EUROPEAN COMMISSION
Brussels, 7.7.2020 C(2020) 4733 final
In the published version of this decision, PUBLIC VERSION some information has been omitted, pursuant to articles 30 and 31 of Council This document is made available for Regulation (EU) 2015/1589 of 13 July information purposes only. 2015 laying down 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.57637 (2020/N) – Belgium COVID-19: Recapitalisation of Aviapartner
Excellency,
1. PROCEDURE
(1) On 11 June 2020, Belgium pre-notified to the Commission an aid in the form of a convertible loan (“the measure” or “the Convertible loan”) from the State to Aviapartner Belgium SA/NV (“Aviapartner”), which is a Belgium-based ground handling service provider. By e-mails of 15, 22, 23, 24, 25, 26, 28, 29 and 30 June, Belgium submitted additional information. By electronic notification of 1 July 2020, Belgium notified the measure to the Commission as aid compatible with the internal market under Article 107(3)(b) of the Treaty on the Functioning of the European Union (“TFEU”). By e-mails of 1 and 2 July 2020, Belgium submitted additional information.
Son Excellence Monsieur / Zijne Excellentie de Heer Philippe Goffin Ministre des Affaires étrangères et européennes / Minister van Buitenlandse Zaken en Europese Zaken Rue des Petits Carmes / Karmelietenstraat 15 B - 1000 Bruxelles / Brussel
Commission européenne/Europese Commissie, 1049 Bruxelles/Brussel, BELGIQUE/BELGIË - Tel. +32 22991111
(2) By letter dated 1 July 2020, Belgium exceptionally agreed to waive its rights deriving from Article 342 of the TFEU, in conjunction with Article 3 of Regulation 1/19581 and to have this Decision adopted and notified in English.
2. DESCRIPTION OF THE MEASURE
2.1. Objective of the measure
(3) According to Belgium, the measure aims at restoring the structure of the share capital and the viability of Aviapartner in the exceptional situation caused by the COVID-19 outbreak. In particular, the measure will ensure that Aviapartner has sufficient liquidity to pursue its operations at Brussels Airport.
(4) As from mid-March 2020, most Member States decided to limit or ban movement of persons due to the COVID-19 outbreak. In particular, on 20 March 2020, Belgium published a Royal Decree on temporary restriction of non-essential travel. Consequently, at Brussels Airport, passenger aircraft movements were therefore close to zero, except for limited repatriation flights, emergency medical flights or diplomatic flights.
(5) Since the beginning of June 2020 and the relaxation of the containment measures, air passenger traffic has slowly recovered at Brussels Airport. However, Aviapartner does not have sufficient liquidity to finance the ramp up of its activities. As ground handlers are generally paid for their services with a delay, they require working capital funding to restore their activities. In particular, while salaries (about […]% of the costs) have to be paid without delay, customers delay their payments ([…]days). Moreover, with very low volumes of passenger traffic, ground handlers’ productivity is poor because staff members are idle between flights, which leads to very high costs (and therefore losses) per flight compared to the situation prior to the COVID-19 outbreak.
(6) Despite a number of measures adopted by Aviapartner to cope with and survive the crisis caused by the COVID-19 outbreak, its revenues decreased dramatically. Consequently, Aviapartner faces serious financial difficulties and an acute lack of liquidity. According to the Belgian authorities, the liquidity position of Aviapartner is critical (EUR minus […]2 early June).
(7) Belgium considers that a liquidity support is thus necessary to cover the gap in structural financial needs that will result from the consequences of the COVID-19 outbreak for 2020 and the beginning of 2021. In addition, Belgium considers that the use of a hybrid instrument (i.e. a convertible loan) is justified by the uncertainties that Aviapartner may face in the near future. The Belgian authorities consider that Aviapartner may encounter further financial difficulties due to the
1 Regulation No 1 determining the languages to be used by the European Economic Community, OJ 17, 6.10.1958, p. 385.
2 The liquidity position Aviapartner was calculated as the sum of Aviapartner’s net cash position on 31 December 2019 (i.e. EUR minus […]) and the monthly cash flows from January until May 2020 (i.e. EUR […]).
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uncertainties about the recovery of the aviation sector (reduced traffic, late payments from its clients, potential bankruptcy of airlines, etc.). The Belgian authorities consider that the use of a convertible loan is justified as it will allow them to quickly strengthen the capital of the company if Aviapartner encounters further financial difficulties that could lead to default under the Convertible loan.
(8) The measure is based on Article 107(3)(b) TFEU, in light of section 3.11 of the Temporary Framework.3
2.2. The nature and form of aid
(9) The measure takes the form of a EUR 25 million State convertible loan with a maturity of seven years.
(10) The Convertible loan is a hybrid instrument as the loan can potentially be turned into shares in the capital of Aviapartner at the request of the Belgian authorities (i) if an event of default is outstanding or (ii) after the final maturity date of the Convertible loan (i.e. until 31 December 2027). The conversion rights are optional for the Belgian authorities. There is no automatic conversion mechanism and the conversion rights belong exclusively to the Belgian authorities.
2.3. Legal basis
(11) The national legal basis for the measure is Article 2, §3 of Law of 2 April 1962 relating to the Federal Holding and Investment Company and to the regional investment companies4 together with a Royal Decree providing on that basis a dedicated assignment (“mission déléguée”/“gedelegeerde opdracht”) to the Federal Holding and Investment Company (“SFPI-FPIM”)5. The Belgian authorities provided a draft of that Royal Decree, which they will adopt once the Commission approves the aid measure.
2.4. Administration of the measure
(12) The granting authority is the Belgian State, through its investment vehicle, SFPI- FPIM. The measure will be administered by SFPI-FPIM, acting in its own name but on behalf of the Belgian State.
3 Communication from the Commission - Temporary framework for State aid measures to support the economy in the current COVID-19 outbreak, 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, 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, and by Communication from the Commission C(2020) 4509 final of 29 June 2020 on the 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.
4 Law of 2 April 1962 enacted in the Belgian State Gazette http://www.ejustice.just.fgov.be/cgi_loi/change_lg.pl?language=fr&la=F&cn=1962040231&table_na me=loi
5 Société Fédérale de Participations et d'Investissement - Federale Participatie en Investeringsmaatschappij
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2.5. Budget and duration of the measure
(13) The Convertible loan will amount to EUR 25 million with a maturity of seven years.
(14) Aid may be granted under the measure as from its approval until no later than 30 June 2021.
2.6. Beneficiary
(15) The beneficiary of the measure is Aviapartner, a ground handling service provider at Brussels Airport.
(16) Save for a temporary license granted to Alyzia, Aviapartner is currently the only ground handling company at Brussels Airport since Swissport BE, the other ground handler at Brussels Airport, declared bankruptcy on 8 June 2020. Aviapartner has around 900 employees.
(17) Aviapartner is a subsidiary of Aviapartner Holding NV, which is a Belgian company providing aircraft ground handling services across 37 airports in 6 Member States (Belgium, France, Germany, Italy, Spain and the Netherlands). The other subsidiaries of Aviapartner Holding NV will not benefit from the notified measure.
(18) The measure is granted directly by the State to the beneficiary acting through SFPI- FPIM.
2.7. Basic elements of the measure
(19) The Convertible loan will amount to EUR 25 million with a maturity of seven years and repayments of principal in […]as from 31 December 2023.
(20) The interest rates for the Convertible loan will be paid through a coupon payable quarterly at a rate equal to aggregate EURIBOR plus a margin of […] bps for the first year, […]bps for the second and third year, […]bps for the fourth and fifth year and […] bps for the sixth and seventh year.
(21) The Convertible loan is fully senior to ordinary equity.
(22) The Belgian authorities confirmed that, in accordance with the Temporary Framework, the Convertible loan will be reimbursable voluntarily at any moment by Aviapartner.
(23) The Convertible loan may be converted into shares in the capital of Aviapartner at the request of the Belgian authorities (i) if an event of default is outstanding (i.e. non-payment, breach of the conditions set out in the Temporary Framework, insolvency proceedings, misrepresentation, cessation of business activities) or (ii) during a six months period after the final maturity date of the Convertible loan (i.e. until 31 December 2027).
(24) If conversion arises, the conversion will take place at the lower of (i) the net asset value of Aviapartner at the time of the conversion minus 5% and (ii) TERP (Theoretical Ex-Rights Price) calculated in function of a market value based on a multiple of the EBITDA at the time of the conversion minus 5%.
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(25) If the Convertible loan is converted into equity and if that equity is still owned by the Belgian authorities two years after the conversion (day of the last quarter), there will be a step-up mechanism in the form of a ratchet: each share held by the Belgian authorities will be automatically converted into a number of shares determined in such a manner that Belgium’s shareholding increases by 10%. Belgium considers that that mechanism encourages Aviapartner to repay the Convertible loan as early as possible.
2.8. Cumulation
(26) The Belgian authorities confirm that aid granted under the measure may be cumulated with aid under de minimis Regulations6 or the General Block- Exemption Regulation (“GBER”),7 provided that the provisions and cumulation rules of those Regulations are respected.
(27) The Belgian authorities confirm that aid granted under the measure may be cumulated with aid granted under other measures approved by the Commission under the Temporary Framework, provided that the provisions in the specific sections thereof are respected.
2.9. Monitoring and reporting
(28) The Belgian authorities confirm that they will apply the monitoring and reporting obligations laid down in section 4 of the Temporary Framework (including the obligation to publish relevant information on the recapitalisation granted to Aviapartner on the comprehensive State aid website or Commission’s IT tool within three months from the moment of granting8).
(29) Belgium also confirmed that, within 12 months from the date of the granting of the aid and thereafter periodically every 12 months, for a period of three years, the beneficiary will publish information on the use of the aid received. In particular, this should include information on how Aviapartner’s use of the aid received supports its activities in line with Union objectives as well as national obligations linked to the green and digital transformation, including the Union objective of climate neutrality by 2050.
6 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), and 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).
7 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. The nominal value of the recapitalisation will be included.
8 Referring to information required in Annex III to Commission Regulation (EU) No 651/2014.
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(30) Belgium will notify a restructuring plan if Belgium’s intervention has not been reduced below 15% of Aviaparnter’s equity within 6 years after the recapitalisation.
2.10. Governance and undue distortion of competition
(31) Aviapartner will be subject to an acquisition ban as long as at least 75% of measure has not been repaid. That ban prevents Aviapartner from acquiring a stake of more than 10% in competitors or other operators in the same line of business, including upstream and downstream operations. In exceptional circumstances, and without prejudice to the merger control rules, the Commission may authorize an acquisition, only if it is necessary to maintain Aviapartner’s viability.
(32) Aviapartner will introduce a cap on management remuneration. As long as at least 75% of the measure has not been repaid, the remuneration of each member of Aviapartner’s management will 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 rights issue, the applicable limit of the remuneration for such new member will be benchmarked to the remuneration of comparable managerial positions and areas of responsibility in Aviapartner applied on 31 December 2019. Aviapartner will not pay bonuses and other variable or comparable remuneration elements as long as at least 75% of the measure has not been repaid.
(33) Belgium confirmed that Aviapartner will not make dividend payments or non- mandatory coupon payments, nor buy back shares, other than in relation to the State as long as the measure has not been fully repaid.
(34) Belgium also confirmed that Aviapartner will not advertise the State aid for commercial purposes.
2.11. Additional conditions imposed on the beneficiary
(35) There is an existing EUR […] shareholder loan between Aviapartner and the main shareholder of Aviapartner Holding NV (the “Shareholder Loan”). Belgium committed to make the release of the Convertible loan conditional upon the conversion of EUR […] of the Shareholder Loan into equity prior to the grant of the aid. That conversion, which occurred on 1 July 2020, ensures that Aviapartner is not a company in difficulty at the moment of granting the aid.
(36) In addition, Belgium commits to make the release of the Convertible loan conditional upon the renegotiation of the Shareholder Loan in order to ensure that (i) the Convertible loan granted by the Belgian authorities is senior to the non- converted part of the Shareholder Loan, (ii) the non-converted part of the Shareholder Loan will not be repaid before full exit of the State, and (iii) the interests on the Shareholder Loan will be capitalised and not paid before full exit by the State.
(37) Finally, Belgium commits to include an early repayment provision in the Convertible loan agreement with Aviapartner. Under that provision, for every year until 2027, if Aviapartner’s December cash balance exceeds EUR […] (starting from 2021, included), Aviapartner will make early repayment of the Convertible loan in order to ensure its December cash balance does not exceed that threshold.
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3. ASSESSMENT
3.1. Lawfulness of the measure
(38) By notifying the measure before putting it into effect, the Belgian authorities have respected their obligations under Article 108(3) TFEU.
3.2. Existence of State aid
(39) 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.
(40) The measure is imputable to the Belgian State as (i) it is granted through its investment vehicle, the SFPI-FPIM and (ii) it is based on Article 2, §3, of Law 2/04/1962 related to the Federal Holding and Investment Company and to the Regional Investment companies, together with a Royal Decree providing a dedicated assignment to Federal Holding and Investment Company, but on behalf of the State. This Royal Decree will be adopted once the Commission approves the aid measure.
(41) The measure is financed through State resources, since it is financed by the State budget.
(42) Furthermore, the measure confers an advantage to Aviapartner considering that it would not be able to obtain the envisaged Convertible loan on the market under the same conditions. It appears in particular, and as acknowledged by Belgium itself, that Aviapartner was unable to raise any funds from the market or its shareholders.
(43) The advantage granted by the measure is selective, since it is awarded to only one undertaking.
(44) The measure is liable to distort competition, since it strengthens the competitive position of Aviapartner. It also affects trade between Member States, since Aviapartner is active in a sector in which intra-Union trade exists.
(45) In view of the above, the Commission concludes that the measure constitutes State aid within the meaning of Article 107(1) TFEU.
3.3. Compatibility
(46) Since the measure involves aid within the meaning of Article 107(1) TFEU, it is necessary to consider whether that measure is compatible with the internal market.
(47) 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”.
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(48) 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, to remedy the liquidity shortage faced by undertakings and ensure that the disruptions caused by the COVID-19 outbreak do not undermine their viability”.
(49) The measure aims at restoring the structure of the share capital and the viability of Aviapartner at a time when the normal functioning of 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.
(50) The Temporary Framework sets out in its section 3.11 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.
3.3.1. Applicability of section 3.11 of the Temporary Framework
(51) 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”.
(52) The Commission considers that the measure concerns a hybrid capital instrument, and thus a recapitalisation under the definition of section 3.11 of the Temporary Framework, in favour of an individual and large undertaking, as a result of the COVID-19 outbreak. Hence, the measure notified by Belgium can be qualified as a COVID-19 recapitalisation measure to which the conditions of section 3.11 of the Temporary Framework apply.
3.3.2. Eligibility and entry conditions
(53) Point 45 of the Temporary Framework states that public support in the form of an equity capital instrument should only be considered if no other appropriate solution can be found.
(54) In addition, according to point 49 of the Temporary Framework, the COVID-19 recapitalisation measure must fulfil the following conditions:
- a) 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;
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- b) 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 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;
- c) 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
- d) the beneficiary is not an undertaking that was already in difficulty on 31 December 2019 (within the meaning of the GBER9).
(55) Finally, under point 50 of the Temporary Framework Member States are to provide evidence of a written request for aid by the beneficiary as part of the notification of the individual aid measure to the Commission
3.3.2.1. Necessity of the aid
(56) The COVID-19 outbreak has dramatically affected the aviation sector including ground handling operations. Global lockdown measures led to an almost complete stop of the sale of tickets. As a result, the numbers of serviced aircraft, both for passengers and cargo, have dropped as well.
(57) The figures in Table 1 illustrate the steep fall in number of passengers in 2020 compared to 2019. Freight is expected to move in a similar pattern as passengers, since a major part of cargo concerns freight capacity on passenger flights.
Table 1 - 2020 vs 2019 passenger volumes comparison for Brussels Airport
Source: Aviapartner
9 As defined in Article 2(18) of the GBER.
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Table 2: 2020-2021 projection for passenger flights in Belgium
Source: Aviapartner
(58) Despite a number of measures adopted by Aviapartner to cope with and survive the crisis caused by the COVID-19 outbreak, its revenues have decreased dramatically. Consequently, Aviapartner faces serious financial difficulties and an acute lack of liquidity. According to the Belgian authorities, the financial position of Aviapartner is critical (EUR […] in early June 2020). Cumulated losses for the year 2020 amount to EUR […] in June 2020, while Aviapartner generated a profit in 2019 (and also in January and February 2020). Aviapartner also forecasts cash outflows of EUR […] in 2020, due to the loss of revenues in the first part of the year and the need to finance the restoration of activities in the second half.
(59) It follows that without the aid, Aviapartner would face serious difficulties to maintain its activities.
3.3.2.2. Aid to remedy a serious disturbance in the economy of Belgium
(60) The Belgian authorities submit that the aid measure contributes to remedy a serious disturbance in the economy of Belgium considering the following elements: (i) the role of Aviapartner in the Belgian economy; (ii) the contribution of Aviapartner to ensuring connectivity to and from Belgium; and (iii) the importance of Aviapartner to the Belgian economic recovery.
(i) The role of Aviapartner in the Belgian economy
(61) Aviapartner is a significant private employer in ground handling services with around 900 direct jobs in Belgium. Moreover, Aviapartner is an essential operator at Brussels Airport, which is Belgium’s main airport. Aviapartner is currently the only ground handling company at Brussels Airport since Swissport BE, the other ground handler at that airport, declared bankruptcy on 8 June 2020.
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A failure of Aviapartner would therefore cause a major disturbance at Brussels Airport, as there would be no permanent ground handler there. Brussels Airport is the second-most important economic growth hub of the country, accounting for the direct and indirect employment of 70,000 people.
(ii) Aviapartner’s contribution to ensuring connectivity to and from Belgium
(62) Aviapartner’s activities at Brussels Airport are essential to contribute to ensure connectivity to and from Belgium, for both passengers and cargo ground handling services. If Aviapartner stops operating at Brussels Airport, passenger and cargo flights will not be able to take off or land at that airport, isolating the city of Brussels. Therefore, Aviapartner’s ground handling services are currently vital to the connectivity of Belgium.
(iii) Importance of Aviapartner to Belgium’s economic recovery
(63) The Belgian economy relies significantly on air transport, with ground handling services being an essential part of that sector. After the COVID-19 outbreak, international connectivity will be key for business in Belgium to return to normal. The aviation sector will continue to be vital for the Belgian economy and its recovery, considering that the Belgium economy is open and internationally oriented.
(64) On that basis, the Commission considers that a failure of Aviapartner would seriously affect the economic recovery of Belgium.
3.3.2.3. Appropriateness of the aid
(65) Several elements indicate that Aviapartner is not able to find financing on the markets at affordable terms:
- […].
- Due to its current financial and liquidity conditions, Aviapartner could not obtain any loan at affordable terms from private banks and financial institutions. The financial projections of Aviapartner show a loss of EUR […] in 2020, clearly dissuading financial institutions from providing financing to the company.
- The group to which Aviapartner belongs, while being in a good financial situation before the COVID-19 outbreak, is now […]and unable to rescue its subsidiary and restore its viability.
- The main shareholder of the group is currently unable to support Aviapartner beyond the urgent measures it has had to take (i.e. conversion of part of the existing Shareholder Loan for an amount of EUR […] into share capital, and revision of the conditions of the part of the Shareholder loan that is not converted, as described in recital (36) ([…]).
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(66) Belgium has taken various measures to support companies, including a State guarantee scheme to support liquidity needs of companies affected by the COVID- 19 outbreak.10 However, Aviapartner is not able to take advantage of that measure because:
- […].
- The 12-month term of that facility is a hindrance to the granting of such financing. Given the likely length of the crisis and possible weakness of the recovery, it would be very difficult for Aviapartner to repay the capital within the 12-month term.
(67) Due to the uncertainties that Aviapartner may face in the near future (slow recovery of the aviation sector, risk of disruption of air traffic, bankruptcies of airlines), the Commission considers that a convertible loan is an appropriate measure. Such an instrument provides both liquidity to operate, and a possibility to strengthen the capital of the company in case of unexpected difficulties. Such capital strengthening may be necessary if the situation of the company worsens beyond current expectations, in order to reassure investors and potentially obtain additional liquidity from private investors. A convertible loan is also less distortive than a direct capital injection.
(68) The Commission also notes that the equity position of Aviapartner, although it has been restored to a positive level since part of the Shareholder Loan was converted into equity on 1 July 2020, will turn negative in the second part of 2020 and will remain in negative territory until 2023. Although that situation is not uncommon in companies that belong to a sufficiently capitalised group, the Commission considers that the possibility to convert the Convertible loan into equity provides a reasonable safeguard to Aviapartner in case of difficulty of Aviapartner Holding NV in the coming years.
(69) Therefore, in accordance with points 45 and 49(c) of the Temporary Framework, the Commission concludes there is at present no other appropriate measure to support the needs of Aviapartner. In addition, Belgium demonstrated that there was no alternative financing on the markets to cover Aviapartner’s liquidity needs.
3.3.2.4. Undertaking in difficulty
(70) Point 49(d) of the Temporary Framework sets out that the beneficiary of a COVID- 19 recapitalisation measure must not be an undertaking that was already in difficulty in the meaning of the GBER on 31 December 2019. Thus a beneficiary is eligible for aid only if it either was not in difficulty on 31 December 2019, or, if it qualified as an undertaking in difficulty on that date, is no longer in difficulty at the moment of granting of the aid.
10 Decision (EU) 2020/2364 of the Commission of 11 April 2020 concerning State aid SA.56819 (2020/N) COVID-19 – Loan guarantee scheme in response to the COVID-19 crisis (OJ C 158, 8.05.2020, p. 1).
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(71) Aviapartner was in difficulty for the purposes of Article 2(18)(a) of the GBER on 31 December 2019: its own funds ([…]EUR […]) were well below half of its subscribed share capital (EUR […]).
(72) However, the Commission considers that the measure complies with point 49(d) of Temporary Framework for the following reasons:
- Aviapartner is the subsidiary of Aviapartner Holding NV, which was not in difficulty within the meaning of the GBER on 31 December 2019.
- On 31 December 2019, the existing EUR […] Shareholder Loan between Aviapartner and the main shareholder of Aviapartner Holding NV constituted an important source of liquidity and potential capital buffer. Aviapartner had the right to unilaterally convert that Shareholder loan into equity, without the prior consent of the shareholder. Such a conversion would have restored the solvency of Aviapartner largely above its share capital. Aviapartner could thus have easily restored its capital position at end 2019 to a level sufficient to ensure that the company was not in difficulty.
- The Belgian authorities made the release of the Convertible loan conditional upon the conversion of part of the Shareholder Loan into equity prior to the grant of the aid. Following the conversion of part of the Shareholder Loan on 1 July 2020, Aviapartner’s own funds now exceed half of the subscribed share capital. Therefore, Aviapartner will not be in difficulty for the purposes of Article 2(18) of the GBER when the aid is granted.
3.3.2.5. Written request
(73) On 1 July 2020, Aviapartner made a written request for a State convertible loan, and the Belgian authorities provided the Commission with evidence of that written aid request from Aviapartner as part of the notification of the aid measure. The measure complies with point 50 of Temporary Framework.
3.3.2.6. Conclusion
(74) In view of the above, the Commission concludes that Aviapartner is eligible for an aid granted under section 3.11 of the Temporary Framework.
3.3.3. Proportionality of the recapitalisation
(75) In 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.
(76) First, the Commission considers that the amount of the COVID-19 recapitalisation does not exceed the minimum needed to ensure the viability of the beneficiary, as the EUR 25 million State Convertible loan will serve to cover the following financial costs:
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- 2020 cumulated losses for an amount of EUR […], resulting from reduction of activity due to the closure of the Brussels Airport and the progressive restoration of flight activities.
- 2020 cumulated negative cash flows for an amount of EUR […], resulting from the need to finance the restoration of activities, and the reduced volume of activity.
- A positive cash balance at 31 December 2020 of approximately EUR […], corresponding to (i) a seasonal cash reserve of approximately EUR […] to cover for losses incurred during the Winter season11, (ii) a treasury reserve of approximately EUR […] to guarantee for 1-2 months on-time payment of compulsory items such as payroll, social security, insurance, etc, while payments of clients may come with delays beyond contractual agreements, and (iiii) a buffer of EUR […] to cover unexpected risks during the COVID-19 outbreak.
(77) The Commission notes that, in 2019, the cash balance of Aviapartner was negative because Aviapartner Holding NV had granted cash advances. […]. Consequently, Aviapartner […] will from now on function autonomously, without financial support available from the group to meet their financing needs.
(78) The Commission also notes that the Convertible loan agreement includes an early repayment provision. Under that provision, if Aviapartner’s December cash balance exceeds EUR […] (starting from 2021, included), Aviapartner will make early repayments of the Convertible loan to ensure its December cash balance does not exceed that threshold. That provision will ensure a faster repayment of the aid, and in particular ensure that the cash balance of Aviapartner never exceeds the minimum needed to operate in safe conditions (i.e., EUR […] to finance the cash- deficit period of January-April,12 and EUR […] to ensure the payment of salaries and social contributions for one or two months in case of bankruptcy of a client or delayed payments).
(79) Second, the Commission considers that the amount of the COVID-19 recapitalisation does 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):
- Aviapartner’s equity amounted to minus EUR […] on 31 December 2019. However, the Commission considers that it is reasonable to reconstruct the equity of Aviapartner at 31 December 2019 taking into account the part of Shareholder Loan that will be converted into equity before the aid is granted (EUR […] ), because Aviapartner could have converted that amount at will in 2019, and because the conversion is a condition for granting the aid.
11 Aviapartner’s activity is seasonal, and absorbs cash during the period January-April as that period corresponds to the low season in terms of air traffic at Brussels Airport. Volumes and profitability pick up as of May, to reach their peak in July and August.
12 Based on cash deficit of the exploitation for the period January-April 2019.
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Consequently, the Commission considers that the relevant amount of equity that it should consider to assess the capital structure of Aviapartner is EUR […] on 31 December 2019.
- The financial projections of Aviapartner show that the equity of the company will turn negative in December 2020, due to high losses, turn positive in 2023, and will reach EUR […] in December 2024. Therefore, the equity of Aviapartner will still be inferior to its reference position for December 2019.
- The State can convert its Convertible loan into equity if an event of default is outstanding or after the final maturity date of the Convertible loan. Therefore, conversion would mainly take place if the situation of Aviapartner worsens severely, in particular where its cash position and the equity are negative. The conversion would reinforce the equity of the company, but would not change its liquidity position. Therefore, despite the conversion, the company would be in a worse situation than the situation that prevailed on 31 December 2019.
- The main objective of the measure is to provide sufficient liquidity to Aviapartner to restore its ability to operate autonomously from its parent company. As there is no automatic conversion mechanism and since the conversion right belongs exclusively to the Belgian authorities, the convertibility of the Convertible loan mostly aims at providing further protection to the Belgian authorities than it would have under a non-convertible loan. In light of those characteristics, the Commission considers that the measure does not aim at improving the capital structure of Aviapartner.
(80) The Commission therefore concludes that the aid is proportionate as it does not exceed the minimum needed to ensure the viability of the beneficiary and does not go beyond restoring the capital structure of Aviapartner as of 31 December 2019 in terms of liquidity.
3.3.4. Remuneration of the State
3.3.4.1. Remuneration of the Convertible loan until its conversion into equity
(81) The applicable interest rate for the Convertible loan until its conversion into equity is in line with the minimum rates set out in point 66 of the Temporary Framework (recital (20)).
(82) The Commission considers that the overall remuneration of the Convertible loan is appropriate as it adequately factors the following elements:
- The level of subordination of the Convertible loan is high. It will be the only senior debt in Aviapartner, and the non-converted part of the Shareholder Loan will be not be repaid, or receive cash payments for interests, until the Convertible loan is fully repaid to the State.
- Aviapartner’s business plan anticipates a return to profitability as of 2022 with stable volumes compared to return to pre-crisis volumes.
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3.3.4.2. Conversion conditions
(83) In the event of conversion of the Convertible loan into equity, it will take place at the lower of (i) net asset value at the time of the conversion minus 5% and (ii) TERP at the time of the conversion minus 5%. Therefore, the measure complies with point 67 of the Temporary Framework.
3.3.4.3. Step-up mechanism
(84) In the event of conversion of the Convertible loan into equity and if the Belgian authorities still own that equity two years after the conversion, there will be a step- up mechanism in the form of a ratchet (recital (25)). Therefore, the measure complies with point 68 of the Temporary Framework.
3.3.4.4. Conclusion
(85) The Commission concludes that the remuneration of the State and the State’s exit mechanism are in line with section 3.11.5 of the Temporary Framework.
3.3.5. Governance and undue distortion of competition
(86) According to point 71 of the Temporary Framework, the beneficiary of a COVID- 19 recapitalisation measure must not engage in aggressive commercial expansion. The Commission considers that the business plan of Aviapartner shows that the company is preparing a prudent and progressive return to its standard pre-COVID volume of activities. In particular, the turnover of Aviapartner should return to its 2019 level between 2021 and 2022, with the progressive return of traffic at the Brussels Airport. In addition, the inclusion of an early repayment provision in the Convertible loan agreement will limit the amount of liquidity at the disposal of Aviapartner until it repays the Convertible loan. Consequently, that mechanism further ensures that Aviapartner will not use the aid to adopt an aggressive commercial behaviour.
(87) Given that the measure notified by Belgium does not exceed EUR 250 million, point 72 of the Temporary Framework is not applicable.
(88) Belgium confirms that Aviapartner will comply with all the conditions contained in point 73 to 78 of the Temporary Framework (recitals (31) to (34)).
3.3.6. Exit strategy of the State from the participation resulting from the recapitalisation and reporting obligations
(89) According 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.
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(90) Aviapartner has prepared and submitted to the Belgian authorities its business plan presenting the continuation of its activity and the use of the funds provided by Belgium. The Commission considers that the business plan of Aviapartner is based on prudent and reasonable assumptions. On that basis, the Convertible loan repayment schedule under which Aviapartner will start repaying the loan as of month 37 demonstrates a credible exit strategy.
(91) In addition, Belgium commits to comply with all other conditions contained in section 3.11.7 of the Temporary Framework (recitals (28) to (30)).
(92) Therefore, the measure complies with section 3.11.7 of the Temporary Framework.
3.3.7. Section 4 of the Temporary Framework
(93) Belgium confirms that it will apply the reporting and monitoring obligations contained in section 4 of the Temporary Framework (recital (28)).
3.3.8. Conclusion
(94) The Commission therefore considers that measure is necessary, appropriate and proportionate to remedy a serious disturbance in the economy of a Member State pursuant to Article 107(3)(b) TFEU.
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 Article 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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