EUROPEAN COMMISSION

Brussels, 11.8.2020 C(2020) 5616 final

In the published version of this decision, PUBLIC VERSION some information has been omitted, pursuant to articles 30 and 31 of Council Regulation (EU) 2015/1589 of 13 July 2015 This document is made available for information purposes only. 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.57586 (2020/N) – COVID-19: Recapitalisation and subsidised interest loan for Nordica Excellency,

1. PROCEDURE

(1) On 4 June 2020, the Republic of Estonia (“Estonia”) pre-notified to the Commission aid in favour of “Nordica Aviation Group SA” (“Nordica” or “the company”), an transport company, which is not publicly listed.1

(2) By electronic notification of 25 July 2020, Estonia notified aid in favour of Nordica (“the measures”) as State aid compatible with the internal market under Article 107(3)(b) of the Treaty on the Functioning of the European Union (“TFEU”) in light of the Temporary Framework for State aid measures to support the economy in the current COVID-19 outbreak (the “Temporary Framework”)2.

1 Estonia submitted a pre-notification on 4 June 2020. Following informal exchanges with the Commission, Estonia submitted additional information on 12, 22 and 30 June, and 6, 10, 13, 15, 17 and 20 July 2020. 2 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 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. Urmas REINSALU, Välisminister Islandi väljak 1, 15049 Estonia

Commission européenne, B-1049 Bruxelles – Belgique, Europese Commissie, B-1049 Brussel – België Telefon: +32 2 299. 11. 11

(3) Estonia exceptionally agreed 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 1/19583, and to have this Decision adopted and notified in English.

2. DESCRIPTION OF THE MEASURES

2.1. Objective and justification of the Measures

(4) The measures aim at addressing the needs of Nordica, in terms of liquidity and equity, which have arisen in the course of the past months due to the COVID-19 outbreak.

(5) According to Estonia, the measures are justified by the losses of Nordica, as well as the reduction in its economic activity due to the cancellation of flights and the reduction in the demand for its services as of March 2020. On 12 March 2020, Estonia declared a state of emergency, and on 17 March 2020, it prohibited the entry of non-Estonian nationals and non-holders of a residence permit into the country. At the same time, other countries in Northern and Eastern Europe (such as Poland and Sweden) adopted similar measures. As a result, the main business partners of Nordica (LOT and SAS) notified the company that they would have to suspend their flights and no longer required Nordica’s services. In the same context, passenger traffic at the airport of Tallinn fell by approximately 55% to 96% from March until June 20204.

(6) Estonia submits that Nordica’s total equity on 31 December 2019 amounted to EUR [10 000 000 – 20 000 000]*. In addition, its debt-to-equity ratio on 31 December 2019 was calculated to be [0 – 10] and, before the COVID-19 outbreak, it was estimated to reach [0 – 10] by 31 December 2020. However, in view of the current circumstances in the economy, the company expects foregone revenues (less variable costs) for the period of March until December 2020 to exceed EUR [50 – 60] million5, while operating losses are expected to reach approximately EUR [20 -30] million6. Thus, due to the COVID-19 crisis, at the end of the year and without the State intervention the equity of Nordica would be negative. This would result in Nordica facing the risk of insolvency even before December 2020, which would greatly affect Estonia’s connectivity and employment.

(7) Nordica approached the bank [……] in Estonia in April 2020 with a request for funding, which the latter rejected due to the heavy disruption of and widespread uncertainty in the aviation industry. Estonia explains this is due to the fact, that while facing substantial losses due to the COVID-19 crisis, the company owns no

3 Regulation No 1 determining the languages to be used by the European Economic Community, OJ 17, 6.10.1958, p. 385. 4 Estonia submits that the passenger traffic at the airport of Tallinn was reduced by 55.3% in March, 98.9% in April, 96.5% in May and 99.6 in June 2020, compared to the same period of 2019. 5 Estonia submitted a Damages Report ( the “Damages Report”) prepared on 29 June 2020 by an independent consultant, Ernst & Young Baltic AS, aiming at quantifying the damages sustained by the company due to the COVID-19 outbreak. 6 According to the company’s Valuation Report, prepared by the company’s financial department in view of the present measures. It is also described in detail in section 2.8.1. 2 * Confidential Information

assets that it could potentially pledge7. Due to the lack of ownership of aircraft, Nordica cannot benefit from the widely used technique of “sale and lease back” transactions, through which numerous airlines source financing in the capital markets. For those reasons, as well as due to the deteriorating general situation in the aviation sector, the company is not able to obtain a loan from a bank on acceptable terms. Instead, public measures are the only way to avoid Nordica’s exit from the market as a result of the COVID-19 crisis, according to the Estonian authorities.

(8) The compatibility assessment of the measures notified by Estonia against that background is based on Article 107(3)(b) TFEU, in light of sections 2, 3.3 and 3.11 of the Temporary Framework.

2.2. The nature and form of the aid measures

(9) Estonia intends to grant aid in the form of:

(a) A capital increase of EUR 22 000 000 (“Measure A” or “the recapitalisation”).

(b) A loan of EUR 8 000 000 at a subsidised interest rate (“Measure B” or “the loan”).

2.3. Legal basis

(10) The legal basis for Measure A is:

(a) The State Assets Act (published in Estonia’s Official Gazette RT I 2009, 57, 381), which lays down the procedure for a share capital increase in the case of State-owned companies.

(b) A Government Decision of the Republic of Estonia authorising the Minister for Economic Affairs and Communication to undertake a share capital increase. That decision will be issued following the Commission’s approval of the recapitalisation.

(c) A Decision of the Ministry for Economic Affairs and Communication, in its capacity as the shareholder of Nordica, designating the details and putting the share capital increase into effect, which will be taken following the authorizing Government Decision mentioned in point (b).

(11) The legal basis for Measure B is the State Budget Act (published in Estonia’s Official Gazette RT I, 13.03.2014, 2) and in particular section 61, subsection 1, point 4. That provision enables the State to grant a loan or State guarantee to a company or to secure the obligations of a company, if the State has a majority interest in the company and if it is necessary to secure the interests of the State in the participation in such a company.

7 According to the Estonian authorities, Nordica leases the aircraft, as well as the office premises and equipment, which it uses for its activities. 3

2.4. Administration of the measures

(12) The Ministry of Economic Affairs and Communications of Estonia is responsible for administering the measures.

2.5. Budget and duration of the measures

(13) The total budget of the measures is EUR 30 000 000. It consists of a EUR 22 000 000 capital increase and subsidised interest rates for a EUR 8 000 000 loan.

(14) The measures should be carried out in August 2020, in order to ensure that Nordica covers its liquidity needs and in any event no later than 31 December 2020 for Measure B and no later than 30 June 2021 for Measure A.

2.6. Beneficiary

(15) The beneficiary of the measures is Nordica, that is, the company “Nordic Aviation Group AS”, with registry code 12927848, location Lennujaama tee 13, 11101 Tallinn. The company is 100% owned by the Estonian State, and the Ministry of Economic Affairs and Communications represents the State as shareholder.

(16) The company is active in the aviation sector and performs air transport of passengers under its own name but mainly for third parties. Nordica has traditionally been Estonia’s “” and national airline.

(17) The company has two subsidiaries: “Regional Jet OÜ” and “Nordic Aviation Advisory OÜ”. The latter is a dormant company. The former is the holder of the air operator certificate (AOC) and is active in the provision of wet leases for aircraft, which involves the provision of aircraft, crew, maintenance and insurance services (“ACMI services”) to other airlines. Regional Jet OÜ operates under the brand “Xfly”. Regional Jet OÜ is a joint venture with LOT airlines, which is currently holding 49%, [……].8 Given that Nordica fully controls the activities of Regional Jet OÜ and bears all benefits and risks of its operations, the economic valuation performed by the beneficiary has taken into account the consolidated financial accounts of both companies.

(18) Nordica was active in the operation of air passenger flights by operating commercial flights to and from Tallinn airport9, and is active in providing wet leases for aircraft, which implies the provision of ACMI services to other airlines, mainly to SAS and LOT airlines. The company also performs air transport routes in the context of public service obligations (“PSO”): currently, the company is operating the route Arvidsjaur-Gällivare to Stockholm10.

8 [……] 9 Until October 2019, Nordica operated its own flights to and from . However, that activity stopped and the company focused on offering wet leasing services to airlines operating flights to and from the same airport, as well as other airports. 10 This refers to a public services contract concluded with the Swedish Transport Administration, valid from 27 October 2019 until 26 October 2023. It ensures a fixed income for Nordica, in addition to passenger revenues. So far, the COVID-19 crisis has not caused a reduction of Nordica’s income earned under the contract. 4

(19) Nordica directly contributes to the Estonian economy through the revenue derived from ACMI services, the taxes paid to the State and its role in providing employment. The group’s consolidated turnover in 2019 amounted to EUR [100 000 000 – 200 000 000] and it paid taxes of approximately EUR [10 000 000 – 20 000 000] to the Estonian State, out of which approximately EUR [1 000 000 – 10 000 000] related to labour taxes. Nordica is the largest employer in the aviation sector of Estonia, a sector that accounts for 3.5% of the country’s GDP. Before the COVID-19 outbreak, it employed [600 – 700] full-time employees, both directly and through crewing agencies (the majority of whom comprised of highly skilled pilots and cabin crew), and paid them [1 – 10] times more than the Estonian median wage. Due to the COVID-19 crisis, the company has made some employees redundant and, as a result, expects that it will have [300 – 400] full-time employees by the end of 2020.

(20) In addition, Nordica indirectly contributes to the national economy through working with upstream and downstream businesses, which depend on the company’s activity. Estonia submits that there are numerous (directly or indirectly) dependent entities11, such as the Estonian Aviation Academy, whose graduates are absorbed as Nordica’s employees to a significant degree, thus constituting up to approximately 20% of the company’s total workforce. Nordica’s business is also crucial for the aviation asset management company, to which Nordica pays a yearly amount of approximately EUR [10 – 20] million, constituting almost the company’s entire annual revenue. Nordica is also an important business partner of aircraft crew renting agencies, through which it employs part of its personnel.

(21) Based on its audited 2019 annual report, Nordica was not in difficulty within the meaning of the General Block Exemption Regulation (“GBER”)12 on 31 December 2019.

(22) In view of the heavy disruption of economic activity in the aviation sector, on 18 March 2020 Nordica submitted a letter to the Ministry of Economic Affairs and Communications, warning that partner airlines had suspended their wet lease contracts given the force majeure and underlining the urgency and uncertainty of the situation. The company submitted to the Estonian authorities a specific written request for the measures on 14 July 2020.

2.7. Description and outlook of the business of Nordica

(23) Currently, the main revenue stream of Nordica is wet leasing, which consists in the provision of aircraft with ACMI services to other airlines. Nordica has [20 – 30] airplanes under lease (which are subject to ongoing redeliveries) of which [0 – 10] are currently in operation. It is projected that by the end of 2020, the fleet will consist of [10 - 20] aircraft.

11 Estonia also refers to other dependent businesses and institutions: Tallinn Airport, Estonian Air Navigation Services, the Magnetic MRO (the main and largest maintenance organisation in Estonia), Airo Catering Estonia, Estonian Air Fuelling Services, Estonian Aviation Academy and various Estonian travel agents and tour operators. 12 As defined in Article 2(18) of 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. 5

(24) According to the Estonian authorities, the wet leasing sector is one of the most fast- growing ones in the aviation industry, with an estimated growth rate of 60% per year (before the COVID-19 outbreak). The main advantage of that business model is the flexibility provided to the lessee: if the operating airline needs some aircraft of a specific type, it is quicker and more cost-efficient to lease them “ready to fly”, rather than to lease plain aircraft, for which it will have to provide crew, maintenance and insurance. Estonia submits that there are three capacity providers in the European market offering services similar to Nordica, while the latter is the sole ACMI service provider in the Baltic region.

(25) Nordica has concluded ACMI contracts with the airlines SAS and LOT, which accounted for [20 – 30] aircraft before the COVID-19 outbreak. More specifically:

 [……]

 [……]

 [……]

(26) Despite the wider uncertainty in the aviation sector caused by the COVID-19 outbreak, Estonia estimates that, once commercial flights start operating again on a more stable basis, the ACMI model is particularly advantageous and cost- efficient, especially for aircraft of smaller capacity, such as those Nordica provides13.

(27) As regards the PSO business line, Nordica continues to perform the route Arvidsjaur-Gällivare to Stockholm, which accounts for a significant and stable segment of the company’s revenues. [……]

(28) Estonia considers that the estimated growth of the company will slow due to the COVID-19 hindrances, but expects that it will be stable, mainly due to its focus on the ACMI business model and its PSO activity. In addition, Nordica is active in the growing and not yet mature market of Eastern and Northern Europe14 and has already established collaborations with major airlines in the region, such as LOT and SAS. Estonia estimates that the company will regain its pre-COVID-19 economic activity in 2022, which is slightly earlier than the general projections of the International Air Transport Association (IATA) for the aviation industry (which predicts that result for 2023). However, Estonia submits that its estimation is reasonable given the advantages of the ACMI business model and the expected rise in the need for smaller aircraft.

(29) Variable costs are estimated to decrease in financial year 2020 as they largely depend on the active aircraft and the routes performed. That reduction is also in line with the general decrease in revenues. Fixed costs are also expected to

13 This is mainly because big airplanes are very costly to operate, especially because of the fuel, maintenance, lease or capital expenses, crew remuneration. If, due to the crisis in the aviation sector, those aircraft are not sufficiently full with passengers, the routes are loss-making for the operating airline. For that reason, it is more cost-efficient to wet lease smaller aircraft.

14 According to the Damages Report, Tallinn Airport had seen an increase in the number of passengers by 51% over the period 2015 – 2019 (before the COVID-19 outbreak).

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decrease, as they mainly include labour costs. Estonia submits that fixed costs have been optimised as much as possible at present: apart from a small number of redundancies, the company has entered into short-time work agreements with the majority of the employees. Such agreements ensure that the employees remain partly occupied, so that they continue to receive a portion of their salary and are ready to be put back in full-time employment as soon as the needs for human resources return to pre-COVID-19 levels.

(30) However, a significant portion of operating expenses remained payable by the company throughout the severely affected period of March 2020 onwards, such as flat fees for aircraft leases, maintenance of aircraft, and redundancy compensations for laid-off employees. That factor, in addition to the fall of economic activity and the reduction in revenues, results in an estimated amount of losses of approximately EUR [20 – 30] million for financial year 2020, which in turn would result in the company having a negative equity position.

(31) Following measure A, the equity position on 31 December 2021 will amount to EUR [10 000 000 – 20 000 000].

(32) With regard to the net debt-to-equity ratio of the beneficiary, on 31 December 2019 that figure amounted to [1 – 10], whereas after both measures it is estimated to be [1 – 10] for 31 December 2020 and [1 – 10] for 31 December 2021.

2.8. Basic elements of the measures

Measure A – Recapitalisation

2.8.1. Valuation of Nordica

(33) As Nordica is not a publicly listed company, Estonia submitted to the Commission a valuation of the company’s market value (“the Valuation Report”)15.

(34) The Valuation Report established the market value of the company on 16 July 2020, based on the previously described Business Plan of the company, as adjusted in the context of the COVID-19 outbreak.

(35) In order to calculate the value of the company, the Valuation Report used the Free Cash Flow to Equity method, which is based on the net cash flow of the company with a discount rate applied. According to its own calculations, Nordica’s market value before the equity injection is [……].

(36) The recapitalisation will involve the issue of 3 000 000 ordinary shares. Due to the [……] market valuation and the fact that Estonia already owns 100% of Nordica’s shares, 100% of the State’s post-recapitalisation shareholding in Nordica will qualify as “COVID shares”, i.e. acquired in the context of Measure A and subject to the conditions and limitations set out in this decision.

2.8.2. Governance and prevention of undue distortions of competition

15 The valuation is performed by the company and is approved by the Ministry for Economic Affairs and Communication. Estonia considers that valuation appropriate due to the nature of the beneficiary as 100% State-owned. 7

(37) Estonia will make the recapitalisation conditional upon observance of the elements of governance and competition set out in section 3.11.6 of the Temporary Framework.

(38) Estonia commits to ensure that Nordica will not engage in aggressive commercial expansion financed by Measure A. That commitment applies in particular, but not exclusively, to the participation of Nordica in public tenders. In that vein, Estonia commits to ensure that Nordica will continue to apply [……]16 and will not make use of the aid to enhance its competitive position in such proceedings.

(39) Estonia commits to ensure that Nordica will not advertise the aid granted for commercial purposes.

(40) Estonia also confirms that, as long as long as at least 75% of the share capital injected by the State in the context of Measure A has not been redeemed, Nordica will not be allowed to acquire a more than 10% stake in competitors or other operators in the same line of business, including upstream and downstream operations. Estonia confirms that in exceptional circumstances, and without prejudice to merger control, Nordica might be allowed to acquire a more than 10% stake in operators upstream or downstream in its area of operation. The Commission may authorise the acquisition if it is necessary to maintain Nordica’s viability. The acquisition may not be implemented before the Commission has taken a decision on that issue.

(41) Estonia commits to ensure that, as long as the share capital injected by Measure A has not been fully redeemed, the company will not make dividend payments or non- mandatory coupon payments, or buy back shares, other than in relation to the shareholding of the State.

(42) Estonia commits to ensure that Nordica, as long as at least 75% of the share capital injected by the State under Measure A has not been redeemed, will not increase the remuneration of the members of the management beyond their contractually fixed remuneration on 31 December 2019. 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.

2.8.3. Remuneration and exit strategy of the State

(43) Estonia commits to ensure that Nordica will demonstrate a credible exit strategy for its participation, unless the at least 75% of the COVID shares have been redeemed within 12 months from the date of the granting of the aid. The exit strategy will be prepared and submitted to the Estonian authorities within 12 months after Measure A is granted. The beneficiary will report on the progress in the implementation of such repayment schedule within the first 12 months after the aid is granted, and thereafter periodically every 12 months.

(44) In that context and because the beneficiary is 100% State-owned, the Estonian State Assets Act is applicable. That legislative act provides that a separate legal document must be established and agreed setting out the main financial

16 Estonia clarifies that, so far, Nordica uses [……]. 8

commitments and obligations of the State-owned company vis-à-vis the State (“Owners Expectations”). In accordance with that provision, Estonia commits to ensure that the State as sole shareholder will set as one of the conditions of its Owners Expectations that [……].

(45) Estonia commits that it will not exercise its right set forth in point 64 of the Temporary Framework to sell at any time its equity stake at market prices to purchasers other than the beneficiary, unless [……] . This commitment will not limit beneficiary’s right to seek equity financing from the market, including to issue shares or other equity instruments to private investors.

(46) In the event of such a sale to purchasers other than the beneficiary, in addition to the commitment referring to the sale price set forth in recital (45), Estonia commits to fully comply with the conditions laid down in point 64 of the Temporary Framework. In particular, if the State sells its equity stake, such a sale requires, in principle, an open and non-discriminatory consultation of potential purchasers. In that regard, Estonia notes that, since the shares are owned by Estonia and they constitute State assets within the meaning of the State Assets Act, the procedures set forth in that legislative act will apply to such a transaction (e.g. public auction as primary means for sale).

(47) Notwithstanding the above, Estonia commits to ensure that Nordica will be able to buy back the COVID shares at any time at the minimum price set out in point 63 of the Temporary Framework and by complying with all conditions set forth in that provision, whereby the market price will be confirmed by a valuation report established by an independent expert.

(48) If the company has not redeemed the shares issued under Measure A within seven years after the recapitalisation, Estonia commits that it will submit a restructuring plan for the beneficiary to the Commission for approval, in accordance with the point 85 of the Temporary Framework.

Measure B – Subsidised Interest Rate on Loan

2.8.4. Nature and maturity of eligible instrument

(49) Measure B provides for the issuance of a subsidised interest loan, which will provide immediate liquidity and cover the needs of the beneficiary for working capital.

(50) The loan will be granted for a period of 6 years.

2.8.5. Maximum amount of eligible instruments

(51) The amount of the loan is EUR 8 000 000. This amount does not exceed either of the following amounts:

(a) Double the amount of Nordica’s annual wage bill for the financial year 2019. According to Estonia, the beneficiary’s annual wage bill for 2019 was EUR [20 000 000 – 30 000 000].

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(b) 25% of Nordica’s total turnover for the financial year 2019. According to Estonia, the beneficiary’s turnover for 2019 was EUR [100 000 000 – 200 000 000].

2.8.6. Period to sign the loan contract

(52) The loan contract will be signed no later than 31 December 2020.

2.8.7. Remuneration of the loans

(53) The interest rate for the loan is established in accordance with point 27(a) of the Temporary Framework as it applies to large enterprises. It amounts to the base rate equal to the reference rate as published by the Commission17 applicable on 1 January 2020 plus 50 basis points (“bps”) for the first year, 100 bps for the second and third year and 200 bps for the fourth, fifth and sixth year.

2.9. Cumulation

(54) The Estonian authorities confirm that aid granted under the measures may be cumulated with aid under de minimis Regulations18 or the GBER19, provided the provisions and cumulation rules of those Regulations are respected.

(55) The Estonian authorities confirm that aid granted under the measures 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.

(56) As regards Measure B, the Estonian authorities also confirm that aid granted under section 3.3 of the Temporary Framework will not be cumulated with aid granted for the same underlying loan principal under section 3.2 of that framework and vice versa. Aid granted under sections 3.2 and 3.3 may be cumulated for different loans provided the overall amount of loans per beneficiary does not exceed the ceilings set out in point 25(d) or in point 27(d) of the Temporary Framework.

2.10. Monitoring and Reporting

(57) The Estonian authorities confirm that they will respect the monitoring and reporting obligations laid down in section 4 of the Temporary Framework.

(58) As regards Measure A, Estonia also confirmed that Nordica will, within 12 months from the date of the recapitalisation and thereafter periodically every 12 months, for a period of three years, publish information on the use of the aid received. In

17 Base rates calculated in accordance with the Communication from the Commission on the revision of the method for setting the reference and discount rates (OJ C 14, 19.01.2008, p. 6) and published on the website of DG Competition at: https://ec.europa.eu/competition/state_aid/legislation/reference_rates.html

18 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). 19 Commission Regulation (EU) No 651/2014. The nominal value of the recapitalisation will be included. 10

particular, this should include information on how Nordica’s use of the aid received supports its activities in line with Union objectives and national obligations linked to the green and digital transformation, including the Union economy-wide objective of climate neutrality by 2050 through this aid and in its public advocacy activities20.

(59) Estonia also confirmed that it will report to the Commission annually on the implementation of the repayment schedule, in accordance with point 82 of the Temporary Framework, and on the compliance with its commitments relating to section 3.11.6 of the Temporary Framework.

3. ASSESSMENT

3.1. Legality of the measures

(60) By notifying the measures before putting them into effect, the Estonian authorities have respected their obligations under Article 108(3) TFEU.

3.2. Existence of State aid

(61) 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.

(62) The recapitalisation and the loan are both imputable to the State, since they are administered by the Estonian Ministry of Economic Affairs and Communications and are based on the administrative and legislative acts mentioned in recitals (10) and (11). They are financed through State resources, since they are financed by public funds.

(63) Both measures confer an advantage to their beneficiary: Measure A does so in the form of a recapitalisation, while Measure B in the form of a subsidised interest loan. In particular, as Estonia submits, the beneficiary is facing a negative equity position by the end of 2020 due to substantial losses and foregone revenue, occurred after the COVID-19 outbreak. Given that Nordica is 100% owned by the Estonian State, the company has no other alternative to turn to for its capital needs (e.g. minority shareholder). In addition, it is extremely unlikely that any private investor would invest in an aviation company in view of the current market situation due to the COVID-19 crisis. Moreover, Nordica cannot benefit from other means of support available in the capital markets. More specifically, the widely used financial support mechanism to which airlines resort is “sale and lease back” transactions. That solution is de facto not available to Nordica, since the company does not own aircraft, but leases them. Therefore, the only solution available to Nordica was to source liquidity from a bank, but even that request was rejected by [……] bank (see

20 Under the EU emissions trading system, the net reduction in aviation related emissions between 2013- 2020 is estimated to be 193.4 Mt of CO2 emissions (https://a4e.eu/wp-content/uploads/a4e-fact-sheet- sustainability-commitments-journey-towards-a-greener-air-transport-of-the-future-2020.pdf).

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recital (7)). Thus, the measure relieves the beneficiary of costs that it would have had to bear under normal market conditions.

(64) The advantage granted by the measures is selective, since they are awarded only to one undertaking.

(65) The measures are liable to distort competition, since they strengthen the competitive position of Nordica in a sector, in which intra-Union trade is very significant, thus also affecting trade between Member States.

(66) In view of the above, the Commission concludes that the measures constitute aid within the meaning of Article 107(1) TFEU. The Estonian authorities do not contest that conclusion.

3.3. Compatibility

(67) Since the measures involve aid within the meaning of Article 107(1) TFEU, it is necessary to consider whether those measures are compatible with the internal market.

(68) 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”.

(69) 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, especially of SMEs”.

(70) The measures aim at strengthening the equity of Nordica, as well as at covering the losses sustained and urgent liquidity needs arisen due to the COVID-19 outbreak, at a time when the normal functioning of markets is severely disturbed by that crisis and the latter is leading to severe disturbances of the real economy of Member States.

Compatibility of Measure A

(71) 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 to undertakings facing financial difficulties due to the COVID-19 outbreak.

3.3.1. Applicability of section 3.11 of the Temporary Framework

(72) 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”. 12

(73) Measure A concerns an individual recapitalisation in favour of a large undertaking resulting from the COVID-19 outbreak. Hence, the recapitalisation notified by Estonia can be qualified as a COVID-19 recapitalisation for the purposes of section 3.11 of the Temporary Framework.

3.3.2. Eligibility and entry conditions

(74) The Commission considers that Nordica fulfils the eligibility and entry conditions for COVID-19 recapitalisation measures set out in section 3.11.2 of the Temporary Framework. Point 49 of the Temporary Framework sets out that a COVID-19 recapitalisation measures 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;

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 GBER21).

(75) In addition, point 50 of the Temporary Framework sets out that a written request for the individually notifiable recapitalisation measure must be provided on behalf of the potential beneficiary to the granting State.

(76) As to the requirement set out in point 49(a) of the Temporary Framework, the Commission observes that the amount of losses expected to be sustained by the company for the financial year 2020 amount to approximately EUR [20 – 30] million. Since its total equity on 31 December 2019 was calculated at EUR [10 000 000 – 20 000 000], the impact of the COVID-19 crisis means the company will have a significant negative equity by the end of 2020, demonstrating a decrease in the company’s financial viability. The Commission therefore concludes that without the recapitalisation, Nordica would go out of business or would face serious difficulties to maintain its operations.

(77) The loss in revenue will continue as one of the main business partner of Nordica, LOT Airlines, [……] Therefore, Nordica is not expected to have a quick recovery and would face the risk of insolvency without the State support.

21 As defined in Article 2(18) of the GBER.

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(78) As to the requirement set out in point 49(b) of the Temporary Framework, the Commission considers that it is in the common interest to support Nordica.

(79) First, Nordica employed approximately [600 – 700] full-time employees before the COVID-19 outbreak. A substantial proportion of them were highly-skilled pilots and cabin crew. Nordica’s staff were remunerated accordingly, at a [1 – 10] times higher wage than the median Estonian salary. As a result of the crisis, Nordica has put the majority of its employees in a flexible employment scheme, according to which they remain employed but are occupied part-time and paid accordingly. As soon as the economic activity resumes and the needs of the company rise again to usual levels, Nordica intends to reinstate its employees to full-time occupation. According to Estonia, the beneficiary is the largest employer in the Estonian aviation sector, which is directly and indirectly responsible for 3.5% of the national GDP. Furthermore, Estonia submits that numerous companies and institutions depend on Nordica for their own business activities, such as the Tallinn airport, the Estonian Aviation Academy, the national aviation assets management company, aircraft crew agencies, Magnetic MRO and Airo Catering Estonia (see recital (20)). More specifically, Nordica is the main source of revenue for the aviation asset management company, with its yearly payments of approximately EUR [1 – 10] million constituting almost the company’s entire revenue. If Nordica stopped that cooperation, the capital of the management company would be severely impaired due to the reduction in the assets’ fair value. Given that the assets were financed by Estonian pension funds, [……]. In addition, aircraft crew renting agencies would suffer the loss of a significant business partner and would be forced to lay off personnel. Therefore, the potential insolvency of Nordica would have detrimental consequences for hundreds of employees and their families, for the overall sustainability of the national aviation sector, as well as for the Estonian economy in general, in view of the indirect consequences.

(80) Second, Estonia is a region with low connectivity, as it has scored at the lowest rank of the EU Connectivity Index even before the COVID-19 outbreak22. That result has been aggravated by the current crisis, since passenger volume of the Tallinn airport has reduced up to 96% (see recital (5)). During the COVID-19 outbreak, Nordica, as the traditional national airline, performed numerous rescue flights, thus ensuring the repatriation of Estonian citizens and serving the public interest, as well as the obligation of the Estonian State to protect and support its population. In that context, Nordica also participated in ensuring the transport of medical and sanitary equipment to Estonia, by helping the national government to arrange the necessary transport aircraft.

(81) Apart from those extraordinary circumstances, Nordica plays an important role in ensuring passenger flights to and from Estonia through the provision of ACMI services to airlines in the area of Northern and Eastern Europe servicing Tallinn airport, and thus connecting Estonia to numerous key international destinations, such as Brussels, Stockholm and Copenhagen. According to Estonia, before the COVID-19 outbreak, Nordica held [20 – 30]% of the Estonian aviation market share and contributed to the aggregate volume of passengers of Tallinn airport, up to a rate of [40 – 50]%. Even though the beneficiary does not perform some of the flights in its own name, its services are critical for Tallinn airport, because they

22 Available online on the website: https://ec.europa.eu/transport/modes/air/news/2017-09-27-air- connectivity-index-newly-developed-tool-measure-connectivity-published_en. 14

enable the operation of routes to multiple destinations, by providing the aircraft and the crew. In particular, before the COVID-19 outbreak, Nordica’s services related to the operation of the highest number of roundtrips per week to and from that airport23. Tallinn airport is the main national airport of Estonia, situated in the capital city and serving as the principal transport hub for international, as well as domestic flights. It accounts for 98% of the overall passenger number in Estonia, while the remaining 2% is represented by regional airports in the cities of Tartu and Kuressaare; the former only serves one international route to Sweden, while the latter serves exclusively domestic routes. Furthermore, Tallinn airport is directly and indirectly responsible for 3.2% of the Estonian GDP.

(82) In the same context, Nordica has concluded important business partnerships and collaborations with major airlines, such as [……]. Nordica offers the following advantages in the aviation market, which render it unique: it is the sole capacity provider based in the Baltic region, its fleet is based in Tallinn airport and it offers small-capacity aircraft, which are not usually owned by the major airlines themselves. As a result, the company plays a key role in ensuring the continuity of transport to and from Tallinn airport. Any other provider would have to perform overnight stops or transit flights in order to provide services to the same airport and doing so would result in changes in the flights schedule, higher costs for the operating airline, as well as higher ticket prices for passengers. Nordica’s suitability was confirmed when the beneficiary was chosen to perform flights to and from [……]. In addition, Nordica offers particular types of small-capacity aircraft, which are usually not owned or leased by the major airlines and therefore offers a very advantageous, quick and flexible solution for their routes. As explained above (see recitals (24) and ), that factor is expected to gain even more importance, in view of the reduced passenger numbers due to the COVID-19 outbreak and the continuous need for suitable and cost-benefitting aircraft to perform the routes in question.

(83) For the above reasons, there is no immediate alternative provider, who would be able to substitute Nordica in the event of its insolvency. Estonia estimates that, if Nordica ceased its operations, it would take approximately [1 – 10] – [10 – 20] months for a major airline (such as SAS, which currently has contracts for [10 – 20] aircraft) to cover the operations that Nordica is currently providing, an evaluation that the Commission considers to be well-founded. This would result in a long-lasting pause in air passenger routes, thus effectively leading to a connectivity gap for Estonia. In light of the low connectivity rate mentioned in recital (80), this would have adverse effects to Estonia’s population, transport, trade and tourism volumes. The gap would be even more difficult to bridge in the aftermath of the COVID-19 outbreak: even though flights have started to resume, passenger numbers are still significantly low and airlines are trying to recover from the losses sustained. Therefore, it is unlikely that any airline would be interested in immediately expanding its business in a new market, business activity or geographical area amid that uncertain economic and business environment. The Commission therefore concludes that it is in the common interest for the State to intervene as required by point 49(b) of the Temporary Framework.

23 Nordica offered ACMI services for [60 - 70] round trips per week, while other airlines servicing Tallinn airport operated [50 – 60], [40 – 50], [20 – 30] round trips per week. 15

(84) As to the requirement set out in point 49(c) of the Temporary Framework, the Commission notes that Estonia has demonstrated that Nordica was not able to find financing on the markets to cover its liquidity needs, as its unsuccessful attempt to acquire financing from [……] bank shows (see recital (7)). Given the deteriorating economic conditions in the aviation sector, it seems out of question that the company would be able to obtain a loan from a bank on acceptable terms. In the same context, Nordica is unable to find other financial resources from the capital markets, since the company does not own aircraft, which it could potentially “sale and lease back”, in accordance with the usual practice for aviation enterprises.

(85) So far, Nordica has benefited from horizontally available measures of the Estonian government in support of employment, in the form of wage compensation of EUR [300 000 – 400 000] approximately for each of the months of April, May and June. However, that amount is not sufficient to cover the needs and the sustained losses of an airline, whose economic activity has been severely disrupted in recent months and is not expected to recover in the near future. In addition, Nordica’s need for liquidity cannot be covered by other means of funding or support, as there are no other suitable schemes available in Estonia, from which the company could benefit and which would ensure the necessary amount of support for the company.

(86) With respect to the requirement set out in point 49(d) of the Temporary Framework, Nordica is not an undertaking that was already in difficulty on 31 December 2019 (within the meaning of the GBER) (see recital (21)).

(87) Finally, on 14 July 2020, as indicated in recital (22), Nordica made a written request to Estonia for a recapitalisation, which is in line with point 50 of the Temporary Framework.

3.3.3. Proportionality of the recapitalisation

(88) According to point 54 of the Temporary Framework, 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 must be taken into account.

(89) In order to assess whether the aid corresponds to the minimum needed to restore the capital structure of Nordica to the one before the COVID-19 outbreak, the Commission took into account the financial projections concerning (i) the equity position of the beneficiary and (ii) the net debt-to-book equity ratio of the beneficiary after the recapitalisation. The Commission compared the value of those indicators with those predating the COVID-19 outbreak, i.e. the situation on 31 December 2019.

(90) Nordica’s equity position on 31 December 2019 amounted to EUR [10 000 000 – 20 000 000]. After taking into account the estimated losses for the financial year 2020 (estimated at approximately EUR [20 – 30] million), the equity position on 31 December 2020 is expected to amount to a negative value of approximately EUR [0 - 10] million. Following the measure, the equity position on 31 December 2021 is expected to amount to EUR [10 000 000 – 20 000 000]. Therefore, by the end of 2021, the equity position of the company is expected to be lower than the one of 31

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December 2019 and the measure would not lead to a higher equity level than that predating the COVID-19 outbreak, i.e. the situation on 31 December 2019.

(91) The Commission observes that the recapitalisation of Nordica does not go beyond restoring the capital structure of the beneficiary to that predating the COVID-19 outbreak. The net debt-to-book equity ratio of the beneficiary is calculated at [1 – 10] as of 31 December 2019, while after the measure it will increase to [1 – 10] as of 31 December 202124. Based on the forecasts submitted by Estonia, it is not expected that the 2019 net debt-to-equity ratio of Nordica will be restored in the time horizon considered in the business plan, i.e. 2023.

(92) The Commission also notes that the measure will enable the company to eventually reach viability and will facilitate its return to capital markets. In the financial years 2020 and 2021, Nordica’s dynamic gearing ratio, i.e. the ratio between net financial liabilities and EBITDA, will be negative due to losses. However, as of 31 December 2022, the net debt-to-EBITDA ratio is projected to be positive and is also projected to gradually decrease within the timeframe of the business plan: from [10 – 20] in 2022 to [1 – 10] in 2024. Given such relatively high borrowing levels (in relation to EBITDA), the Commission considers that the amount of aid granted under the recapitalisation, taking into account the loan for the calculation of the company’s financial position, does not go beyond the minimum needed to be in a position to borrow from credit markets at attractive rates over the time period considered.25

(93) Estonia claims that that business model does not necessarily require extensive financing. Nevertheless, as the current business environment is difficult, Estonia predicts that it may take some time for Nordica to recover to the optimal level. The Commission considers that claim to be credible and accepts the company’s submission that the financing of EUR 22 000 000 of equity investment and EUR 8 000 000 of working capital loan is sufficient and does not exceed the amounts needed to survive in the current economic environment.

(94) The Commission also notes that the beneficiary has only received a limited amount of a horizontally available wage compensation from Estonia (reaching a monthly amount of approximately EUR [300 000 – 400 000]), in order to support employment (see recital (85)). Apart from that, and Measure B, Nordica neither received nor plans to receive any other aid in the context of the COVID-19 outbreak.

(95) In light of the above, the Commission concludes that Measure A does not exceed the minimum necessary to ensure the viability of the beneficiary and does not go beyond restoring the capital structure of the beneficiary to the one predating the COVID-19 outbreak and is, thus, proportionate and in line with point 54 of the Temporary Framework.

24 The Commission took into account capitalised leases in the calculation of Net Debt for the purpose of assessing whether the aid is limited to a minimum. 25 Based on standing practices in debt capital markets for companies with investment grade ratings, the Commission understands that that ratio should not exceed 3.0x to 3.5x although it is further dependent on the type of industry the company is active in and its investor base. 17

3.3.4. Remuneration of the State

(96) According to point 60 of the Temporary Framework, a capital injection by the State should 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. Furthermore, any recapitalisation measure should include a step-up mechanism increasing the remuneration of the State, to incentivise the beneficiary to buy back the capital injected into it by the State, in accordance with the detailed provisions set out in point 61 of the Temporary Framework. The Commission may accept alternative mechanisms as regards the exit of the State, provided that they ensure a similar outcome regarding the incentive effect (point 62 of the Temporary Framework).

(97) The purpose of 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, is to ensure that the State’s capital contribution is reflected in a market-based shareholding for the State and correspondingly in a market-based dilution for existing shareholders following the recapitalisation. As the Valuation Report of the company prepared by its own financial department (see recital (33)) established a [……] value of the beneficiary at the moment of recapitalisation, the State’s shareholding following the recapitalisation will consist of 100% COVID shares with full dilution of existing shares.

(98) Given that the valuation of the company is, in this instance, of no effect in terms of dilution of existing shareholders and leads to all of the State’s shares qualifying as COVID shares, as set out in recital (97), the Commission may accept it as a proportionate means to establish an estimate of the company’s market value in line with point 60 of the Temporary Framework. In addition, the Commission has reviewed the internal valuation report by the company and examined both the numerical calculations and the key assumptions underlying the valuation. The Commission scrutinised the Free Cash Flow to Equity method and examined in detail the financial figures, as well as the accounting methods employed by Estonia. It also requested a benchmarking exercise, in order to compare the financial position of Nordica to other similar businesses, which took place on the basis of publicly available information. The Commission considered credible the business model and the assumptions considered in the Valuation Report, in particular those relating to the estimated development of the ACMI business in the near future.

(99) Because the company is 100% State-owned and given that Measure A implies that the entirety of the State’s shares in the company will qualify as COVID shares (full dilution) for the purpose of the Temporary Framework, a step-up mechanism as laid down in point 61 of the Temporary Framework has no incentive effect on the exit of the State. Equally, a step-up mechanism would have no overall impact on the State's remuneration, as required by point 62 of the Temporary Framework. Moreover, in such a situation, a step-up mechanism would not only fail to affect meaningfully the remuneration of the State or the incentives for the beneficiary to see the State exit its capital, but would also tend to increase the amount of aid needed by a State-owned company, an outcome that that is at odds with the general principles underpinning the State aid discipline. In those particular circumstances 18

where the State is the 100% shareholder both before and after the recapitalisation, the Commission considers that the incentive effect on the exit and on the State’s remuneration are adequately safeguarded by the conditions set out in section 3.3.6.

3.3.5. Governance and undue distortion of competition

(100) Measure A complies with section 3.11.6 of the Temporary Framework and no additional competition measure is required from Estonia.

(101) First, Estonia commits that, in accordance with point 71 of the Temporary Framework, Nordica will not engage in aggressive commercial expansion. This applies in particular, but not exclusively, to Nordica’s participation in public tenders. Estonia commits to ensure that the beneficiary will […….] and will not make use of the aid in order to enhance its competitive position in such proceedings (see recital (38)).

(102) Second, in accordance with point 72 of the Temporary Framework, Estonia commits to ensure that Nordica will not advertise the aid granted for commercial purposes (see recital (39)).

(103) Third, Estonia also confirms that, as long as long as at least 75% of the share capital injected by the State in the context of Measure A has not been redeemed, Nordica 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. In exceptional circumstances, and without prejudice to merger control, Nordica might be allowed to acquire a more than 10% stake in operators upstream or downstream in its area of operation. The Commission may authorise the acquisition if it is necessary to maintain Nordica’s viability. The acquisition may not be implemented before the Commission has taken a decision on that issue (see recital (40)).

(104) Fourth, Estonia commits to ensure that, as long as the share capital injected by Measure A has not been fully redeemed, the company will not make dividend payments or non-mandatory coupon payments, or buy back shares, other than in relation to the shareholding of the State (see recital (41)).

(105) Finally, Estonia commits to ensure that Nordica, as long as at least 75% of the share capital injected by the State under Measure A has not been redeemed, will not increase the remuneration of the members of the management beyond their contractually fixed remuneration on 31 December 2019. 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 (see recital (42)).

(106) As the aid does not exceed EUR 250 million, the requirement under point 72 of the Temporary Framework to investigate whether the beneficiary holds significant market power does not apply in the present case.

(107) Therefore, the Commission considers that all requirements set forth in section 3.11.6 of the Temporary Framework are met in the present case.

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3.3.6. Exit strategy of the State from the participation resulting from the recapitalisation and reporting obligations

(108) Measure A complies with the rules on the States exit as set out in points 63 and 64 and in section 3.11.7 of the Temporary Framework.

(109) In accordance with points 79 to 82 of the Temporary Framework, Estonia commits to ensure that Nordica will demonstrate a credible exit strategy for its participation, unless at least 75% of the COVID shares have been redeemed within 12 months from the date of the granting of the aid. The exit strategy will comply with the requirements of point 80 of the Temporary Framework. It will be prepared and submitted to the Estonian authorities within 12 months after Measure A is granted. The beneficiary will report on the progress in the implementation of that repayment schedule within the first 12 months after the aid is granted, and thereafter periodically every 12 months (see recital (43)). Furthermore, Estonia commits to comply with the reporting obligations of the Temporary Framework, as set forth in its points 83 and 84 (see recitals (58) and (59)).

(110) In that context and in view of the applicable Estonian law, it is noted that the Estonian State Assets Act provides for a separate legal document, which must be established and agreed setting out the main financial commitments and obligations of the State-owned company vis-à-vis the State (“Owners Expectations”). The Commission notes that, in accordance with that provision, the Estonian State as the sole shareholder will set as one of the conditions of its Owners Expectations that the company adheres to the “surplus owners’ equity policy”. [……]

(111) Regarding the potential sale of Nordica’s shares, Estonia commits that it will not exercise its right set forth in point 64 of the Temporary Framework to sell at any time its equity stake at market prices to purchasers other than the beneficiary, unless [……] . That commitment will not limit beneficiary’s right to seek equity financing from the market, including to issue shares or other equity instruments to private investors (see recital (45)). The Commission considers that commitment to be an adequate safeguard to ensure that the State gets an appropriate remuneration for its investment in line with point 55 of the Temporary Framework (see recital (45)).

(112) In the event of such a sale to purchasers other than the beneficiary, in addition to the commitment referring to the sale price set forth in recital (45), Estonia commits to fully comply with the conditions laid down in point 64 of the Temporary Framework. In particular, a sale requires, in principle, an open and non- discriminatory consultation of potential purchasers. In that regard, Estonia notes that, since the shares are owned by Estonia and they constitute State assets within the meaning of the State Assets Act, the procedures set forth in that legislative act will apply to such a transaction (e.g. public auction as primary means for sale).

(113) Notwithstanding the conditions laid down in recitals (109) to (112), Estonia commits to ensure that Nordica will be able to buy back the COVID shares at any time at the minimum price set out in point 63 of the Temporary Framework and by complying with all conditions laid down in that provision. In the event of such a buy back by Nordica, the market price will be confirmed by a valuation report established by an independent expert (see recital (47)).

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(114) If the company has not redeemed the shares issued under Measure A under the conditions described in recitals (111) to (113) within seven years after the recapitalisation, Estonia commits that a restructuring plan for the beneficiary will be submitted to the Commission for approval, in accordance with point 85 of the Temporary Framework (see recital (48)).

3.3.7. Monitoring and Reporting Obligations

(115) Estonia confirmed that it will apply the reporting and monitoring obligations contained in section 4 of the Temporary Framework (see section 2.10)).

3.3.8. Conclusion

(116) The Commission therefore considers that Measure A is necessary, appropriate and proportionate to remedy a serious disturbance in the economy of a Member State pursuant to Article 107(3)(b) TFEU, in light of sections 1, 2 and 3.11 of the Temporary Framework.

Compatibility of Measure B

(117) The applicable interest rate of the loan is equal to the base rate as published by the Commission26 applicable on 1 January 2020 plus the respective credit margins applicable to large enterprises, i.e. 50 bps for the first year, 100 bps for the second and third year, 200 bps for the fourth and fifth year (see recital (53)). Therefore, Measure B complies with point 27(a) of the Temporary Framework.

(118) The loan contract will be signed on 31 December 2020 at the latest and its duration is set at 6 years (see recitals (50) and (52)). Therefore, Measure B complies with point 27(c) of the Temporary Framework.

(119) The total amount of the loan is EUR 8 million and, thus, does not exceed any of the two thresholds set in point 27(d) (see recital (51)):

(a) Double the annual wage bill (including social security charges and cost of personnel working at the beneficiary’s site but formally on the payroll of the beneficiary’s subcontractors) of the beneficiary for the financial year 2019. In the present case the relevant amount for 2019 was EUR [20 000 000 – 30 000 000].

(b) 25% of the beneficiary’s total turnover for the financial year 2019. In the present case the relevant amount was EUR [100 000 000 – 200 000 000].

(120) Therefore, Measure B complies with point 27(d) of the Temporary Framework.

(121) The loan relates to working capital needs (see recital (49)). Therefore, Measure B complies with point 27(f) of the Temporary Framework.

26 Base rates calculated in accordance with the Communication from the Commission on the revision of the method for setting the reference and discount rates (OJ C 14, 19.1.2008, p. 6), available at: https://ec.europa.eu/competition/state_aid/legislation/base_rates2020_07_en.pdf .

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(122) As mentioned in recitals (21) and (86), the beneficiary is not an undertaking which was already in difficulty on 31 December 2019. Therefore, Measure B complies with point 27(g) of the Temporary Framework.

(123) Finally, the Estonian authorities commit to respect the cumulation, monitoring and reporting obligations (see recitals (51) to (55)).

(124) The Commission therefore considers that Measure B is necessary, appropriate and proportionate to remedy a serious disturbance in the economy of a Member State pursuant to Article 107(3)(b) TFEU, in light of sections 1, 2 and 3.3 of the Temporary Framework.

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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