• Abstract and Figures
• Public Full-text

EFTA Surveillance Authority Competition and State Aid Directorate Rue Belliard 35 1040 Brussels Belgium Reykjavík September 25, 2020 Reference: FJR20030062/5.1 Your reference: 85190 Subject: Comments on a letter received by ESA regarding Decision No 101/20/COL Introduction Reference is made to an invitation from the EFTA Surveillance Authority (the Authority; ESA), dated 16 September 2020, to comment on a letter received by ESA calling for a revocation of Decision No 101/20/COL on compensation to Icelandair for the damage caused by the COVID-19 outbreak. The letter received by the Authority argues that the decision was based on “incorrect or incomplete information”. The Icelandic authorities take the opportunity to underline the compliance of the decision, and the notification on which was it was based, with the EEA rules on State aid. 1. Basis for the Authority’s letter According to Article 9 of Part II of Protocol 3 to the Surveillance and Court Agreement (SCA), the Authority can decide to initiate a formal investigation procedure if it encounters documents or observations that give rise to doubts as to the “well-founded and sound nature”1 of information which constituted a determining factor for the decision. That procedure can lead to revocation of the decision if it turns out that it was indeed based on incorrect information. The Icelandic authorities note that the undertaking that has requested ESA to contemplate revocation of the decision, Fly Play ehf., does not have standing to bring the decision before the EFTA Court. The undertaking neither holds an Icelandic Air Operator Certificate (AOC)2, nor has it taken delivery of any airplanes. Thus, it is not active in the aviation sector despite its plans to become a competitor of the aid beneficiary at some time in the future. Its non-existent position on the market is therefore not affected by the decision. Like any other legal entity, Fly Play can request information from and submit general market information to ESA. It does not however have a status of an “interested party”, in the meaning of Article 1(h) of Part II of Protocol 3 of the SCA, that can play an active role in administrative proceedings concerning the decision. Such status is confined to “undertakings whose interests might 1 Cf. Commission Decision of 16 September 1998 in case NN 178/97 (Verlipack). 2 See: https://www.icetra.is/aviation/operation/aoc-holders/. 1 be affected by the granting of aid”. The Authority may nevertheless need to review information received by third parties and it has the power to act on the basis of it. In the Authority’s letter the Icelandic authorities are invited to comment on “new information”. The information provided in Fly Play’s letter to ESA does not constitute new information but rather legal theories and contemplations. The Icelandic authorities are willing to address and correct these to some extent.3 2. Submissions provided by Fly Play 2.1 Legal basis Fly Play’s calling into question the legal basis upon which the measure was notified can be rebutted by reference to textbooks and judgments of EEA Courts. It is settled case law that Article 61(2) EEA “covers aid which is, in law, compatible with the common market, provided that it satisfies certain objective criteria” and that the Authority “is bound, where those criteria are satisfied, to declare such aid compatible with the [functioning of the EEA Agreement], and that it has no discretion in that regard”.4 The objective criteria of Article 61(2)(b) with regard to exceptional occurrences is clear from the provision’s wording: there must be an exceptional occurrence, a causal connection between the occurrence and the damage (the occurrence must cause the damage), and the aid must also be proportionate by not covering more than the extent of the damage. The Authority is obliged to verify that the conditions laid down in the provision are met.5 Article 61(2)(b) is of course a standalone provision and its application does by no means constitute an exception “from the general framework provided by the Temporary Framework”, as Fly Play argues. That interpretation is incoherent with fundamental features of the EEA Agreement and well- established decision-making practice of the Authority and the European Commission, concerning the application of Article 61(2). Whilst the approved measure undoubtably aims to partly compensate Icelandair for losses suffered due to the COVID-19 outbreak, the decision to provide the guarantee was not borne out of reasons of fairness or sympathy with the airline, for it occurring losses. Obviously other justifications than making good damages must also come into play in deciding whether to intervene in the operations of an airline by way of a state guarantee. 2.2 Application of Article 61(2)(b) or 61(3)(b) EEA, cf. Article 107(2)(b) and 107(3)(b) TFEU In its reference to paragraph 15bis of the Temporary Framework (TF) Fly Play seems to maintain that it is the intended effect of the aid on the economy in general that guides which EEA legal basis must be chosen for state aid related to the ongoing pandemic. This is likely based on an incorrect reading of said paragraph. The paragraph underlines that damage compensated under Article 107(2)(b) TFEU must be directly caused by the outbreak. Thus, if damage to an undertaking’s operations is not directly caused by the outbreak, but by the general economic downturn which has resulted from the outbreak, Article 107(3)(b) should be used along with the TF. 3 Deliberations in section (A) of Fly Play’s information letter about the Government’s presumptions and intentions do need to be sorted as they simply have no basis in fact. Furthermore, Fly Play’s reference of a “hurried approval” by ESA indicates an unfamiliarity with the pre-notification procedure of State aid cases. 4 See judgment in case T-268/06, Olympiaki Aeroporia Ypiresies AE v Commission, ECLI:EU:T:2008:222, para. 52, and the case law cited. 5 An event must fall outside normal entrepreneurial risk to be considered an exceptional occurrence. As provided in section 6.2 of the Authority’s Decision, this must be examined on a case-by-case bases. As for the Covid-19 outbreak, it has been deemed to qualify as an exceptional occurrence for the purpose of Article 107(2)(b) TFEU and Article 61(2)(b) EEA by the Commission and the Authority, respectively. 2 Safeguarding the economy is by far an ulterior or hidden motive in granting State aid to Icelandair. On the contrary, the Icelandic authorities submit that all aid granted in the EEA which serves the objective described by Article 61(2)(b) EEA and Article 107(2)(b) in 2020 is likely to be also for the benefit of the economy in a wider sense. By no means do such additional benefits alter the compatibility of the measures with the functioning of the EEA Agreement or the internal market, as Fly Play seems to indicate (page 5)6. The Icelandic authorities submit that it is rather the fact that aid under Article 61(2)(b) – exceptional occurrence – is restricted to actual and quantifiable damage, that might lead public authorities to prefer Article 61(3)(b) – serious disturbance in the economy – in some cases, in particular where the amounts of aid are relatively excessive. The latter provision is much less restrictive when it comes to amounts of aid and easier to apply as there is no requirement of a direct causal link. This is also the interpretation of Professor Phedon Nicolaides in a recent article, which inter alia provides the following:7 “Article 107(3)(b) is likely more suitable to address the impact of the pandemic because aid on the basis of that Treaty provision can be granted both in order to remedy the actual effect of a serious disturbance and to prevent the worsening of the disturbance in the future. In other words, aid can be both ‘retrospective’ and ‘prospective’. In both instances of retrospective intervention and prospective intervention, the amount of aid that may be granted depends not just on the magnitude of the effect of the serious disturbance but also on how aid recipients intend to address their problems. By contrast, aid on the basis of Article 107(2)(b) may only be granted for the purpose of compensating quantifiable damage. The amount of damage must be objectively measured. It does not depend on what the aid recipient was hoping to do before the exceptional occurrence or what it intends to do in order to improve its situation in the future. Article 107(2)(b) aid may be granted only for damage that has already been suffered. This implies that the exception in Article 107(2)(b) to the prohibition of state aid in Article 107(1) is not useful when the intention of the government is to offer to undertakings enough resources to enable them to implement preventive measures to avoid a further deterioration in their financial situation.”8 Article 61(2)(b) and its counterpart Article 107(2)(b) only suit as a legal basis if a direct link can be established, the damage is quantifiable, and the aid needed is limited to the damage caused. As is the case with regard to the measure assessed and approved by Decision No 101/20/COL. 2.3 Measures undertaken by other EEA Contracting Parties The Icelandic authorities find fault in the contemplation that the application of Article 61(2)(b) EEA (and Article 107(2)(b) TFEU) must be for the sole purpose of loss compensation.

Load more

  8

Copy Link