 2019 traffic23, while the overall revenues were down by 80%24. In addition, domestic traffic accounted for 17% of Finavia’s total traffic and 18% of total revenues from passengers flights in June 2019: hence, most of the revenues streamed from the international traffic that represented 82% of Finavia’s total revenues from passenger flights. Therefore, the restrictions in place in June 2020 on international traffic were still strongly affecting Finavia’s activities25.
Table 4 – Biweekly traffic and revenue indicators at Finavia’s airports between 1 June and 31 July 2020 1-15 Delta 16-30 Delta 1-13 Delta 14-31 Delta June 2019 June 2020 2019 July 2019 July 2019 2020 2020 2020
Passenger 40 205 -97% 59 766 -95% 109 957 -90% 148 284 -87,5% traffic
Aircraft 2 226 -81% 2 529 -77% 5 942 -72,4% 7 198 -70% movements
Revenues 2.5 -85% 3.8 -75% 3,4 -78% 4,2 -72%
Source: Finavia
(22) Furthermore, after 15 June 2020 and until the end of the month, Finavia’s traffic at its airports did not particularly improve despite the limited easing of the COVID-19 containment measures (see recital (12)). Traffic to the Baltic countries and to Norway represented only 7% of Finavia’s total passenger traffic between 15 and 30 June 2019. In addition, despite the gradual lifting of the travel bans, traffic to/from the Baltic and Norway still decreased by more than 90% between 15 and 30 June 2020 compared with the same period of 201926. The volume of aircraft movements at Finavia’s airports to/from those specific countries registered between 15 and 30 June 2020 represented less than 20% of the levels of 2019. Moreover, the data provided by Finland indicates that due to the various containment measures in place and a
23 Passenger traffic represented in June 2019 58% of total traffic registered by Finavia and 56% of Finavia’s total revenues.
24 Finavia registered a lesser decrease in revenues than in passenger volumes as some revenues also came from cargo, postal services, general aviation and other activities such as ground handling.
25 In addition, Finavia even registered an overall decrease of 92% of the domestic traffic in June 2020 compared with 2019.
26 In addition, the traffic between Finland and the Baltic countries/Norway largely increased in July 2020 compared with June 2020, with a growth multiplied by 4 for Estonia (1 500 passengers in June 2020 against 5 700 in July 2020), by 5 for Latvia (2 500 passengers in June 2020 against more than 12 000 in July 2020), by almost 6 for Norway (approximately 2 700 passengers in June 2020 against 14 800 in July 2020) and by 10 for Lithuania (less than 400 passengers in June 2020 against more than 3 500 passengers in July 2020).
7 necessary minimum period to restart commercial flights, commercial air traffic remained very low throughout June 2020 compared with July 2020, as shown by Table 4.
2.1.3. Further losses suffered by Finavia due to the COVID-19 outbreak
(23) According to Finland, Finavia suffered and will continue to suffer major losses not only due to the direct impact of the containment and travel restrictions, but also as a result of the significant reduction of the economic activity in the aviation sector. Between April and December 2020, the total number of passengers at Finavia’s airports dropped by more than 90% compared to the same period in 2019, and by more than 80% between July and December 2020, as shown in Table 2, Table 5 and Figure 1, as well as in January and February 2021, as shown in Figure 1. In 2020, Finavia registered in absolute terms only 6.4 million passengers travelling through its airports, which is approximately 20 million less compared to 201927.
Table 5 – Finavia’s passenger traffic in July-December 2020 and 2019 July August September October November December Number of passengers
2019 2 320 401 2 284 307 2 247 923 2 235 146 1 914 806 2 244 950 2020 258 241 329 026 216 438 195 175 170 308 196 680 % decrease -89% -86% -90% -91% -91% -91% Source: Finavia
Figure 1 – Passenger number change (%) compared to same time in 2019
Source: Finland
(24) Prior to the COVID-19 outbreak, Finavia projected in its business plan for 2020-2023 EUR […] of net sales and EUR […] of EBITDA28 in 2020. Due to the COVID-19
27 Finavia registered 26 023 895 passengers in 2019 and 6 400 594 in 2020.
28 “EBITDA” stands for earnings before interest, taxes, depreciation and amortization.
8 outbreak, Finavia incurred a decrease of EUR 252 million of net sales and of EUR 169 million of EBITDA in 2020. In 2021, its operating cash flow is expected to be negative. Over the period 2020-2023, because of an estimated loss of 54 million passengers over that period, Finavia anticipates a fall in net sales of EUR […] compared with the pre-COVID business plan and a negative operating cash flow of EUR […]. Indeed, Finavia does not plan a return to pre-COVID revenues levels before 2024.
(25) Furthermore, the company initiated in 2014 an investment programme of EUR 1.1 billion (the “Investment Programme”) to be completed by 2023 in order to increase the capacity of Helsinki airport and accommodate the projected increase of traffic over the long-term, especially between Asia and Europe29. That Investment Programme was to be financed partly with commercial loans (EUR […]), and partly with Finavia’s operating cash flows. The COVID-19 outbreak seriously endangered the capacity of the company to complete the Investment Programme30, as the dramatic fall in passengers has increased the pressure on the cash flow of Finavia that represented an important funding source of the Investment Programme.
(26) According to Finland, Finavia implemented several measures to mitigate its losses. The company launched a cost-saving programme focusing on both operational activities and investments, closed part of its airports and reduced its level of activity31. In 2020, Finavia reduced its operating expenditures (“OPEX”) by 29% compared to 2019 and its capital expenditures (“CAPEX”) by 16%. By comparison, Finland submits that other airport operators in the Nordic countries realised the following OPEX / CAPEX reductions: Swedavia (Sweden) reduced its OPEX by 22% and its CAPEX by 17%; Avinor (Norway) by 22% and 6 % respectively; Isavia (Iceland) by 31% and 19% respectively32; and CPH Airport (Copenhagen, Denmark) by 28% and 21% respectively33. For the period 2020-2023, Finavia intends to save EUR […] of operating costs and EUR […] of investment costs.
29 The Investment Programme involves inter alia the extension of terminal 1 of Helsinki airport with new departure gates, expansion of border control facilities and transit passenger facilities that have been completed. The programme also involves the extension of terminal 2 of Helsinki airport, for which the construction of the infrastructure is completed but the interior work remains to be done.
30 According to Finland, EUR 828 million of investment has already been completed in 2020, but several projects still need to be carried out for an estimated amount of EUR 222 million (of which EUR 165 million are committed and EUR 57 non-committed). Finland explained that it is essential for Finavia to complete the Investment Programme because […]. This could lead to an immediate repayment of more than EUR […].
31 Those cost efforts included the following: decrease of volume-based expenses following the decreasing to the minimum level of activities; renegotiation with suppliers and service providers to decrease the service level or the unit prices; creation of new operating models for ordering of services; laying of all staff for fixed period; negotiations for redundancies and staff reductions; almost entire halt of replacement recruitments; voluntary renunciation of one month of salary by managers; suspension of operational development projects whenever possible; use of marketing only for new flight routes; cut-down in operative investments, development and growth-related investments whenever possible; postponement of replacement investments.
32 Based on Isavia’s figures for the first half of 2020.
33 Based on CPH Airport’s figures for January to September 2020.
9 (27) Furthermore, Finland stated that Finavia has obtained in November 2020 a new tranche of EUR […] debt facility from the European Investment Bank exclusively committed to the Investment Programme34, subject to Finavia complying with its existing financial covenants (see recital (29)). The company also drew on a EUR […[ loan from […]. In addition, the company also used part of its EUR […] of revolving credit facility […]35.
(28) Nevertheless, despite those mitigating measures and the efforts to find alternative market funding, Finland estimates the financing needs of Finavia at EUR […] in the most reasonable scenario. The prolongation of the EUR […] revolving credit facility is subject to a State capital injection. The company also started discussions for a total of EUR […] of additional loans with two commercial banks, but such additional lending is also conditional upon an equity injection from the State36. Finland states that those additional funds are not sufficient to cover Finavia’s substantial financial needs and in any event they would not be available to the company in the absence of a capital injection from the State.
(29) In particular, Finland indicated that Finavia must comply with […] financial covenants37 providing an overall amount of EUR […] that require the company to maintain a leverage ratio (Net Interest Bearing Debt / EBITDA)38 of […] in 2021 and 202239 and a minimum equity ratio40 of […]%41. Without any capital injection from the State, those covenants […]42. In that case, Finavia could be subject to an immediate repayment […]43.
34 Finavia received […] loans from the European Investment Bank since 2014 for the completion of the Investment Programme. The tranche of EUR […].
35 In May 2020, Finavia already withdrew EUR […] of the revolving credit facility of EUR […] that it obtained prior to the COVID-19 outbreak. Finland indicated that the company may not […].
36 The banks have indicated that the provision of new loans is subject to the demonstration of a credible long- term financing plan, in particular […]. Hence, the banks are requesting a capital injection in order to provide the additional loans.
37 Finavia has currently […] financial covenants with several banks […]. The financial covenants relate to funding that Finavia obtained […].
38 The net interest-bearing-debt-to-EBITDA ratio is a debt ratio that shows how many years it would take for a company to pay back its debt if net debt and EBITDA are held constant.
39 The ratio threshold will be progressively reduced as of 2023 up to 2030. Currently, Finavia’s leverage ratio is of […], while it was at 3.8 in 2019 before the COVID-19 outbreak.
40 The equity ratio indicates how much of a company's assets have been generated by issuing equity shares rather than by taking on debt. The lower the ratio result, the more debt a company has used to pay for its assets.
41 On 31 December 2019, the equity ratio of Finavia was 58%. It dropped at 41% in 2020. Additional loans without capital injection […].
42 Finland indicated that Finavia […]. However, Finland points out that without the Measures, […].
43 All of the […] financial covenants provide that if Finavia breaches any of the financial ratios (equity or leverage ratios), […]. Therefore, according to Finland, Finavia may not delay the completion of the Investment Programme. […].
10 (30) In addition, Finavia owns a 49% shareholding in LAK Real Estate Oy (“LAK”), a real estate joint venture with NREP44 (31%) and Pontos45 (20%). Investment projects of LAK (outside the Investment Programme) are also ongoing, concerning the construction of a congress hotel (the “APC congress hotel project” located in the operational core area of Helsinki airport) and a property-development project (the “South Block project”). In that context, Finland explained that Finavia will not invest in […]. However, it considers that Finavia needs to inject EUR […] in the […]. The justification for that investment resides in the major risk […]46. […]. Therefore, an exercise of […].
(31) Nevertheless, Finland committed to ensure that Finavia will not invest in […] until Finavia has made an exit of the State aid.
2.1.4. Conclusion on the objective and necessity of the Measures from the perspective of Finland
(32) In light of the above considerations, Finland considers that a recapitalisation (in the form of an equity injection) of EUR 317.15 million combined with a Subordinated Loan of EUR 32.85 is necessary to help Finavia meet its financial obligations under the covenants and address the liquidity shortage (resulting from the considerable losses recorded in 2020 and projected until 2024) that is severely eroding its financial situation.
(33) According to Finland, if Finavia does not receive State support in form of the Damage Compensation, the TF Recapitalisation and the Subordinated Loan and the company discontinues in consequence its operations, it is highly unlikely that another company would in the short or medium term be able to operate similar airport services. As Finland’s economy relies heavily on foreign trade and is dependent on well- functioning logistics and connections to the business centres and global markets (see section 2.6), Finavia’s operations play a crucial role in enabling the recovery of the Finnish economy from the pandemic. Thus, the disruption of operation of Finavia would severely slow down the recovery of the Finnish economy. Similarly, Finland’s security of supply would be severely harmed as, given the remote location of its territory, air transport plays an important role for its connectivity and its economy.
2.2. Nature and form of aid
(34) The first two of the three Measures provides aid in the form of a recapitalisation for a total amount of EUR 317.15 million, namely EUR 67.65 million in the form of Damage Compensation under Article 107(2)(b) TFEU and EUR 249.50 million under the TF Recapitalisation, by means of a voluntary equity contribution into Finavia’s reserve for invested unrestricted equity, called the “SVOP reserve” (sijoitetun vapaan oman pääoman rahasto). No new shares will be issued.
44 “NREP” is a real estate investment firm established in Denmark focused on the Nordic markets. It is active, among other things, in modern logistics, self-storage, necessity-driven retail, student housing and middle- income residential.
45 “Pontos” is a family-owned Finnish company that invests in industries in Finland and abroad, including in real estate, real estate development and property technology, growth companies, and private equity funds.
46 Finland explained that […].
11 (35) Finland explained that recapitalisation into the SVOP reserve is a common practice in Finland that is allowed by the Finnish Companies Act (624/2006), chapter 8, paragraph 2.47 The SVOP reserve forms part of a company’s unrestricted equity. The funds credited to the SVOP reserve can be distributed to shareholders in the same manner and subject to the same conditions as distribution of profits.48
(36) The equity contribution to the SVOP reserve will not be registered with the trade registry and will not appear in any public registries, but it will be reflected on the balance sheet of the company as an increase of the SVOP reserve.
(37) The third of the three Measures provides aid in the form of a Subordinated Loan for a total amount of EUR 32.85 million by means of a capital loan.
(38) Finland explained that the contemplated capital loan is a subordinated debt financing instrument regulated by the Finnish Companies Act. It is subordinated to all other unsubordinated debts of the company, but it ranks senior to equity.
2.3. Legal basis
(39) The Measures are based on the State Shareholding and Ownership Steering Act 1368/2007 (Laki valtion yhtiöomistuksesta ja omistajaohjauksesta), the Limited Liability Companies Act 624/2006 (osakeyhtiölaki), the Act on Central Government Lending and Guarantees 449/1988 (Laki valtion lainanannosta sekä valtiontakauksesta ja valtiontakuusta), and the Act on the Order of Priority 1578/1992 (laki velkojien maksunsaantijärjestyksestä).
2.4. Administration of the Measures
(40) The Measures will be granted by the government of Finland, represented by the Prime Minister’s Office. The Prime Minister’s Office will also be responsible for administrating the Measures.
2.5. Budget and duration of the Measures
(41) The budget of the Measures is EUR 350 million consisting of EUR 67.65 million for the Damage Compensation, EUR 249.50 million for the TF Recapitalisation, and EUR 32.85 million for the Subordinated Loan.
47 An investment into a Finnish limited company’s SVOP reserve can be made by a shareholder of the company or by any third party. The investment can be made in return for consideration (e.g. shares in the company) or without any consideration.
48 The decision to distribute funds from the SVOP reserve is made by the general meeting of shareholders at the proposal of the board of directors. The general meeting may also authorise the board of directors to resolve on a distribution from the SVOP reserve up to a specified maximum amount. A distribution from the SVOP reserve works in the same way as a distribution of dividends, subject to certain conditions set out in Chapter 13 of the Finnish Companies Act (624/2006). These conditions impose inter alia that the distribution must be based on the latest adopted and audited financial statements, taking into account material changes in the financial position of the company after the completion of the financial statements. In addition, the distribution may not be made if at the time of distribution it is, or should be, known that the company is insolvent or that the distribution will result in the company becoming insolvent. A distribution made in contravention of these conditions is subject to a return obligation if the recipient knew or should have known that the conditions were not met.
12 (42) The Measures will be financed from the general State budget.
(43) Aid can be granted under the Measures no later than 31 December 2021.
2.6. Beneficiary
(44) The beneficiary of the Measure is Finavia (including its subsidiaries).
(45) Finavia is an airport company which owns, operates and develops 21 airports across Finland.49 In addition to providing air traffic services, Finavia has two subsidiaries for related services: Airpro Oy (“Airpro”) and RTG Ground Handling Oy (“RTG”).50 References in this decision to Finavia include its subsidiaries.
(46) Finavia requested the Measures on 31 December 2020 by letter to the Government of Finland.
(47) Finavia and […] were not in difficulty within the meaning of the General Block Exemption Regulation (“GBER”) on 31 December 2019. […] was in difficulty within the meaning of the GBER on 31 December 2019. However, Finland committed to remedy that situation before it grants the TF Recapitalisation and the Subordinated Loan to Finavia. Specifically, Finland commits that it will not grant aid to Finavia under the TF Recapitalisation or the Subordinated Debt as long as […] is in difficulty. To that end, Finland will take appropriate market economy measures to ensure that […] will no longer be in difficulty within the meaning of the GBER when the TF Recapitalisation and the Subordinated Debt will be granted. In particular, based on currently available information and data, Finland estimates that this will entail […]. […] shall be made under market terms.
(48) Finavia is 100% State-owned. Finland explained that the Finnish Parliament has set the minimum State ownership of Finavia at 100%. As a result, Finland is legally obliged under the State Shareholding and Ownership Steering Act to keep its 100% ownership in Finavia.
(49) Furthermore, Finland explained that pursuant to the Act on the Airport Network and Airport Charges, Finavia, as the airport network company, is legally required to maintain, organise and develop the airport network and airport services for the needs of civil, State and military aviation. Only the airports that are not part of airport network may be owned and managed by third parties.
(50) In 2019, Finavia’s revenues reached EUR 392 million and its EBIT51 reached EUR 44 million. 26 million passengers used Finavia’s airports, including approx. 20 million
49 Those airports comprise Helsinki airport (IATA code: HEL), as well as a network of 20 regional airports, namely: Enontekiö (ENF), Halli Kuorevesi (KEV), Ivalo (IVL), Joensuu (JOE), Jyväskylä (JYV), Kajaani (KAJ), Kemi-Tornio (KEM), Kittilä (KTT), Kokkola-Pietarsaari, (KOK), Kuopio (KUO), Kuusamo (KAO), Mariehamn (MHQ), Oulu (OUL), Pori (POR), Rovaniemi (RVN), Savonlinna (SVL), Tampere (TMP), Turku (TKU), Utti (UTI), Vaasa (VAA). Finavia manages all airports in Finland serving regular passenger routes to the exception of Lappeenranta airport that welcomed 81 100 passengers in 2019. The latter airport is operated by a company owned by the city of Lappeenranta.
50 More information on Finavia is available at https://www.finavia.fi/en.
51 “EBIT” stands for earnings before interest and tax.
13 international passengers and 6 million domestic passengers. The airports offered 169 direct connections.
(51) According to Finland, Finavia is of strategic interest due to its systemic importance for the Finnish economy. Finland stresses that it is the fifth-largest country by area in Europe, with a remote geographical position compared to the rest of Europe and a scarce density of population. Hence, flight connections are extremely important for the Finnish trade, economy and connectivity in normal circumstances and even more so in the context of the COVID-19 crisis. A well-functioning air transport network is instrumental for the country’s economy as a whole, and its potential disappearance would have severe consequences for many Finnish remote regions as well.
(52) In Finland’s view, Finavia’s activity is essential for connectivity of passengers within Finland and to/from abroad. More than 26 million passengers travelled at one of the Finavia’s airports in 2019. Only one regional airport in Finland is not managed by Finavia (the airport of Lappeenranta). In particular, Finavia manages Helsinki airport, which constitutes an important hub, especially for traffic between Asia and Europe. Finavia’s network offers more than 160 direct connections to Finnish citizens and residents. Finland notes that Finavia’s network of local airports is essential for domestic passengers, as most regions would be left entirely without flight connections in the country since most regional airports’ catchment area consist of a very limited number of potential passengers. Travel time between Finnish regions is long, in particular in winter times, without any appropriate alternative than air services.
(53) Furthermore, Finavia’s airports also guarantee cargo and postal air services, and thus constitute an essential element of the Finnish economic supply chain. Finland states that the security of its supply relies on a well-functioning and commercially-operated flight system. Due to Finland’s relatively remote location, air transportation capacity and airports are of the essence in a crisis. Finavia’s airports hosted international cargo flights transporting medical equipment and materials from abroad, which were particularly essential during the COVID-19 outbreak.
(54) Finland considers that the aviation sector, of which Finavia is a major player, has also a strong direct impact on the Finnish economy. It refers to a study published by the International Air Transport Association (IATA) in 2018 showing that in total, 2.5% of Finland’s GDP was supported by inputs from the air transport sector and foreign tourists arriving by air. The gross value-added GDP’s contribution of the air transport industry was estimated to amount to 4.5 billion USD.52 Finavia carried out more than EUR 300 million of investments in 2019, representing on its own approximately 4% of the total investments made by the entire Finnish manufacturing industry in that same year.
(55) The Finnish authorities have also indicated that Finavia’s airports host several military facilities and Finnish air force stations. Military aircrafts movements represented
52 See https://www.iata.org/en/iata-repository/publications/economic-reports/finland--value-of-aviation/. See also a study of 2011 by Oxford Economics, aviation’s economic footprint in Finland was estimated to be even higher with a GDP contribution of 3.2% and 104.000 jobs supported by the aviation sector. According to a recent independent analysis ordered by the Finnish Prime Minister’s Office, the aviation cluster accounted for EUR 8 billion in GDP (approx. 3.3% of GDP) and it employed 80 000 people before the current crisis, which is in line with the aforementioned studies.
14 […]% of the total aircrafts movements of Finavia’s airports in 2019 (and […]% in 2020).
(56) Finavia employs directly more than 2 000 people. In addition, if Finavia were to cease operations or suffer substantial disruptions in its services, it would have severe adverse effects on a number of stakeholders. In particular, this would affect airlines such as Finnair53, passengers, industrial companies, customers/suppliers, employees, other aviation-related private and public business entities and ultimately the Finnish economy as a whole.54
2.7. Basic elements of the Damage Compensation – Eligible losses and compensation methodology
(57) The Damage Compensation aims at compensating Finavia for losses directly resulting from the COVID-19 outbreak for the period from 16 March to 30 June 2020 (the Compensation Period).
(58) According to Finland, the eligible losses correspond to the damage directly suffered by Finavia due to the restrictions and containment measures. Finland defines the damage as the net losses due to the containment and travel measures taken by Finland and other countries because of the COVID-19 outbreak.
(59) The net losses registered are the difference between the profit/loss incurred during the Compensation Period and those incurred during the same period in 2019, and that can be attributed to the measures taken by the Finnish government and/or governments of destination countries of air routes starting or ending at Finavia’s airports. That calculation takes into account the following elements:
- loss of revenue: a review of the impact of the containment measures taken by governments as a consequence of the COVID-19 outbreak on total revenue, including (i) operational revenues (airport charges and fees, ground handling services) and (ii) ancillary revenues (associated commercial services such as carparks, etc.);
- avoided costs: a review of Finavia’s cost base and the impact (both positive and negative) of the containment measures taken by governments as a consequence of the COVID-19 outbreak on costs, including deviation in (i) all variable costs (materials and services necessary for boarding/un-boarding the aircraft, passengers assistance services, etc..) and (ii) fixed costs that are not directly related to the operation of the airport, but that were nevertheless adjusted at corporate level due to the containment measures taken by governments as a consequence of the COVID-19 outbreak (in particular lower personnel costs and marketing costs).
53 The Commission highlighted in its decision of 18 May 2020 the importance of Finnair to remedy the serious disturbance affecting the Finnish economy in the context of the COVID-19 outbreak (see Commission decision C(2020) 3387 of 18 May 2020, SA.56809 – Finland – COVID-19: State loan guarantee for Finnair, JOCE C/269/2020, recitals 45 to 52.
54 As an example, Finland points out that the major area of Aviapolis surrounding the international airport of Helsinki-Vantaa employs approximately 40 000 people, more than one-third of all the jobs in the city of Vantaa.
15 (60) The avoided costs correspond to all costs that Finavia would have incurred if its activity had not been affected by the COVID-19 containment measures, and that Finavia has not actually incurred in the Compensation Period due to its suspended activities and mitigation measures. The avoided costs are calculated by comparing the costs actually borne by Finavia during the Compensation Period and the costs incurred during the same period in 2019.
(61) The net losses due to the eligible containment measures (actual damage) are calculated as the difference between loss of revenues and avoided costs during the Compensation Period. In practice, this is calculated by comparing the results (profits) of Finavia during that period with the results that it would have expected to achieve absent the COVID-19 containment measures. The proxy for those foregone profits is the difference between Finavia’s monthly EBIT figures in 2020 and in 2019.
(62) The Finnish authorities have submitted the following actual ex post data on revenues and expenses for the Compensation Period, as compared with the same period in 2019 (see Table 6 and Table 7).
Table 6 – Financial results of Finavia in Compensation Period (EBIT based) Group total (mln EUR) Mar 19 Apr 19 May Jun 19 Mar 20 Apr 20 May 20 Jun 20 19 Revenue 34.3 30.4 31.3 31.7 21.7 4.4 4.7 6.4 Other operating income 0.2 0.2 0.2 0.1 0.4 0.3 0 0.1 Operating Income - total 34.5 30.7 31.5 31.8 22.1 4.7 4.7 6.5 Materials, supplies and goods -3.6 -1.8 -1.6 -1.5 -2.5 -1.6 -1.1 -1.3 External services -5.1 -4.7 -4.4 -4.9 -5.3 -3.2 -2.7 -3 Personnel expenses -10.9 -10.9 -9.3 -9.2 -9.2 -4.9 -3.1 -4 Other operating expenses -2.7 -4.7 -0.8 -3.8 -3.3 -2.4 -2.4 -5.9 Depreciation -7.3 -7.3 -7.2 -7.2 -8.3 -8.2 -8.3 -8.3 EBIT 4.9 1.3 8.1 5.1 -6.6 -15.8 -12.9 -16 Source: Finavia
Table 7 – Finavia’s EBIT from March to June 2020 vs. 2019 (EUR million)
March April May June March-June
EBIT 2019 4.9 1.3 8.1 5.1 19.4
EBIT 2020 -6.6 -15.8 -12.9 -16 -51.3
Net losses -11.5 -17.1 -21 -21.1 -70.7 Source: Finavia
(63) Finland then further adjusted the calculation of the damage for March 2020 to the period from 16 March to 31 March 2020. For the allocation of damage occurred in March 2020, it proposed a methodology to distribute the losses between the two halves of March 2020 and to allocate the losses on the basis of the delta of daily passengers registered at Finavia’s airports between March 2019 and March 2020. The methodology used to calculate the share of damage that can be allocated to the period 16 March to 31 March is the following:
16 Share of damage for 16 to 31 March 2020 = (Passengers 16-31 March 2019 – Passengers 16-31 March 2020) / (Passengers March 2019 – Passengers March 2020)
Table 8 – Allocation of losses for March 2020 March 2019 March 2020 Delta Share of damage
Passengers 2 188 829 954 375 -1 234 454 100% (total)
Passengers (1- 1 077 683 796 821 -280 862 23% 15 March)
Passengers (16- 1 111 146 157 554 -953 592 77% 31 March)
Source: Finavia
(64) Finland attributed 77% of the EBIT losses registered for the month of March 2020 (delta 2019-2020) to the second half of the month. Accordingly, the quantification of the damage was calculated as follows:
Table 9 – Finavia’s adjusted EBIT delta from 16 March to 30 June 2020 vs. 2019 (EUR million)
16-31 April May June March-June March
Net losses -8.8955 -17.06 -21.07 -21.13 -68.15 Source: Finavia
(65) As a result, Finavia’s net losses directly caused by the COVID-19 pandemic is EUR 68.15 million for the period from 16 March to 30 June 2020.
(66) Finland indicated that one of Finavia’s subsidiaries, Airpro, has received a EUR […] million State aid, as a support for business cost. That aid was granted based on a general State aid scheme approved in case SA.56995 (decision of 24 April 2020) based on section 3.1 of the Temporary Framework. The aid aimed at covering part of the company’s fixed costs and salary costs that were difficult to adjust for a period of two months from 1 April 2020 to 31 May 2020. That aid measure thus reduced Finavia’s losses during the Compensation Period.
(67) Therefore, Finland reduced by EUR […] million the estimated damages over the Compensation Period to come to a final quantification of EUR 67.65 million.
(68) Finland confirms that the notified aid to Finavia will be net of any amount recovered by insurance, litigation, arbitration or other source for the same damage. If the aid is paid out before such amounts have been established and paid, Finland will recover an amount corresponding to such compensations with interests from the beneficiary in a second step.
55 EUR -8,9 million for March correspond to EUR -11,5 million x 0.77.
17 2.8. Basic elements of the TF Recapitalisation
2.8.1. Valuation of Finavia
(69) As Finavia is not a publicly listed company, Finland submitted a valuation of the company’s market value (“the Valuation Report”). This report was established by the independent expert Aventum.
(70) The Valuation Report establishes the market value of Finavia on 31 December 2020, based on Finavia’s business plan for 2020-2023 as adjusted in the context of the COVID-19 outbreak, as well as on Finavia’s long-term business plan originally prepared for the purposes of the Investment Programme and also adjusted in the context of the COVID-19 outbreak.
2.8.1.1. Key assumptions retained by the Valuation Report
Passenger traffic
(71) The Valuation Report used the passenger traffic short-term projections established by Finavia’s estimates and indications from key clients and aviation associations (IATA, ACI56) for 2021-2025, and Finavia’s estimates for the long-term growth.
(72) Thus, the number of passengers is expected to grow by 40% in 2021 compared to 2020, and to significantly increase by 100% in 2022. The Valuation Report anticipates that Finavia will return to its pre-COVID traffic by 2024 and continue to grow at […]% afterwards in line with long-term GDP growth projections57.
(73) According to Finland, the traffic forecast appears in line with the average industry standard that also projects a return of activity to 2019 levels by 2024. However, Finland states that projections for 2021 are more conservative than the standard industry’s projections due to the particular business of Finavia compared to other European airports. In particular, as the main justifications for that deviation, Finland points to (i) […], (ii) […], and (iii) […]58.
Revenues
(74) On the revenue side, the Valuation Report is based on conservative and prudent hypotheses. It takes the assumption that airport charges will be mostly driven by the passenger traffic. Revenues from airport services (such as rent income, licenses, permit fees) are less driven by the passenger traffic. […]. Lastly, revenues streaming from commercial associated-services (restaurants, carparks, etc.) are assumed […].
(75) Hence, as of […], net sales per passenger is expected to […]. For the period […], net sales are expected to […].
56 “ACI” stands for Airport Council International.
57 Finavia registered 6.4 million of passengers in 2020, and expects an increase up to 9 million passengers in 2021 (40% increase), followed by a boost in 2022 with 18 million passengers expected. The Valuation Report expects Finavia to reach more than 26 million passengers in 2024.
58 The Valuation Report provided estimations of […].
18 Costs
(76) As for the costs, the Valuation Report retains the main assumption that there will be no significant changes in cost levels for the period 2021-2023: personnel costs have been estimated with moderate increases (0.1-2.0%), while variable costs are expected to increase as passenger volumes start to recover. Fixed costs are assumed to remain close to pre-COVID level.
(77) As a general rule, operating expenditure per passenger is expected to increase slower than revenue (0.8%) due to scalability of operations and more efficient processes following the additional capacity resulting from the completion of the Investment Programme.
Profitability
(78) The Valuation Report takes into account the following assumptions:
- The company will not return to net profits before […]. The long-term profitability will follow a prudent development in the long-term (EBITDA margin to grow from […]% to […]% between […] and […]59);
- Due to the completion of the Investment Programme, the Valuation Report expects important scale benefit;
- The pre-COVID-19 profitability (EBITDA margin of 36-37% on average in 2015- 2019) was driven by operating at full capacity. After completion of the Investment Programme (new capacity), profitability will increase gradually as the utilization rate increases.
External funding
(79) The Valuation Report first determines the market value of Finavia in a going-concern (pre-money) without taking into account the EUR 249.50 million capital injection granted by Finland. In addition, it takes into account the Damage Compensation to be received in the amount of EUR 67.65 million as well as the previous compensation to Airpro of EUR […] million. Moreover, the Valuation Report assumes that Finavia will repay all its current loans in accordance with the contractual arrangements.
2.8.1.2. Market valuation of Finavia
(80) In order to calculate the value of the company as of 31 December 2020, the independent auditing firm used the method based on discounted future cash flows. The discounted cash flow approach is based on the anticipated future cash flows generated by the business. The projected future cash flows, together with the terminal value of the company, are discounted at the company’s Weighted Average Cost of Capital60 (“WACC”), taking into account the risks associated with the business.
59 The EBITDA margin level over the long-term is in line with the historical profitability of Finavia based on an EBITDA margin of 32% on average between 2010 and 2019.
60 The weighted average cost of capital (WACC) is a calculation of a firm's cost of capital in which each category of capital is proportionately weighted. Investors often use WACC as an indicator of whether or not
19 (81) The aggregate value of the discounted cash flows is estimated to be EUR […] for the forecast period running from […], while the terminal value of Finavia is estimated at EUR […]. As a result, the Valuation Report sets Finavia’s total Enterprise Value (“EV”) at EUR […] as at 31 December 2020.
(82) Considering that the net debt position as at 31 December 2020 amounted to EUR 722 million, the Valuation Report established the equity value of Finavia at EUR […]. On top, the Valuation Report took into account the Damage Compensation of EUR 67.65 million, as well as the previous compensation to Airpro of EUR […] million, to establish the definitive pre-recapitalisation equity value of Finavia at EUR […] million.
(83) On this base, the Valuation Report concludes that Finavia’s value as at 31 December 2020 amount to EUR […].
2.8.2. Proportion of the recapitalisation
(84) The TF Recapitalisation consists in a recapitalisation of EUR 249.50 million and Finavia’s pre-recapitalisation value is EUR […] million. As a result, and since Finavia is 100% State-owned, the State participation resulting from the TF Recapitalisation will consist of […]% of Finavia’s shares (“the COVID-19 shares”) (the remaining […]% corresponding to Finland’s pre-recapitalisation participation).
(85) Finland will put in place a step-up mechanism increasing the COVID-19 shareholding of the State to incentivise Finavia to buy back the State capital injection five years and seven years after granting of the COVID-19 equity injection, in line with point 61 of the Temporary Framework, in case the TF Recapitalisation has not been redeemed by then. Each step-up will correspond to an increase of 10 percentage points of the proportion of the imputed COVID-19 shares (i.e. no new shares will be issued). 61
2.8.3. Sale of the State’s equity stake
(86) Finland commits to ensure that if Finavia buys back the COVID-19 State equity stake, all conditions in point 63 of the Temporary Framework will be met.
(87) Finland also indicated that the State is bound by national law to keep a 100% shareholding’s ownership in Finavia. Hence, it indicated that the redemption of the aid will very likely be made in accordance with point 64bis of the Temporary Framework. In that regard, Finland committed to ensure that all conditions set in point 64bis of the Temporary Framework will be met.
(88) In any event, if Finland decides to sell shares of Finavia to a third party, it committed to comply with point 64 of the Temporary Framework and, in particular, to do so based on an open and non-discriminatory consultation of potential purchasers or a sale on the stock exchange. Furthermore, if Finland sells its equity stake at a price below the minimum price laid down in point 63 of the Temporary Framework, the
an investment is worth pursuing. Put simply, WACC is the minimum acceptable rate of return at which a company yields returns for its investors.
61 First step-up (assuming no redemption of the aid): the COVID-19 shares will account for […] x 1,1 = […]% of Finavia’s shares.
20 governance rules laid down in section 3.11.6 of the Temporary Framework will continue to apply at least until four years after the COVID-19 equity injection measure was granted.
(89) Likewise, Finland confirmed that Finavia will have the possibility to repay the aid received via a redistribution of amounts from the SVOP reserves or dividend payments. In such case, which corresponds to a buy-back of the COVID-19 equity stake, such repayment will comply with point 63 of the Temporary Framework and will be done with interests (or an additional amount) of an amount sufficient to comply with point 63 of the Temporary Framework.
2.8.4. Governance and prevention of undue distortion of competition
(90) Finland will make the TF Recapitalisation conditional upon observance of the elements regarding governance and competition set out in section 3.11.6 of the Temporary Framework.
(91) In particular, as long as at least 75% of the total value of the TF Recapitalisation has not been redeemed, Finavia and its subsidiaries will be prevented from acquiring a more than 10% stake in competitors or other operators in the same line of business, including upstream and downstream operations.
(92) Furthermore, as long as the TF Recapitalisation has not been fully redeemed, Finavia and its subsidiaries will not make dividend payments or non-mandatory coupon payments, or buy back shares, other than in relation to the participation acquired by the State under that measure.
(93) Finavia and its subsidiaries will not increase the remuneration of the members of the management beyond their fixed remuneration on 31 December 2019, before at least 75% of the total value of the TF Recapitalisation has been redeemed62. For persons becoming members of the management on or after the recapitalisation, the applicable limit is the fixed remuneration of the members of the management with the same level of responsibility on 31 December 2019.
(94) Finland confirmed that Finavia and its subsidiaries will be prohibited from engaging in aggressive commercial expansion financed by the TF Recapitalisation or taking excessive risks, as long as the TF Recapitalisation has not been fully redeemed.
(95) Finavia and its subsidiaries will also be prohibited from advertising the TF Recapitalisation for commercial purposes, as long as the TF Recapitalisation has not been fully redeemed.
(96) In addition, Finland confirmed that the TF Recapitalisation will not be used to cross- subsidise group companies which, on 31 December 2019, were undertakings in difficulty as defined in the GBER, having recourse, if necessary, to separation of
62 Finland explained that a general increase of 1.3% of the remuneration of all Finavia’s employees has been decided by Finavia’s Board of Directors in February 2020, with effects from June 2020. That increase is the result of collective agreements concluded between Finnish employee and employer associations on 4 and 23 January 2020. Finland further explained that this increase is not specific to Finavia nor even to the airport sector, but that it applies to the majority of Finnish employees active both in the private and public sectors. Furthermore, as part of the cost-cutting programme in 2020, the members of Finavia’s executive group voluntarily renounced one month of salary.
21 accounts, as long as the TF Recapitalisation has not been fully redeemed. As explained in recital (47), […], one of Finavia’s two subsidiaries, was in difficulty on 31 December 201963. However, Finland committed to remedy that situation and to ensure that […] is no longer in difficulty before the grant of the TF Recapitalisation. Finavia and its subsidiaries will do so through […] at market terms into the SVOP reserve of […].
2.8.5. Exit strategy of the State
(97) The TF Recapitalisation is conditional upon the obligation for Finavia to demonstrate a credible exit strategy for the COVID-19 recapitalisation of Finland, unless the State’s intervention is reduced below the level of 25% of equity within 12 months from the date of the granting of the aid. That exit strategy will lay out the elements contained in point 80 of the Temporary Framework and will be prepared and submitted to Finland within 12 months after aid is granted and will be endorsed by Finland.
(98) Finland informed the Commission that the State projects to have recourse to the procedure defined in point 64bis of the Temporary Framework to exit from the COVID-19 recapitalisation to the extent that the valuation of Finavia performed by an entity independent from that beneficiary and from the State will establish a positive market value of the imputed COVID shares. Finland will also submit this independent valuation to the Commission for review and prior approval.
(99) Finland confirmed that Finavia will report to Finland on the progress in the implementation of the repayment schedule and the compliance with the conditions concerning its governance and the prevention of undue distortions of competition within 12 months of the schedule’s presentation, and thereafter periodically every 12 months.
(100) It also confirmed that, as long as the TF Recapitalisation has not been fully redeemed, Finavia will, within 12 months from the date of the granting of the aid and thereafter periodically every 12 months, publish information on the use of the aid received. In particular, this will include information on how its use of the aid received supports their activities in line with EU objectives and national obligations linked to the green and digital transformation, including the EU objective of climate neutrality by 2050.
(101) Finland further committed that, if seven years after the TF Recapitalisation the State’s intervention resulting from such recapitalisation has not been reduced below 15% of Finavia’s equity, a restructuring plan in accordance with the Rescue and Restructuring Guidelines will be notified to the Commission for approval. The actions envisaged by the restructuring plan will ensure Finavia’s viability in accordance with the Rescue and Restructuring Guidelines and with a view of EU objectives and national obligations linked to the green and digital transformation and the exit of Finland without adversely affecting trade to an extent contrary to the common interest.
63 […].
22 2.9. Basic elements of the Subordinated Loan
(102) The Subordinated Loan will take the form of a capital loan as regulated by the Finnish Companies Act. Finland explained that the main features of the Subordinated Loan are as follows.
(103) In case of liquidation or bankruptcy of the company, capital loans (including both their principal and interests) rank before equity but after other unsubordinated debts of the company. Finland further indicated that the Finavia group has no other external subordinated loan.
(104) The Subordinated Loan will be registered as a liability (and not as equity) in Finavia’s balance sheet.
(105) Under Finnish law, capital loans can in principle be assimilated to equity for the purposes of assessing whether negative equity must be registered in the Finnish Trade Register64. However, Finland committed to include a provision in the Subordinated Loan agreement stating that the capital loan will not be considered as equity in connection with the calculation of equity in case of a loss of share capital of the company (i.e. for the purposes of Section 23 of Chapter 20 of the Companies Act).
(106) Capital loans cannot be converted into equity unless specifically agreed. No conversion options will be provided for the Subordinated Loan.
(107) Under Finnish law, repayment of capital loans and payments of the interest on capital loans are allowed only to the extent that the total sum of the unrestricted equity and of all the capital loans of the company at the time of payment exceeds the loss on the balance sheet to be adopted for the latest financial period or the loss on the balance sheet from more recent financial statements.
(108) The Subordinated Loan will have a duration of 6 years.
(109) In case of non-payment at maturity (for example because the conditions explained at recital (107) are not met), such non-payment will be regarded as a default. Such non- payment will also trigger cross-default provisions under Finavia’s current financing agreements.
(110) The Subordinated Loan will amount to EUR 32.85 million in principal. By comparison, and with respect to the thresholds set out at points 27(d) and 27bis of the Temporary Framework, personnel costs of Finavia amounted to EUR 120 million in 2019, and its turnover to EUR 392 million.65
64 Under the Finnish Companies Act, if the board of directors of a company notices that the company has a negative equity, it must register a notification of the loss of share capital in the Finnish trade register, with a view to warning the company’s counterparties of the weakened financial situation the company.
65 The Subordinated Loan’s amount is, therefore, below: (i) two-thirds of the 2019 annual wage bill of Finavia (i.e. two third of EUR 120 million, i.e. EUR 80 million) in 2019; (ii) 8.4% of Finavia’s 2019 turnover (8.4% of EUR 392 million, i.e. EUR 32.9 million); (iii) the double of the annual wage bill of the beneficiary for 2019 (i.e. two times EUR 120 million, i.e. EUR 240 million); and (iv) 25% of the beneficiary’s total turnover in 2019 (i.e. 25% of EUR 392 million, i.e. EUR 98 million).
23 (111) Interests will be due by Finavia to the Finnish State on the Subordinated Loan. Subject to the preconditions set out in recital (107), their payment is mandatory and they cannot be deferred. Any non-payment would constitute a default and non-paid interests will be capitalised. Applicable interest rates are as follows: Base rate (1 year IBOR or equivalent at the date of notification) + base points as set out in Table 10.
Table 10 – Interest rates applicable to the Subordinated Loan Year 1 2 3 4 5 6
Bps 250 300 300 400 400 400
Source: Finland
2.10. Cumulation
(112) Concerning the Damage Compensation, the Finnish authorities have confirmed that the aid cannot be cumulated with other aid (also de minimis) covering the same eligible costs.
(113) In that regard, Finland indicated that one of Finavia’s subsidiary, Airpro, has received a EUR […] million State aid, as a support for business costs. That aid was granted based on a general State aid scheme approved in the context of case SA.56995 (decision of 24 April 2020) based on section 3.1 of the Temporary Framework. As mentioned in recitals (66) and (67), that aid is taken into account in the computation of the Damage Compensation in order to avoid cumulation. Specifically, since the aid to Airpro reduces Finavia’s losses (and thus its damage), this aid amount has been deducted from the Damage Compensation.
(114) As for the TF recapitalisation and the Subordinated Loan, Finland confirmed that the aid may be cumulated with aid under de minimis Regulations66 or the General Block Exemption Regulation67 provided the provisions and cumulation rules of those Regulations are respected.
(115) Finland confirmed that the TF recapitalisation and the Subordinated Loan may be cumulated with aid granted under other measures approved by the Commission under other sections of the Temporary Framework provided the provisions in those specific sections are respected. It also confirmed that no other State loan or State guarantee has been granted to Finavia for the same underlying principal.
2.11. Monitoring and reporting
(116) Concerning the Damage Compensation, the Finnish authorities committed to submit to the Commission by no later than 31 December 2021 the results of the ex post assessment of the damage suffered by Finavia during the period from 16 March to 30
66 Commission Regulation (EU) No 1407/2013 of 18 December 2013 on the application of Articles 107 and 108 of the Treaty on the Functioning of the European Union to de minimis aid (OJ L 352, 24.12.2013, p.1), Commission Regulation (EU) No 360/2012 of 25 April 2012 on the application of Articles 107 and 108 of the Treaty on the Functioning of the European Union to de minimis aid granted to undertakings providing services of general economic interest (OJ L 114, 26.4.2012, p. 8).
67 Commission Regulation (EU) No 651/2014 of 17 June 2014 declaring certain categories of aid compatible with the internal market in application of Articles 107 and 108 of the Treaty, OJ L 187, 26.6.2014, p. 1.
24 June 2020 as a result of the containment measures linked to the COVID-19 outbreak, based on the operating accounts of Finavia for the year 2020 audited and duly certified by an independent body. If the ex post assessment shows that Finavia has been overcompensated, the Finnish authorities commit to ensure that Finavia repays any such overcompensation with interest.
(117) As for the TF Recapitalisation and the Subordinated Loan, Finland confirmed that it will respect the monitoring and reporting obligations specific to each measure laid down in section 4 of the Temporary Framework. In particular:
- It will publish relevant information on the TF Recapitalisation granted to Finland on the comprehensive State aid website or Commission’s IT tool within three months from the moment of recapitalisation; for the Subordinated loan, the deadline is 12 months from the date of granting.
- It will submit annual reports to the Commission, in line with points 84 and 89 of the Temporary Framework.
- It will ensure that detailed records regarding the granting of aid under the Measures (including all information necessary to establish that the necessary conditions have been observed) are maintained for ten years upon granting of the aid and are provided to the Commission upon request.
3. ASSESSMENT
3.1. Lawfulness of the Measures
(118) By notifying the Measures before putting them into effect, the Finnish authorities have respected their obligations under Article 108(3) TFEU.
3.2. Existence of State aid
(119) For a measure to be categorised as aid within the meaning of Article 107(1) TFEU, all the conditions set out in that provision must be fulfilled. First, the measure must be imputable to the State and financed through State resources. Second, it must confer an advantage on its recipients. Third, that advantage must be selective in nature. Fourth, the measure must distort or threaten to distort competition and affect trade between Member States.
(120) The Measures are imputable to the State, since they are granted and administered by the Prime Minister’s Office. They are financed through State resources, since they are financed by public funds, i.e. the general State budget.
(121) The Measures first confer an advantage on its beneficiary Finavia (including its subsidiaries) in the form of a recapitalisation (both for the Damage Compensation and the TF Recapitalisation). They both thus relieve Finavia and its subsidiaries of costs which they would have had to bear under normal market conditions.
(122) Second, the third of the Measures also confers an advantage on the beneficiary Finavia (including its subsidiaries) in the form of a subordinated loan, considering that Finavia would not be able to obtain the envisaged loan on the market under the same conditions. The Commission based its analysis on the following considerations. The financial situation of the aviation sector is particularly severe due to the COVID-19 crisis. In particular, Finavia has been severely affected by that crisis, as explained in 25 section 2.1. Furthermore, market loans sought by Finavia and currently under negotiation are conditional upon the State first implementing the Measure. This is strong indication of Finavia’s difficulties to obtain liquidities on the capital market without State intervention. It follows from the information submitted to the Commission that Finavia would not obtain a loan on the market for the same amount and under the same conditions as those of the Subordinated Loan.
(123) The advantage granted by the Measures are selective, since is the Measures are awarded only to one undertaking (Finavia). The Measures therefore, favour Finavia over other airports or undertakings active in sectors outside aviation.
(124) The Measures are liable to distort competition, since they strengthen the competitive position of Finavia and its subsidiaries. They also affect trade between Member States, since Finavia and its subsidiaries are active in sectors in which intra-Union trade exists.
(125) In view of the above, the Commission concludes that the Measures constitute aid within the meaning of Article 107(1) TFEU. The Finnish authorities do not contest that conclusion.
(126) Since the Measures involve aid within the meaning of Article 107(1) TFEU, it is necessary to consider whether they are compatible with the internal market. In the following sections, the compatibility of the Damage Compensation, Subordinated Loan and TF Recapitalisation are assessed separately.
3.3. Compatibility of the Damage Compensation
(127) Article 107(2)(b) TFEU covers aid which is, in law, compatible with the internal market, provided that it satisfies certain objective criteria. Since this is an exception to the general principle stated in Article 107(1) TFEU that State aid is incompatible with the internal market, Article 107(2)(b) TFEU must be interpreted narrowly. Therefore, only damage directly caused by natural disasters or exceptional occurrences may be compensated for under that provision. There must be a causal direct link between the damage suffered by an undertaking and the exceptional occurrence, and the compensation must not exceed the amount of this damage.
(128) Article 107(2)(b) TFEU provides that aid to make good damage caused by natural disasters or exceptional occurrences shall be compatible with the internal market. Neither the TFEU nor other Union legislation contains a precise definition of the notion of exceptional occurrence. As they constitute exceptions to the general prohibition of State aid within the internal market laid down in Article 107(1) TFEU, the Commission, in line with the consolidated Union case-law68 has consistently held that the notions of ‘natural disaster’ and ‘exceptional occurrence’ referred to in Article 107(2)(b) TFEU must be interpreted restrictively.
(129) The characterisation of an event as being an exceptional occurrence is made by the Commission on a case-by-case basis, having regard to its previous practice in the
68 Judgment of the Court of Justice of 11 November 2004, Spain v Commission, C-73/03, EU:C:2004:711, paragraph 37 and judgment of the Court of Justice of 23 February 2006, Atzeni and others, in Joined Cases C-346/03 and C-529/03, EU:C:2006:130 paragraph 79.
26 field.69 In that regard, the following indicators relating to the event concerned must be cumulatively met: (i) unforeseeable or difficult to foresee70; (ii) significant scale/economic impact71 and (iii) extraordinary, i.e. differ sharply from the conditions under which the market normally operates72.
3.3.1. COVID-19 outbreak as an exceptional occurrence
(130) Following the first reports of cases of acute respiratory syndrome (COVID-19) in the Wuhan municipality in China at the end of December 2019, the Chinese authorities identified a novel coronavirus (SARS-CoV-2) as the main causative agent, which had not been previously identified in humans. The outbreak rapidly evolved, affecting not only other parts of China but has also spread to the majority of countries worldwide, including all Member States. Outbreaks of novel virus infections among people are always a public health concern and can have a significant economic impact. Specific sectors and areas are particularly affected by the outbreak, be it because of national outbreak control measures, travel restrictions or supply chain disruptions.
(131) The World Health Organization (“WHO”) warned about the very high risk that COVID-19 would spread and have a global impact. The subsequent spread of COVID-19 ultimately resulted in far-reaching disruption of various economic sectors. That disruption was thus clearly outside the normal functioning of the market. In order to avoid an exponential increase in the number of cases, accompanied by social alarm and severe economic consequences, containment measures needed to be adopted.
(132) On 11 March 2020, the WHO characterised the COVID-19 disease as a pandemic. The public health risk deriving from the absence of therapeutics or vaccines for the novel COVID-19 virus determined the exceptionality of the circumstances. The rapidity of the spread caused enormous consequences both in terms of fatal outcomes
69 Exceptional occurrences which have been accepted in the past by the Commission include war, internal disturbances and strikes, and, with certain reservations and depending on their extent, major industrial accidents which result in widespread economic loss, see Guidelines for State aid in the agricultural and forestry sectors and in rural areas 2014 to 2020, paragraph 330 (OJ C 204, 1.07.2014, p. 53).
70 Commission decision of 1 August 2008 in case SA.32163, Remediation of damage to airlines and airports caused by seismic activity in Iceland and the volcanic ash in April 2010, Slovenia, paragraph 31, OJ C 135, 9.5.2012, p. 1.
71 Elements taken into account by the Commission to consider that the occurrence reached a significant scale: negative consequences cannot be contained (Commission decision of 4 October 2000 in case NN 62/2000, Régime temporaire d'aides aux entreprises victimes des intempéries et de la marée noire – France, OJ C 127, 29.05.2003, p. 32), or the number of dead or injured people (Commission decision of 11 April 2012 in case SA.33487, Agricultural and fisheries aid to compensate for damage due to exceptional occurrence (red mud "Aluminium accident"), Hungary, paragraph 35, OJ C 120, 25.04.2012, p. 1; Commission decision of 2 May 2002 in case N241/2002, Régime en faveur des entreprises victimes de la catastrophe industrielle de Toulouse, France, paragraph 19, OJ C 170, 16.07.2002, p. 16), the immense ecological and economic damage (Commission decision of 11 April 2012 in case SA.33487, paragraph 36, OJ C 120, 15.04.2012, p. 1), the amount of material damage, despite the local character of the industrial accident (Commission decision of 2 May 2002 in case N 241/2002, paragraph 19, OJ C 170, 16.07.2002, p. 16).
72 In its decision of 19 May 2004 in case C-59/2001 (OJ L 62, 2007, p. 14), the Commission considered that the (alleged) fall in sales of poultry meat in a Member State not directly affected by the dioxin contamination did not in itself constitute an exceptional occurrence. Even though it was an unforeseeable event, it formed part of the normal commercial risks to which an undertaking is exposed.
27 in high-risk groups and in terms of economic and societal disruption73. The necessity to adopt and encourage the respect of measures aimed at interrupting transmission chains stemmed from that acknowledgement.
(133) Since March 2020, Member States adopted various measures that aimed to limit the spread of the coronavirus, e.g. travel restrictions for non-essential travels, closure of borders, closure of non-essential shops, obligation for companies to organise working from home for every position where this is possible and various social distancing measures.
(134) In view of the above, the COVID-19 outbreak qualifies as an exceptional occurrence, as it was not foreseeable and is clearly distinguishable from ordinary events, by its character and its effects on the affected undertakings and the economy in general, and therefore falls outside the normal functioning of the market.
(135) In this context, the COVID-19 outbreak can be considered as an exceptional occurrence within the meaning of Article 107(2)(b) TFEU74.
3.3.2. Causal link between the damage to be compensated by the notified Damage Compensation and the COVID-19 outbreak
(136) The Commission has examined the notified Damage Compensation pursuant to Article 107(2)(b) TFEU, which requires a direct causal link between the damage and the exceptional occurrence for which the State aid measure provides compensation. That assessment has led to the following observations.
(137) The notified Damage Compensation aims at compensating Finavia for the damage suffered due to the cancellation of flights from/to Finavia’s airports as a result of the imposition of travel restrictions and other containment measures directly linked to the COVID-19 outbreak (recital (4)). The notified Damage Compensation aims at compensating for the damage suffered during the period from 16 March to 30 June 2020.
(138) As described in detail in section 2.1.1, the COVID-19 outbreak has resulted in travel restrictions all over the world and the closing down of the vast majority of passenger air transport. Those containment measures were intended to avoid the spread of the virus, but they negatively affected the aviation sector. The damage suffered by Finavia is directly linked to the COVID-19 outbreak through the effects on Finavia’s operations of the travel restrictions and other containment measures imposed by the Finnish government and other governments in Europe and around the world during the Compensation Period (from 16 March to 30 June 2020). To reach that conclusion, the Commission has considered the travel restrictions imposed in Finland and other countries, as well as their impact on Finavia’s operations.
73 ECDC’s Rapid Risk Assessment, Outbreak of novel Coronavirus disease 2019 (COVID-19): increase transmission globally – fifth update, 2 March 2020.
74 See Commission Decision of 12 March 2020 in State aid case SA.56685 (2020/N) – Denmark – Compensation scheme for cancellation of events related to COVID-19, OJ C 112, 03.04.2020, and Commission Decision of 31 March 2020 in State aid case SA.56765 (2020/N) – France – COVID-19 Moratoire sur le paiement de taxes et redevances aéronautiques en faveur des entreprises de transport public aérien sous licences d'exploitation délivrées par la France.
28 (139) First, the Commission observes that during the Compensation Period, lockdown measures and travel bans were widely in force (see section 2.1.1) in Finland and within the Union, translating into extensive grounding of aircrafts.
(140) Finland fully closed its borders as of 16 March 2020 (which is the start of the Compensation Period) and imposed very stringent travel restrictions at least until 14 May 2020. As of the latter date it allowed only specific essential travels. Finland started to lift restrictions at domestic level at the end of May 2020.
(141) Data provided in recitals (17) to (20) confirm the impact of those general travel restrictions on Finavia’s operations. Table 2 and Table 3 show that the number of passengers and aircrafts movements registered at Finavia’s airports as well as the volume of revenues cashed in by Finavia substantially decreased in the second half of March 2020 as well as in April, May and June 2020 following the implementation of the travel restrictions and containment measures.
(142) Secondly, the Commission notes that by the end of May 2020, Finland lifted the restrictions on domestic travels. However, international traffic remained fully suspended. Intra-Union traffic was limited to specific essential travels. That measure remained in place until 13 July 2020, with a limited exception for Norway and Baltic countries as of 15 June 2020 (see recitals (10) to (13))75. In addition and as pointed out in recitals (14) and (15), most of the Member States maintained their borders closed until at least mid-June 2020 following the recommendation issued by the Commission to only lift internal borders by 15 June 2020.
(143) With respect to domestic traffic, the data provided for June 2020 show that Finavia continued to be strongly affected by the existing restrictions in place in Finland and in other Member States and third countries despite the easing on domestic travels as of 29 May 2020. Domestic routes represented 17% of Finavia’s total traffic in June 2019 and 18% of the total revenue from passenger flights. Hence, the main revenues of the company streamed from international traffic, where travel restrictions were still in place. In addition, the number of domestic passengers using Finavia’s airports was still 92% lower than in June 2019 (see recital (21)).
(144) Furthermore, the removal of travel bans to the Baltic countries and Norway had a limited impact on Finavia’s operations given that traffic to/from those countries only represented 7% of its operations in that period of the year in 2019. In addition, the passenger traffic registered to those specific countries decreased by more than 90% in the second half of June 2020 compared to the same period of 2019 and only substantially restarted in July 2020 (see recital (22)).
(145) Therefore, many COVID-19 containment measures remained in place until the end of June 2020 (in particular travel bans to/from most countries served from Finavia’s airports), as a result of which traffic to/from countries that represented more than 75% of Finavia’s activities in June 2019 was prohibited. This significantly affected Finavia’s operations throughout June 2020.
(146) This is confirmed by data as the passenger traffic and volume of aircrafts movements remained still substantially lower in June 2020 than in June 2019. The passenger
75 Finland allowed traffic from Estonia, Iceland, Latvia, Lithuania, Norway and Denmark as of 15 June 2020, but Denmark and Iceland kept their borders closed until 27 June and 1 July 2020 respectively.
29 traffic (including both international and domestic traffic) registered in June 2020 represented 4% of the traffic in June 2019, while the volume of aircrafts movements represented 21% of the volume registered in June 2019. The number of passengers, although slightly increasing as of 15 June 2020, still remained very low between 15 and 30 June 2020 on international routes, including to other Member States, compared with 2019 (-99% for international routes and -98.5% for EU routes) (see recitals (20) to (22)). Therefore, the travel restrictions maintained in place throughout June 2020 in Finland and elsewhere still paralysed almost all of Finavia’s activities.
(147) In light of those circumstances, the Commission concludes that there exists a direct causal link between the damage suffered by Finavia during the period from 16 March 2020 (when Finland first closed its borders) to 30 June 2020 (when travel restrictions still affected the vast majority of routes normally operated from/to Finavia’s airports) and the exceptional occurrence, i.e. the COVID-19 outbreak together with the containment and travel restriction measures in place during the Compensation period.
3.3.3. Proportionality of the Damage Compensation
(148) In order to be compatible with Article 107(2)(b) TFEU, the aid must be proportional to the damage directly caused by the exceptional occurrence. Aid must not result in over-compensation of damage; it should only make good the damage caused by the exceptional occurrence.
(149) To ensure proportionality, it is necessary to analyse the assumptions and evidence on which the calculation of damage for the factual scenario is based. In particular, it is necessary to look at how the exceptional occurrence has actually and directly affected the operations of Finavia (e.g. Finavia has been prevented from operating) and what actual impact it has had on the costs and revenues of the company.
(150) The damage to be compensated during the Compensation Period corresponds to the net loss, defined as loss of revenues minus avoided costs. The loss of revenues is the difference between the revenues that Finavia would have expected during the Compensation Period, had the containment measures linked to the COVID-19 outbreak not occurred, and the revenues that Finavia has actually generated during the Compensation Period. To approximate counterfactual revenues, actual revenues for the same period of the previous year (2019) are used.
(151) Avoided costs correspond to costs that Finavia would have had during the Compensation Period if its activity had not been affected by the containment measures linked to the COVID-19 outbreak, and that Finavia did not have to bear as a result of the cancelled operations (fuel, airport taxes, etc.). The avoided costs are quantified by comparing the costs borne by Finavia for the same period of the previous year with the costs borne by the company during the Compensation Period.
(152) The Finnish authorities submitted an evaluation of the damage on the basis of a monthly EBIT comparison for the period from 16 March to 30 June 2020 and the same period in 2019, which established the total net losses of Finavia between 16 March and 30 June 2020 at EUR 67.65 million (see section 2.7).
(153) Finland has submitted the actual net losses registered by Finavia in the months of April, May and June 2020 on the basis of the monthly EBIT delta, which reflects the operating revenues and expenses of the company and allows to capture its net operating losses. For the calculation of the net losses in March 2020 (i.e., from 16 to
30 31 March), Finland has estimated the corresponding proportion of revenues, variable costs and fixed costs in that incomplete month based on the delta of daily passengers using Finavia’s airports between March 2019 and 2020 (see recital (63)). The Commission notes that, in the absence of actual daily EBIT data for March, the allocation of net losses by using that methodology is a robust and accurate approximation for the actual distribution of daily losses, which were logically concentrated in the second half of March 2020 following the closure of the Finnish borders on 16 March 2020.
(154) In addition, the Finnish authorities have committed to submit to the Commission by no later than 31 December 2021 the results of the ex post assessment of the damage suffered by Finavia during the period from 16 March to 30 June 2020 as a result of the containment measures linked to the COVID-19 outbreak, based on the operating accounts of Finavia for the year 2020 audited and duly certified by an independent body (recital (116)). If the ex post assessment shows that Finavia has been overcompensated, the Finnish authorities commit to ensure that Finavia repays any such overcompensation with interest.
(155) Lastly, the Finnish authorities have confirmed that the aid cannot be cumulated with other aid (also de minimis) covering the same eligible costs (see recital (112) to (115). In particular, the aid previously received by Airpro (a Finavia subsidiary) has been taken into account in the computation of the Damage Compensation in order to avoid cumulation. Specifically, since the aid to Airpro reduces Finavia’s losses (and thus its damage), that aid amount has been deducted from the Damage Compensation.
3.3.4. Conclusion under Article 107(2)(b) TFEU
(156) In light of the above, the Commission considers that the Damage Compensation granted by Finland to Finavia under Article 107(2)(b) TFEU (i.e. a compensation of EUR 67.65 million) does not exceed the damage estimated to have been incurred by Finnair directly linked to the exceptional occurrence and the governmental restrictions.
(157) The conditions attached to the Damage Compensation and presented in this section do not affect the compatibility of the TF Recapitalisation and the Subordinated Loan. Likewise, the conditions attached to the TF Recapitalisation and the Subordinated loan do not affect the compatibility of the Damage Compensation.
3.4. Compatibility of the TF Recapitalisation
(158) Since the TF Recapitalisation involves aid within the meaning of Article 107(1) TFEU, it is necessary to consider whether it is compatible with the internal market.
(159) Pursuant to Article 107(3)(b) TFEU the Commission may declare compatible with the internal market aid “to remedy a serious disturbance in the economy of a Member State”.
(160) By adopting the Temporary Framework on 19 March 2020, the Commission acknowledged (in section 2) that “the COVID-19 outbreak affects all Member States and that the containment measures taken by Member States impact undertakings”. The Commission concluded that “State aid is justified and can be declared compatible with the internal market on the basis of Article 107(3)(b) TFEU, for a limited period,
31 to remedy the liquidity shortage faced by undertakings and ensure that the disruptions caused by the COVID-19 outbreak do not undermine their viability”.
(161) Section 3.11 of the Temporary Framework deals with recapitalisation measures. It sets out the criteria under which Member States may provide public support in the form of equity and/or hybrid capital instruments to undertakings facing financial difficulties due to the COVID-19 outbreak, aiming to ensure that the disruption of the economy does not result in the unnecessary exit from the market of undertakings that were viable before that outbreak.
3.4.1. Applicability
(162) Point 46 of the Temporary Framework states that: “The following conditions shall apply to recapitalisation schemes and individual recapitalisation measures of Member States for non-financial undertakings (collectively referred to as “COVID-19 recapitalisation” measures) under this Communication, which are not covered by section 3.1 of this Communication. They apply to COVID-19 recapitalisation measures for large undertakings and SMEs”.
(163) The TF Recapitalisation aims at strengthening the equity of Finavia and its access to liquidity at a time when the normal functioning of credit markets is severely disturbed by the COVID-19 outbreak and that outbreak is affecting the wider economy and leading to severe disturbances of the real economy of Member States.
(164) The TF Recapitalisation takes the form of an injection into Finavia’s SVOP reserve, which forms part of Finavia’s unrestricted equity, as further explained in recitals (34) to (36). The TF Recapitalisation thus amounts to a recapitalisation within the meaning of point 46 of the Temporary Framework.
(165) The Commission observes that the TF Recapitalisation concerns the recapitalisation of a large non-financial undertaking (Finavia, including its subsidiaries) as a result of the COVID-19 outbreak. Hence, the TF Recapitalisation can be qualified as a COVID-19 recapitalisation to remedy a serious disturbance in the economy of the Member State.
(166) Point 48 of the Temporary Framework states that COVID-19 recapitalisation measures may not be granted later than 31 December 2021. The Commission notes that Finland committed to grant the TF Recapitalisation no later than 31 December 2021 (see recital (43)).
(167) Therefore, in the following sections, the Commission will assess the compatibility of the TF Recapitalisation under section 3.11 of the Temporary Framework.
3.4.2. Eligibility and entry conditions
(168) According to point 49 of the Temporary Framework, a COVID-19 recapitalisation measure must fulfil the following conditions:
(i) “without the State intervention the beneficiary would go out of business or would face serious difficulties to maintain its operations. Such difficulties may be shown by the deterioration of, in particular, the beneficiary's debt to equity ratio or similar indicators;
(ii) it is in the common interest to intervene. This may relate to avoiding social hardship and market failure due to significant loss of employment, the exit of an 32 innovative company, the exit of a systemically important company, the risk of disruption to an important service, or similar situations duly substantiated by the Member State concerned;
(iii) the beneficiary is not able to find financing on the markets at affordable terms and the horizontal measures existing in the Member State concerned to cover liquidity needs are insufficient to ensure its viability; and
(iv) the beneficiary is not an undertaking that was already in difficulty on 31 December 2019 (within the meaning of the General Block Exemption Regulation76)”.
3.4.2.1. Without the State intervention, the beneficiary would go out of business or would face serious difficulties to maintain operations
(169) In the present case, the Commission first notes that Finavia has been severely impacted by the substantial decrease of air services operated domestically and internationally at its airports due to the COVID-19 outbreak and the governmental restrictions77. The timid resumption of flights of the summer 2020 was halted by the second wave of pandemic that hit Europe in the autumn and winter 2020. Consequently, Finavia will register substantial losses and its cash balance will turn negative in 2021 despite all its cost reductions and payment deferrals obtained (see recital (24)). Those circumstances put the company’s liquidity position in distress and is ultimately seriously eroding its equity structure.
(170) In addition, the Commission observes that the COVID-19 outbreak hit Finavia particularly hard at a time where it was completing an important Investment Programme of more than EUR 1 billion at its airports to cater for the increasing growth traffic coming mostly from Asia that had been evident pre-COVID. That Investment Programme was financed partly through loans […] (see (recital (25)). Finavia’s financial covenants required it to maintain certain financial ratios directly affecting its capacity to obtain credits on the market (recital (29)). Given that Finavia may not […], an equity injection appears as a necessary solution for the company to carry on its activities.
(171) It follows that without the aid, Finavia would face serious difficulties to maintain its operations, in accordance with point 49(a) of the Temporary Framework.
3.4.2.2. It is in the common interest to intervene
(172) The Commission notes that Finavia is the manager of the quasi-totality of the airports in Finland. Air services are of major importance for the Finnish economy and trade given the relatively remote geographic position of Finland within the Union. They are also important for the connectivity of people residing in Finland and travelling within a country that has one of the largest area in Europe (see recitals (50) to (56)).
76 As defined in Article 2(18) of the Commission Regulation (EU) No 651/2014 of 17 June 2014 declaring certain categories of aid compatible with the internal market in application of Articles 107 and 108 of the Treaty, OJ L 187 of 26.6.2014, p. 1.
77 See section 2.1.1.
33 (173) As stated in recitals (50) to (56), Finavia welcomed 26 million passengers before the COVID-19 outbreak at its airports, and in particular at Helsinki airport which is a major international hub in Europe and worldwide. It manages almost the entire passenger traffic and aircrafts operations in Finland, and its airports are essential for the cargo and postal air services that use its infrastructures and ground handling services, particularly in the context of the COVID-19 outbreak. Close to 170 direct connections are served by Finavia’s airports, thus ensuring connectivity for Finnish residents and businesses with the main business centres in Europe and worldwide.
(174) Finavia is also an important employer and a company that has carried major investments in the last years. Many customers (from passengers to airlines and suppliers) rely on Finavia’s airport services. It should also be noted that the Finnish air force and army own several facilities at Finavia’s airports and use the latter for military purposes.
(175) The Commission observes that, should Finavia exit the market at a time where the effects of the COVID-19 pandemic remains present, that circumstance would further aggravate the serious disturbance affecting the Finnish economy. Finavia’s services and expertise would not be replicable on the short-term and would seriously risk to cause disruption of connectivity and essential air services in Finland; public authorities would necessarily have to directly take over the management of the airports while organising a long and uncertain tender procedure in a difficult context. That risk is made even more acute by the fact that no other airports would be available to take over Finavia’s traffic (passengers, cargo and postal services) during the recovery period of the Finnish economy, since the sole airport in Finland not operated by Finavia does not have the capacity to take over the traffic from outside its region (in particular from the Helsinki region, which is, in economic terms, the most important in the country).
(176) It follows that it is in the common interest to intervene in favour of Finavia to maintain the continuity of crucial airport infrastructure services for the Finnish economy and avoid any further deterioration in the context of the COVID-19 pandemic.
(177) The Commission therefore considers that point 49(b) of the Temporary Framework is met.
3.4.2.3. Absence of alternative funding on the market and insufficiency of other horizontal aid schemes
(178) It follows from the information provided by Finland that Finavia has first contemplated the possibility to obtain financing on the market. It has indeed obtained a loan from […] of EUR […] as well as further support from the European Investment Bank (although the tranche of financing was already planned before the COVID-19 outbreak) (see recital (27)). Finavia has also approached commercial banks to obtain […], which have declared interest but only committed to invest upon […] and a prior State capital injection (see recital (28)).
(179) Finavia is subject to financial covenants that […] (see recital (29))78. Given that at the date of adoption of the present decision […], that circumstance necessarily affects its
78 The company is subject to a […] equity ratio.
34 access to private capital. The aim of the equity injection is precisely to allow Finavia to have access to private capital and to obtain further financing on the market.
(180) Finavia is subject by law to a 100% shareholding by the State. Therefore, the company itself could not attract capital from other private investors without the consent of the State of Finland and a modification of the law passed by the Parliament. In any event, even in the absence of such law, the Commission considers that, in light of the financial situation of Finavia (see recitals (23) to (29)), other private investors would have not injected capital in Finavia due to the high losses registered by the company (which the Measures do not help to fully cover on the short and medium term) as well as the important negative cash flow faced by the company. In addition, the company is subject to financial covenants involving […]. Therefore, the company would not offer sound and prudent financial perspectives for a private investor, in particular in the COVID-19 context.
(181) In addition, Finavia could not obtain aid under horizontal schemes because such schemes adopted by Finland provide for State guarantee and loans, which are not aid instruments that would address Finavia’s needs to maintain its equity structure above a certain level required by the financial covenants. Other horizontal schemes adopted by Finland are sector-specific that do not cover the aviation sector, or are schemes adopted under section 3.1 of the Temporary Framework providing direct grant of EUR 800 000, which is clearly insufficient for Finavia.
(182) In light of the above, Finland demonstrated that Finavia is not able to find alternative financing on the market to the contemplated Measure, in line with point 49(c) of the Temporary Framework.
3.4.2.4. The beneficiary is not an undertaking already in difficulty on 31 December 2019
(183) Based on the documents submitted by Finland, the Commission assessed whether Finavia and its subsidiaries (Airpro and RTG) were in difficulty on 31 December 2019 within the meaning of the GBER and, if so, whether they would remain in difficulty at the moment of granting the TF Recapitalisation. Finavia and […] were not undertakings that were already in difficulty on 31 December 2019 within the meaning of the GBER. As explained in recitals (47) and (96), […] was in difficulty on 31 December 2019. Specifically, Finland commits that it will not grant aid to Finavia under the TF Recapitalisation or the Subordinated Debt as long as […] is in difficulty. To that end, Finland will take appropriate market economy measures to ensure that […] will no longer be in difficulty when the TF Recapitalisation and the Subordinated Debt will be granted. In particular, based on currently available information and data, Finland estimates that this will entail […]. […] shall be made under market terms. Having reviewed Finland’s proposal, the Commission concludes that, following such […], […] will no longer be in difficulty within the meaning of the GBER79. Therefore, the Commission concludes that the Measure is in line with point 49(d) of the Temporary Framework.
79 Specifically, […], […] would have erased via retained losses more than half of its subscribed capital, and its book debt-to-equity ratio was greater than 7.5. Such […] is foreseen to address both issues.
35 3.4.2.5. Request for aid under section 3.11 of the Temporary Framework
(184) Pursuant to point 50 of the Temporary Framework, when Member States notify COVID-19 individual recapitalisation measures, they must provide evidence of a written request for such aid by the prospective beneficiary undertaking as part of the notification to the Commission. The Commission takes note that the Finnish notification included such a written request dated 31 December 2020 in the form of a letter referring to a resolution of Finavia’s Board of Directors (see recital (46)). The Commission concludes that point 50 is therefore fulfilled.
3.4.2.6. Conclusion
(185) Based on the above, the Commission concludes that the TF Recapitalisation fulfils the eligibility and entry conditions as set out in section 3.11.2 of the Temporary Framework.
3.4.3. Amount of the recapitalisation
(186) According to point 54 of the Temporary Framework, “[i]n order to ensure proportionality of the aid, the amount of the COVID-19 recapitalisation must not exceed the minimum needed to ensure the viability of the beneficiary, and should not go beyond restoring the capital structure of the beneficiary to the one predating the COVID-19 outbreak, i.e. the situation on 31 December 2019. In assessing the proportionality of the aid, State aid received or planned in the context of the COVID- 19 outbreak shall be taken into account”.
(187) The proportionality test set out in point 54 has two cumulative conditions. On the one hand, the COVID-19 recapitalisation must not exceed the minimum needed to ensure the viability of the beneficiary, that is, it cannot go beyond the minimum amount of recapitalisation aid needed to restore the company’s access to the capital markets (and be in a position to get debt and/or equity financing at affordable rates from the markets). On the other hand, the COVID-19 recapitalisation cannot go beyond restoring the capital structure of the beneficiary to the one predating the COVID-19 outbreak.
(188) First, in order to assess whether the aid corresponds to the minimum needed to ensure the viability of Finavia, the Commission will consider what is the minimum amount of the State aid needed to restore Finavia’s access to capital markets. To that end, the Commission will analyse the liquidity position of the company, as well as the actual and forecasted net debt-to-EBITDA ratio, which is an indicator that rating agencies use to determine a company’s creditworthiness80. In particular, the Commission will assess whether the net debt-to-EBITDA ratio after the COVID-19 recapitalisation remains above a 3.0-3.5 threshold. That is a conservative test, because it is common practice to consider a net debt-to-EBITDA ratio higher than 3.5 as a signal of poor creditworthiness. Even though actual credit ratings depend on a number of factors, companies with those values (3.0-3.5 or higher) of net debt-to-EBITDA ratio do not
80 The net debt-to-EBITDA ratio is a debt ratio that shows how many years it would take for a company to pay back its debt if net debt and EBITDA are held constant.
36 normally have an investment grade rating, which means they find it more difficult and expensive to access private capital markets81.
(189) Second, in order to assess whether the aid corresponds to the minimum needed to restore the capital structure of the beneficiary to the one before the COVID-19 outbreak, the Commission will take into account the financial projections concerning (i) the equity position of the beneficiary and (ii) the net debt-to-equity ratio of the beneficiary after the COVID-19 recapitalisation at the end of 2021. The Commission will compare the value of those indicators with those predating the COVID-19 outbreak, i.e. the situation on 31 December 2019, in order to assess whether the aid restores the capital structure of Finavia without further improving it.
(190) Moreover, the Commission notes that, in addition to the TF Recapitalisation, Finavia will receive further aid through the Damage Compensation in the form of a recapitalisation and the Subordinated Loan. Therefore, those two measures will, in line with point 54 of the Temporary Framework, be taken into account for the purpose of the proportionality assessment of the TF Recapitalisation.
(191) The Commission will conduct that analysis on the basis of the financial projections of Finavia that Finland submitted and that the Commission has reviewed. Those projections, as well as the overall business plan, have been subject to an independent business review by Aventum. That business review, which the Commission has examined, contains an analysis of Finavia’s projections as well as of industry projections for Finland from ACI. Overall, based on the independent business review of Aventum and the Commission’s own analysis of that review and of the relevant assumptions and variables, the Commission takes the view that Finavia’s financial projections appear in line with the latest industry consensus, although Finavia’s projections are more conservative for 2021 (see recital (223)).
(192) More specifically, the Commission will conduct the proportionality assessment on the basis of the latest available actual financial results and the business plan projections until the end of financial year 2024. Finland submitted two scenarios, namely: (i) the “Baseline scenario”; and (ii) a more optimistic scenario based on the aviation industry projections for Finland (the “Optimistic scenario”). The Commission will assess the proportionality of the aid granted to Finavia by using the financial projections in the Baseline scenario. The Commission will also analyse the proportionality of the aid in the Optimistic scenario based on industry projections for completeness.
3.4.3.1. Whether the public support is limited to the minimum needed to ensure the viability of the beneficiary
(193) As mentioned, to assess whether the TF Recapitalisation, and more generally the Measures overall, corresponds to the minimum needed to ensure the viability of Finavia, the Commission will assess what is the minimum amount of the State recapitalisation needed to restore Finavia’s access to capital markets, taking into account: (i) the liquidity position of the company; and (ii) its actual and forecasted net debt-to-EBITDA ratio (using a 3.0-3.5 threshold).
81 The applicability of the value of net debt-to-EBITDA of 3.0-3.5 as an indicator of minimum viability for the beneficiary was further confirmed by an analysis of net debt-to-EBITDA values of peers at the end of 2019 (before the COVID-19 crisis), which demonstrated that the third quartile of the individual airports’ values fell in the interval of 3.0-3.5.
37 (194) First, according to its financial projections, without the TF Recapitalisation, and more generally without the Measures overall, Finavia would run out of liquidity in the course of 2021. The Measures prevent Finavia from running out of liquidity. Without the Measures, Finavia would have a negative cash position forecast of EUR […] on 31 December 2021, which would significantly worsen in the following years. With the Measures, Finavia’s forecasted cash is brought to EUR […] at the end of 2021 in the Baseline scenario (EUR […] in the Optimistic scenario), and then decreases quickly and significantly to much lower amounts in the subsequent years. The TF Recapitalisation thus helps to restore the liquidity position without going beyond what is necessary.
(195) In this respect, Finland appropriately demonstrated that Finavia would not be able to raise the required amount of capital within the required timeframe on the equity capital markets. Given the current difficult financial situation of Finavia, it is unlikely and unexpected that any investor will show an interest to invest equity in Finavia at this juncture, as explained in recital (180). As for the debt markets, Finland also properly demonstrated that Finavia is unable to issue new debts given […] and the absence of willingness from the market to provide such funds (see recitals (28) and (29)). In that context, the Commission considers that the TF Recapitalisation is needed to bring the liquidity level of Finavia to a level that no longer jeopardizes its viability.
(196) Second, with regard to the net debt to EBITDA, the Commission has assessed whether, and in which year, Finavia expects the net debt-to-EBITDA ratio to fall below the 3-3.5 thresholds in the absence of the Measures, including the TF Recapitalisation. It is common market practice to consider companies with a net debt- to-EBITDA ratio above those thresholds as highly risky. Hence, companies with those high net debt-to-EBITDA ratios (above 3-3.5) would find it particularly difficult, if not impossible, to access private capital markets.
(197) The financial projections of Finavia with the Measures, including the TF Recapitalisation, show a net debt-to-EBITDA ratio of […] on 31 December 2021 (due to a forecasted negative EBITDA),82 meaning that Finavia will be in worse position than with a net debt-to-EBITDA ratio of 3-3.5. Hence, as of 31 December 2021, the Measures including the TF Recapitalisation are not higher than the amount needed to ensure the viability of Finavia, and are actually far from that threshold. The Commission notes that even in the Optimistic Scenario, Finavia would not be considered as a safe company with good investment rate due to a net debt-to-EBITDA ratio of […] at the end of 2021, which is far above the maximum thresholds of 3/3.5.
(198) For the period 2022-2024, the net debt-to-EBITDA ratio in the Baseline scenario is expected to decrease over time but to remain largely above the 3-3.5 thresholds (below which a company can get access to capital markets on its own). Those dynamics indicate that the Measures including the TF Recapitalisation will only help Finavia to mitigate to a certain extent the negative effects of the COVID-19 crisis in the years 2021-2024. Finavia is not expected to regain full access to the capital markets before at least […]. Therefore, while the Measures including the TF Recapitalisation help Finavia remain viable in the short and medium terms, the TF Recapitalisation does not go beyond what is necessary.
82 In other words, the company would not be able to repay at all the loans if the net debts and EBITDA values are held constant (see footnote 80).
38 Table 11 – Finavia’s net debt to EBITDA projections (2021-2024) 2019 2020 2021 2022 2023 2024
Baseline […] […] […] […] scenario […] […] Optimistic […] […] […] […] scenario
Source: Aventum
(199) It follows from the above mentioned that the TF Recapitalisation does not go beyond the minimum to ensure the viability of Finavia.
3.4.3.2. Whether the public support is limited to the minimum needed to restore the capital structure of the beneficiary
(200) As explained above, to assess whether the aid corresponds to the minimum needed to restore Finavia’s pre-COVID-19 capital, the Commission will review financial projections concerning: (i) its net debt-to-equity ratio; and (ii) its equity position. The Commission will compare the value of those indicators with those predating the COVID-19 outbreak, i.e. the situation on 31 December 2019.
(201) Table 12 illustrates the relationship between the recapitalisation aspects of Measure provided by Finland (TF Recapitalisation and Damage Compensation) and the capital structure of Finavia predating the COVID-19 outbreak, i.e. the situation on 31 December 2019.
Table 12 – Finavia’s equity indicators Description Baseline Optimistic scenario scenario
(EUR million, unless ratios)
Total recapitalisation planned (Damage 317.15 Compensation + TF Recapitalisation)
A. Equity position (31/12/2019) 680
B. Equity position after recap (31.12.2021) […] […]
Proportionality indicator I: B – A ≤ 0 […] […]
C. Net Debt/Equity Ratio (31.12.2019) 0.72
D. Net Debt/Equity Ratio after recap […] […] (31.12.2021)
Proportionality indicator II: C – D ≤ 0 […] […]
Source: Finavia
(202) First, according to Table 12, Finavia’s net-debt to equity ratio for 2021 after the recapitalisation (encompassing the TF Recapitalisation and the Damage
39 Compensation) will not be better than at the end of 2019 both in the Baseline scenario and in the Optimistic scenario83. In this respect, the TF Recapitalisation thus enables the restoration of Finavia’s capital structure to an acceptable level without going beyond that objective.
(203) Second, however, based on Table 12, Finavia’s equity position (in nominal terms) will be higher at the end of 2021 (after the recapitalisation) than at the end of 2019, even in the Baseline scenario (by EUR […]; and by EUR […] in the Optimistic scenario).
(204) According to Finland, that increase in absolute equity is due to the ongoing Investment Programme and, specifically, the strong increase of fixed assets from EUR 1 246 million at the end of 2019 to EUR 1 499 million at the end of 2021 caused by the finalization of the Investment Programme. Finland argues that this effect is demonstrated by the equity to assets ratio84 that decreases from 50% in 2019 to 42% in 2021 (based on projections with the Measure). Furthermore, Finland points out that the absolute equity amount is below the level of 2019 as of 2022 onward.
(205) Overall, the Commission considers that, due to the specific circumstances of this case, the TF Recapitalisation, seen in the context of the Measures, is proportionate although the equity position of Finavia at the end of 2021 will be higher than its pre-COVID levels at the end of 2019.
(206) The Commission notes first that the financial ratios (net debt to equity, equity to assets ratios) will not improve in 2021 with the grant of the TF Recapitalisation along with the remainder of the Measures compared with the situation in 2019.
(207) Furthermore, when assessing the proportionality of the aid, the Commission must give due consideration to the substantial Investment Programme carried out by Finavia. As explained in recitals (25) and (29), the COVID-19 outbreak has hit Finavia hard at a time where it was finalizing its Investment Programme launched in 2014. Finavia had already carried out before the COVID-19 outbreak the vast majority of the investments. There is only EUR 165 million of investments that are still committed for 2021 and 2022. Any delay or suspension of the works will therefore lead to a considerable loss of value of the infrastructure already built and to an increase of the construction costs. In addition, the Commission assessed the possibility to suspend or abandon certain investments. However, it found that Finavia cannot postpone the completion of the Investment Programme (including the non-committed works) without triggering […]. […] derives from the financial covenants binding the company to terminate the investments according to the initial schedule provided to the covenant issuers. The Commission also notes that it is very risky for Finavia to refrain from injecting further […] without risking incurring more losses […] (see recital (30))85. In those circumstances, Finavia’s increase in equity appears to be the result of
83 In both scenarios, the net-debt-to-equity ratio after the recapitalisation will not be better in the period 2021- 2024 compared with 2019, meaning that Finavia’s proportion of net debt compared to its equity will be higher in the period 2021-2024 than before the COVID-19 outbreak.
84 The equity-to-assets ratio is used to determine what percentage of a company's assets are owned by shareholders and not leveraged, i.e. that are not under the control of debtholders (such as banks) in the event of bankruptcy. The higher the equity-to-assets ratio, the less leveraged the company is, meaning that a larger percentage of its assets are owned by the company and its investors.
85 The Commission relies on the commitment provided by Finland that Finavia will […]
40 its Investment Programme rather than purely of the amount of the TF Recapitalisation in the context of the Measures. Furthermore, it is not possible for Finavia to mitigate losses on the investments part. Completing its Investment Programme would be less costly for Finavia than halting it at this advanced stage. It is also thus not reasonably possible for Finavia to reduce by that means the increase in the absolute equity position for 2021.
(208) In addition, the Commission also observes that Finavia incurs significant non- avoidable costs (due to its important infrastructures) while its revenues will still be substantially lower in 2021 and 2022 than pre-COVID-19 levels (respectively by […]% and around […]% in the Baseline scenario86). The aviation sector is indeed characterized by a forecasted depressed demand in services (compared to most of the other sectors in the economy) and is not expected to return to pre-COVID-19 levels before at least 2024 according to the industry standard projections. Finavia’s projections are in line with those projections. The company does not expect to return to profits before 2025 both in the Baseline and Optimistic scenarios.
(209) Fourthly, Finavia has made cost reduction efforts that are in line with those of its peers if not greater. In 2020, Finavia reduced its OPEX by 29%, compared to 2019, and its CAPEX by 16%. This is in line with, or even higher than, OPEX and CAPEX reductions implemented by other airport companies of Nordic countries, as explained in recital (26).
(210) Lastly, the Commission observes that Finavia’s equity position will not be higher than in 2019 in 2022 and onward (it will decrease to EUR […] at the end of 2022 in the Baseline scenario; and in the Optimistic scenario, it will be almost equal to the 2019 level at the end of 2022 (EUR […]) to then decrease under the 2019 level directly afterwards).
(211) In light of the above, account taken of the specific circumstances of this case, the Commission considers that the aid does not go beyond restoring the capital structure of Finavia pre-dating the COVID outbreak.
3.4.3.3. Conclusion on proportionality
(212) The Commission concludes that the TF Recapitalisation complies with point 54 of the Temporary Framework.
(213) That conclusion is based on the Baseline scenario. For completeness, it is noted that that conclusion does not change if the Optimistic scenario is taken into account (even though it is considered to be less likely given the specific situation of Finavia, as explained in recital (223)), as also explained above.
3.4.4. Remuneration and exit of the State
(214) According to the general principles of the remuneration and exit of the State outlined in points 55 to 59 of the Temporary Framework, the Member State must receive appropriate remuneration for the investment and must put a mechanism in place that gradually incentivises redemption.
86 In the Optimistic Scenario, the revenues are expected to represent respectively in 2021 and 2022 […]% and […]% of the 2019 levels.
41 (215) According to point 57 of the Temporary Framework, “[t]he remuneration of the COVID-19 recapitalisation measure should be increased in order to converge with market prices to provide an incentive to the beneficiary and to the other shareholders to redeem the State recapitalisation measure and to minimise the risk of distortions of competition”. Point 58 of the Temporary Framework clarifies that the purpose of point 57 is that the recapitalisation measures “contain appropriate incentives for undertakings to redeem the recapitalisation and look for alternative capital when market conditions permit, by requiring a sufficiently high remuneration for the recapitalisation”.
(216) With particular regard to the remuneration, point 59 of the Temporary Framework allows Member States to “notify schemes or individual measures where the remuneration methodology is adapted in accordance with the features and seniority of the capital instrument provided they overall lead to a similar outcome with regard to the incentive effects on the exit of the State and a similar overall impact on the State's remuneration”.
(217) The Commission will assess compliance of the TF Recapitalisation with those general principles, taking into account the specific rules set out by the Temporary Framework depending on the type of recapitalisation instrument (notably points 60 to 64 of the Temporary Framework as regards equity instrument).
3.4.4.1. Valuation of Finavia
(218) Pursuant to point 60 of the Temporary Framework: “A capital injection by the State, or an equivalent intervention, shall be conducted at a price that does not exceed the average share price of the beneficiary over the 15 days preceding the request for the capital injection. If the beneficiary is not a publicly listed company, an estimate of its market value should be established by an independent expert or by other proportionate means”.
(219) The condition in point 60 of the Temporary Framework, to have a valuation report of an independent expert in order to establish the market value of the beneficiary and to determine the share price for the capital injection, ensures that the State’s capital contribution is reflected in a market-based shareholding for the State and correspondingly a market-based dilution for existing shareholders following the recapitalisation.
(220) Finavia sent a request for the capital injection to the office of Finland’s Prime Minister on 31 December 2020.
(221) The Commission has reviewed the Valuation Report submitted by Finland (see section 2.8.1). It has examined both the numerical calculations and the key assumptions underlying the valuation (in particular for passenger traffic projections).
(222) The Commission considered credible the business model and the assumptions considered in the Valuation Report. In particular, it notes the following points.
(223) First, the traffic hypotheses retained by the Valuation Report are in line with the most recent industry forecasts, which anticipates the airline sector not reaching its pre- COVID-19 before 2024. In addition, the Commission accepts the more conservative assumptions for 2021, given that, based on total passenger numbers, Finavia’s airports serve principally international traffic, with a business strategy focused on long-haul
42 flights that are expected to recover later than short-haul segments. In addition, Finavia duly took into account other considerations such as the business perspectives of its main customers, […]. Furthermore, the effectiveness of the vaccine campaign for 2021 remains still uncertain at the date of adoption of the present decision, therefore justifying cautious traffic assumptions for 2021.
(224) Secondly, the Valuation Report includes all projected losses of Finavia resulting from the COVID-19 outbreak, thus ensuring a conservative valuation.
(225) Thirdly, the Commission has verified that all assumptions used by the Valuation (on costs and revenues as well as other factors) were based on current market values or on assumptions, taking into account the specific situation of Finavia and the Commission’s own knowledge of the market.
(226) Therefore, on the basis of the above, the Commission considers that the market value of Finavia appears credible and demonstrates an ability to generate profits in the future.
(227) Finavia is 100% State-owned and the Valuation Report provided by Finland established a value of Finavia of EUR […] at the moment of recapitalisation. As a result, the State participation resulting from the TF Recapitalisation (EUR 249.5 million) will consist of […]% of Finavia’s shares (the COVID-19 shares) (the remaining […]% corresponding to its pre-recapitalisation participation of a value of EUR […]).
(228) Thus, the amount of COVID-19 shares that the State received from the TF Recapitalisation is commensurate to the market value of Finavia and, therefore, point 60 of the Temporary Framework is complied with.
3.4.4.2. Remuneration and exit of the State
(229) In addition, the State will receive an appropriate remuneration as a result of the following mechanisms and guarantees, and compliant exit mechanisms are put in place by the Finnish authorities.
(230) Finland indicated that the TF Recapitalisation will include a step-up mechanism that is in line with point 61 of the Temporary Framework, and that is further detailed in recital (85).
(231) Furthermore, Finland explained that the State is bound by national law to keep a 100% shareholding’s ownership in Finavia. Hence, it indicated that the redemption of the TF Recapitalisation will be made in accordance with point 64bis of the Temporary Framework and it committed to ensure that all conditions set in point 64bis of the Temporary Framework will be met and that it will submit the independent valuation of Finavia to the Commission for review and prior approval (see recitals (87) and (98)).
(232) As explained in recital (89), Finavia will have the possibility to repay (i.e. ‘buy back’) the aid received, via a redistribution of amounts of the SVOP reserve and/or dividend payments, in which case Finland committed to abide with the principles of point 63 of the Temporary Framework.
43 (233) Finland committed that, if the State sells its participation in Finavia to third parties, such sale would comply with the requirements of point 64 of the Temporary Framework, as further explained in recital (88).
(234) The Commission thus concludes that the TF Recapitalisation is in line with points 60 to 64bis of the Temporary Framework.
3.4.5. Governance and prevention of undue distortions of competition
(235) According to point 71 of the Temporary Framework, the beneficiary of a COVID-19 recapitalisation should not engage in aggressive commercial expansion and excessive risk taking. Finland confirmed that Finavia and its subsidiaries will be subject to that requirement (see recital (94)).
(236) In that regard, the Commission also verified the business plan assumptions of Finavia. As highlighted in recital (223), the Commission considers that the traffic assumptions are reasonable and prudent. In addition, the Commission notes that the net sales per passenger will grow at a constant annual rate of […]%, while the costs per passengers will also increase at a constant annual rate of 0.8% over the period 2024-2035. Both indicators are in line with Finavia’s pre-COVID growth and show that Finavia does not plan to aggressively expand nor to have an aggressive pricing policy. Such a reasonable and prudent growth would be compliant with point 71 of the Temporary Framework.
(237) According to point 72 of the Temporary Framework, if the beneficiary of a COVID- 19 recapitalisation measure above EUR 250 million is an undertaking with significant market power on at least one of the relevant markets in which it operates, Member States must propose additional measures to preserve effective competition in those markets. Since the TF Recapitalisation concerns a EUR 249.50 million recapitalisation in favour of Finavia, it does not exceed the threshold set out in point 72 of the Temporary Framework, and no such measures are needed.
(238) Point 73 of the Temporary Framework requires that: “Beneficiaries receiving a COVID-19 recapitalisation measures are prohibited from advertising it for commercial purposes”. Finland committed to ensure that the beneficiary complies with that requirement, as confirmed in recital (95).
(239) Point 74 of the Temporary Framework states that: “As long as at least 75% of the COVID-19 recapitalisation measures have not been redeemed, beneficiaries other than SMEs shall be prevented from acquiring a more than 10% stake in competitors or other operators in the same line of business, including upstream and downstream operations”. The Commission observes that Finland committed to comply with this point, as detailed in recital (91).
(240) The Commission also notes that Finland confirmed that Finavia (including its subsidiaries) will also abide by the terms and conditions set out in points 76 of the Temporary Framework regarding the use of State aid in undertakings in difficulties already on 31 December 2019, as explained in recitals (47), (96) and (183).
(241) Point 77 of the Temporary Framework states that: “As long as the COVID-19 recapitalisation measures have not been fully redeemed, beneficiaries cannot make dividend payments, nor non-mandatory coupon payments, nor buy back shares, other than in relation to the State” (dividend ban). The Commission observes that Finland
44 confirmed that Finavia (including its subsidiaries) will comply with this point, as noted in recital (92).
(242) Point 78 of the Temporary Framework states that “[a]s long as at least 75% of the COVID-19 recapitalisation measures has not been redeemed, the remuneration of each member of the beneficiaries’ management must not go beyond the fixed part of his/her remuneration on 31 December 2019. For persons becoming members of the management on or after the recapitalisation, the applicable limit is the lowest fixed remuneration of any of the members of the management on 31 December 2019. Under no circumstances, bonuses, other variable or comparable remuneration elements shall be paid”. The Commission observes that Finland committed to respect this requirement (see recital (93)). With respect to the general 1.3% salary increase, the Commission notes that it applies to the majority of Finish employees on a cross- sectorial basis, including all Finavia employees, and not only the members of Finavia’s management. As a result, that increase does not correspond to a bonus. The Commission thus considers that the increase is not contrary to point 78 of the Temporary Framework.
3.4.6. Exit of the State from the participation resulting from the recapitalisation
(243) Pursuant to point 79 of the Temporary Framework, “beneficiaries other than SMEs that have received a COVID-19 recapitalisation of more than 25% of equity at the moment of intervention must demonstrate a credible exit strategy for the participation of the Member State, unless the State’s intervention is reduced below the level of 25% of equity within 12 months from the date of the granting of the aid”.87 Pursuant to point 80 of the Temporary Framework, the exit strategy must lay out the plan of the beneficiary on the continuation of its activity and the use of the funds invested by the State, including a repayment schedule and the measures that the beneficiary and the State will take to abide by the repayment schedule. Pursuant to point 81 of the Temporary Framework, the exit strategy must be prepared and submitted to the Member State within 12 months after aid is granted and must to be endorsed by the Member State.
(244) Finland commits to receive and endorse 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 that deadline, as explained in recital (97). The Commission concludes that the conditions set out in points 79 to 81 of the Temporary Framework are satisfied.
(245) In addition, Finland confirmed that Finavia will report to Finland on the progress in the implementation of the repayment schedule in compliance with point 82 of the Temporary Framework (see recital (99)). Finavia and Finland will comply respectively with the publication and reporting obligations set out in points 83 to 84 the Temporary Framework (see recitals (100) and (116)).
(246) Finally, in line with point 85 of the Temporary Framework, Finland committed to notify a restructuring plan should the State’s equity intervention not be reduced below 15% of the beneficiary’s equity within 7 years after the recapitalisation (see recital (101)).
87 In line with footnote 52 of the Temporary Framework, hybrid instruments granted by the State should be counted as equity.
45 3.4.7. Section 4 of the Temporary Framework
(247) Finland confirmed that it will comply with the reporting and monitoring obligations contained in section 4 of the Temporary Framework as explained in recital (116).
3.4.8. Conclusion
(248) It follows from the above elements that the TF Recapitalisation is in line with sections 3.11 and 4 of the Temporary Framework.
3.5. Compatibility of the Subordinated Loan
(249) Since the Subordinated Loan involves aid within the meaning of Article 107(1) TFEU, it is necessary to consider whether that measure is compatible with the internal market. The Commission will examine that measure in light of Article 107(3)(b) and section 3.3 of the Temporary Framework.
3.5.1. Section 3.3 of the Temporary Framework
(250) Section 3.3 of the Temporary Framework deals with subordinated loans measures. It sets out the criteria under which Member States may provide public support in the form of subsidised interest rates for loans to undertakings facing financial difficulties due to the COVID-19 outbreak, aiming to ensure that the disruption of the economy does not result in the unnecessary exit from the market of undertakings that were viable before that outbreak.
3.5.1.1. Applicability of section 3.3 of the Temporary Framework
(251) The Commission considers that, the Subordinated Loan under assessment, which presents the specific features described by Finland, constitutes a loan within the meaning of section 3.3 of the Temporary Framework given that, in the case at hand, its key features resemble standard loans and significantly differ from typical capital features (see a fuller description in section 2.9):
- It is senior to equity in case of liquidation or bankruptcy (even though it is junior to other non-subordinated loans)88.
- It has a fixed maturity of 6 years. A non-payment of the Subordinated Loan will be considered as a default and trigger cross-default.
- It has no conversion feature of either notional or interests, meaning that it cannot automatically be converted into equity.
- Interests are due, mandatory, and cannot be deferred.
- The Subordinated Loan will be treated as a debt in Finavia’s accounts. Finland also committed that it will not be regarded as equity for the purposes of assessing whether negative equity must be published in the Finnish trade register.
88 Finavia has no other external unsubordinated debts.
46 (252) Furthermore, the Subordinated Loan does not exceed the annual wage bill and turnover ceilings provided for at point 27bis of the Temporary Framework, meaning that section 3.3 of the Temporary Framework is the relevant basis to assess its compatibility. The Subordinated Loan will amount to EUR 32.85 million, in principal. This is below two-thirds of the 2019 annual wage bill of Finavia (i.e. two-thirds of EUR 120 million, i.e. EUR 80 million) in 2019, and below 8.4% of Finavia’s 2019 turnover (8.4% of EUR 392 million, i.e. EUR 32.9 million) (see recital (110))89.
(253) For the following reasons, the Commission concludes that the Subordinated Loan meets all the relevant conditions of section 3.3 of the Temporary Framework.
3.5.1.2. Application of section 3.3 of the Temporary Framework
(254) In line with point 26 of the Temporary Framework, and as explained in section 2.1, the Subordinated Loan is part of a broader package (the Measures) aimed at addressing a liquidity shortage of Finavia. In that respect, the Commission notes that it is less distortive of competition than other components of the Measures, namely the Recapitalisation. The reliance on the Subordinated Loan – rather than for example on a broader recapitalisation – therefore enables Finland to limit potential distortions of competition.
(255) As required by point 27(f) of the Temporary Framework and as detailed in section 2.1, the Subordinated Loan relates to investment and/or working capital needs.
(256) The cumulation rule set out at point 26bis of the Temporary Framework is respected, since no guarantee is provided by the State under section 3.2 in relation to the same underlying principal, as further detailed in section 2.10.
(257) The Subordinated Loan’s interest rate must comply with the minimum interest rates referred to in points 27(a) and 27bis of the Temporary Framework. In that respect, the Subordinated Loan’s interest rate will be above the minimum rates set out in point 27(a) of the Temporary Framework and equal to the minimum rates set out in point 27bis of the Temporary Framework (see recital (111) and Table 10). Therefore, the applicable interest rate complies with the relevant rules of the Temporary Framework.
(258) In line with the requirements of point 27(c) of the Temporary Framework, the Subordinated Loan will be signed before 31 December 2021 (see recital (43)) and will have a duration of 6 years (see recital (108)).
(259) The Subordinated Loan’s nominal amount is EUR 32.85 million (see recital (110)). This is below the two ceilings contained in point 27(d)(i) and (ii) of the Temporary Framework, namely: (i) double the annual wage bill of the beneficiary for 2019 (i.e. two times EUR 120 million, i.e. EUR 240 million); and (ii) 25% of the beneficiary’s total turnover in 2019 (i.e. 25% of EUR 392 million, i.e. EUR 98 million). Since those ceilings are alternative, meaning that it is sufficient that the Subordinated Loan’s amount does not exceed at least one of them, point 27(d) of the Temporary Framework is respected.
89 The two ceilings provided for at point 27bis of the Temporary Framework (and which govern the application of section 3.11 of the Temporary Framework) are cumulative meaning that it is sufficient for the Subordinated Loan to be under at least one of them to be assessed under section 3.3 of the Temporary Framework.
47 (260) In light of the evidence submitted by Finland, the Commission concludes that Finavia and […] are not undertakings that were in difficulty on 31 December 2019 within the meaning of the GBER. Furthermore, […] will no longer be in difficulty at the moment of granting the Subordinated Loan. This is further explained in recitals (47), (96) and (183). Therefore, the Commission concludes that the Subordinated Loan will comply with point 27(g) of the Temporary Framework.
3.5.2. Section 4 of the Temporary Framework
(261) Finland confirmed that it will comply with the reporting and monitoring obligations contained in Section 4 of the Temporary Framework as explained in recital (117).
3.6. Conclusion on compatibility of the Measures
(262) It follows from the above elements that all three components of the Measures, namely the Damage Compensation, the Subordinated Loan and the TF Recapitalisation, constitute State aid that is compatible with the internal market pursuant to Article 107(2)(b) for the Damage Compensation, Article 107(3)(b) as applied in section 3.3 of the Temporary Framework for the Subordinated Loan, and Article 107(3)(b) as applied in section 3.11 of the Temporary Framework for the TF Recapitalisation.
48 4. CONCLUSION
The Commission has accordingly decided not to raise objections to the aid on the grounds that it is compatible with the internal market pursuant to Articles 107(2)(b) and 107(3)(b) of the Treaty on the Functioning of the European Union.
If this letter contains confidential information which should not be disclosed to third parties, please inform the Commission within fifteen working days of the date of receipt. If the Commission does not receive a reasoned request by that deadline, you will be deemed to agree to the disclosure to third parties and to the publication of the full text of the letter in the authentic language on the Internet site: http://ec.europa.eu/competition/elojade/isef/index.cfm.
Your request should be sent electronically to the following address:
European Commission, Directorate-General Competition State Aid Greffe B-1049 Brussels [email protected]
Yours faithfully,
For the Commission
Margrethe VESTAGER Executive Vice-President
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