State Aid SA.60113 (2021/N) – Finland – COVID-19 Aid to Finnair

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EUROPEAN COMMISSION

Brussels, 12.3.2021 C(2021) 1788 final

In the published version of this decision, some PUBLIC VERSION information has been omitted, pursuant to articles 30 and 31 of Council Regulation (EU) This document is made available for 2015/1589 of 13 July 2015 laying down information purposes only. detailed rules for the application of Article 108

of the Treaty on the Functioning of the European Union, concerning non-disclosure of information covered by professional secrecy. The omissions are shown thus […]

Subject: State Aid SA.60113 (2021/N) – Finland – COVID-19 aid to Finnair

Excellency,

1. PROCEDURE

(1) By electronic notification of 17 February 20211, Finland notified aid to Finnair plc (“Finnair”) in the form of a EUR 351.38 million hybrid loan (“the Measure”), in accordance with Article 108(3) of the Treaty on the Functioning of the European Union (“TFEU”).

(2) Finland exceptionally agrees to waive its rights deriving from Article 342 TFEU, in conjunction with Article 3 of Regulation 1/1958,2 and to have the present decision notified and adopted in English.

1 The Finnish authorities pre-notified the Measure on 8 December 2020. The Finnish authorities and the Commission services held several conference calls throughout the pre-notification procedure. The Commission send requests for information on 11 and 21 December 2020; on 12, 18 and 28 January 2020, and on 2 and 15 February 2020. The Finnish authorities submitted information on 14, 16 and 23 December 2020; on 8, 12, 18, 26 and 28 January 2021 as well as on 2, 16 and 17 February 2021.

2 Regulation No 1 determining the languages to be used by the European Economic Community, OJ 17, 6.10.1958, p. 385.

Ulkoministeri Pekka HAAVISTO Merikasarmi PL 176 FIN - 00161 Helsinki Commission européenne/Europese Commissie, 1049 Bruxelles/Brussel, BELGIQUE/BELGIË - Tel. +32 22991111

2. DESCRIPTION OF THE MEASURE

2.1. Objective of the Measure

(3) Finland considers that the COVID-19 outbreak, i.e., the pandemic caused by infections with the new coronavirus SARS-CoV-2, and the related governmental restrictions severely affected the aviation sector in that Member State. In that context, the Measure seeks to make good the damage that Finnair suffered due to the imposition of travel restrictions and other containment measures linked to the COVID-19 outbreak in place between 16 March and 31 December 2020 (the “Overall Compensation Period”).

(4) In particular, the Measure aims at compensating the losses suffered by Finnair:

- between 16 March and 30 June 2020 (the “First Compensation Period”) due to the general travel restrictions and containment measures adopted at domestic, Union and international levels; and

- between 1 July and 31 December 2020 (the “Second Compensation Period”) due to persisting or new travel restrictions on routes operated or programmed by Finnair in 2020 to/from the following countries: Portugal, Spain, France, the United Kingdom, Croatia, Czechia, Hungary3, the United States of America (“USA”), Turkey, Israel, Japan, India, Singapore, Thailand4, Hong Kong and China.

(5) Finland notified the Measure under Article 107(2)(b) TFEU.

2.1.1. Travel restrictions linked to the COVID-19 outbreak during the Overall Compensation Period

(6) The COVID-19 outbreak has resulted in travel restrictions imposed by Member States and third countries and the closing down of the vast majority of passenger air transport domestically, within the Union and globally.

Travel restrictions adopted by Finland on travels to/from abroad

(7) On 12 March 2020, the Finnish government adopted the first general restrictions to contain the spread of the COVID-19 outbreak. Until further notice, all public events with more than 500 attendees were cancelled; employees were advised to work remotely if their tasks could be carried out from home; citizens were advised to discontinue non-essential work-related travel and to postpone holiday travel; all non- essential activities were restricted5. On 14 March 2020, the Finnish Ministry of Foreign Affairs announced the closure of the Finnish borders with effect as of 19

3 Only for the period 1 September – 31 December 2020.

4 Only for the period 1 July – 31 August 2020.

5 See press release of the Finnish Government of 12 March 2020: https://valtioneuvosto.fi/en/- /10616/government-decides-on-recommendations-to-curb-the-spread-of-coronavirus.

March 2020 and issued a warning inviting all Finnish citizens travelling abroad to return immediately to Finland6.

(8) On 16 March 2020, the Finnish government declared a state of emergency and adopted the first travel restrictions concerning travel from/to all of the Member States as well as third countries. The public authorities suspended all passenger transport to Finland with the exception of returning Finnish citizens and persons residing in Finland7. As of 27 March 2020, the Government decided to restrict traffic between the capital region and other regions in Finland. The first travel restrictions, which had covered an initial period until 13 April 2020, were later tightened8 and were prolonged until 13 May 20209. During that period travel was reduced to essential traffic based on a list of critical occupations introduced by the Ministry of Economic Affairs and Employment. The tasks listed as justified essential traffic were those that were characterised as critical to the security of the supply chain or for specific industries.

(9) On 14 May 2020, the Finnish government allowed travels from/to the Schengen area for essential reasons, including essential business travel for people having an employment contract in Finland. At the same time border controls were prolonged for all internal (Schengen countries) and external (non-Schengen countries) borders until 14 June 2020. On 29 May 2020, the Finnish government started to ease the restrictions on domestic travels10 and the internal lockdown restrictions.

(10) On 11 June 2020, the Finnish government outlined the future new rules for travel restrictions, following a strategy aiming at a gradual lifting of travel restrictions based on the continuous monitoring of the COVID-19 epidemiological situation.

(11) As a result, the Finnish government first allowed cross-border traffic with countries with similar epidemiological situations as Finland11. On 15 June 2020, Finland lifted all travel restrictions with Estonia, Iceland, Latvia, Lithuania, Norway and Denmark12.

6 See press release of the Finnish Ministry of Foreign Affaires of 14 March 2020: https://valtioneuvosto.fi/en/-/ulkoministerio-ala-matkusta-ulkomaill-2.

7 See press release of the Finnish government of 16 March 2020: https://valtioneuvosto.fi/en/-/10616/hallitus- totesi-suomen-olevan-poikkeusoloissa-koronavirustilanteen-vuoksi. The Finnish government applied a full prohibition of all travels starting as of 18 March 2020 for all transports (https://valtioneuvosto.fi/en/- /1410869/suomen-rajaliikennetta-aletaan-rajoittaa-elakkeella-olevia-rajavartijoita-ja-poliiseja-voidaan- kutsua-toihin).

8 See press release of the Ministry of Interior of 7 April 2020: https://valtioneuvosto.fi/en/-/1410869/suomen- rajaliikenteen-rajoituksia-jatketaan-ja-karanteenimaarayksia-tiukennetaan.

9 See press release of the Finnish government of 30 March 2020: https://valtioneuvosto.fi/en/-/10616/hallitus- jatkaa-poikkeusoloihin-liittyvia-toimia-13-toukokuuta-saakka.

10 See press release of the Finnish government of 29 May 2020: https://valtioneuvosto.fi/en/-/10616/hallitus- linjasi-kotimaassa-voi-matkailla-kun-noudattaa-terveys-ja-turvallisuusohjeita.

11 See press release of the Ministry of Interior of 12 June 2020: https://valtioneuvosto.fi/en/- /1410869/valtioneuvoston-paatos-rajaliikenteen-rajoituksista-15-6-alkaen.

12 However, Denmark and Iceland continued to maintain restrictions on entry from foreign countries respectively until 27 June 2020 and 1 July 2020 (see https://www.schengenvisainfo.com/news/denmark-to- reopen-for-majority-of-european-countries/ and https://www.government.is/news/article/2020/06/12/Changes-in-travel-restrictions-untill-1-July/).

Non-essential travels to/from all other Member States and Schengen Associated States13, as well as all travels to/from third countries, remained prohibited14. All incoming travellers from countries subject to the Finnish travel restrictions had to undergo a quarantine period of 14 days upon arrival in Finland15. In addition, the Finnish authorities recommended Finnish citizens and residents in Finland to avoid non-essential travels abroad except for the countries for which no travel restrictions applied.

(12) On 8 July 202016, the Finnish authorities decided to lift as of 13 July 2020 the restrictions on traffic to all Member States and Schengen Associated States that registered no more than eight new cases of the disease per 100,000 persons in the previous 14 days17. On that basis, on 13 July 2020, Finland lifted all travel restrictions from/to the Netherlands, Belgium, Italy, Austria, Greece, Liechtenstein, Malta, Germany, Slovenia, Slovakia, Switzerland and Hungary, but left in place the existing travel restrictions for the rest of the Member States and Schengen Associated States (i.e., prohibition of non-essential travels). For third countries, Finland maintained the prohibition on all travels with the exception of the countries figuring in Annex I to the Council Recommendation on the temporary restriction on non-essential travel into the EU and the possible lifting of such restriction18. Regarding those exempted countries the Finnish authorities only allowed essential travels19.

(13) The Finnish governmental policy on travel restrictions depending on the epidemiological situation in the Member State or third countries was applied during the whole Second Compensation Period (and beyond 31 December 2020). The

13 For Member States and Schengen Associated States, the public authorities allowed only return traffic to Finland, commuting and other essential traffic. This included travels for a family or personal reason or travel to a property, private residence or holiday residence in Finland. Return traffic referred to Finnish citizens, citizens of the EU and Schengen States living in Finland and their family members, and to third- country nationals staying in Finland with a residence permit.

14 For third countries, only return traffic to Finland and transit traffic at Helsinki Airport were allowed; only family members of Finnish citizens could enter the country.

15 As of 19 September 2020, the Finnish authorities also required for incoming travelers from countries to which Finland applied travel restrictions to present a certificate of a negative COVID-19 test taken less than 72 hours prior to arrival. A 14-day quarantine was still mandatory but travelers could end it upon receiving a negative result from a second COVID-19 test taken 72 hours after entry at the earliest (see press release of the Finnish government of 11 September 2020: https://valtioneuvosto.fi/en/-/10616/government-adopts- resolution-on-implementing-the-hybrid-strategy-for-border-traffic-and-travel).

16 See press release of the Finnish government of 8 July 2020: https://valtioneuvosto.fi/en/- /10616/government-updates-policies-on-internal-border-control-and-travel-restrictions.

17 The limit of eight new cases was modified to 25 new cases on 11 September 2020.

18 Council Recommendation (EU) 2020/912 of 30 June 2020 on the temporary restriction on non-essential travel into the EU and the possible lifting of such restriction, OJ L 208I, 1.7.2020, p. 1. The list included inter alia Japan and Thailand. China was also included but subject to confirmation of reciprocity.

19 From 27 July 2020 onwards, traffic between Finland and the countries listed in Annex II was allowed without restrictions (see press release of 23 July 2020: https://valtioneuvosto.fi/en/-/10616/government- decides-on-continuation-of-restrictions-on-traffic-at-internal-and-external-borders).

epidemiological situation of each country was updated every two weeks20. Hence, for many countries the imposition of travel restrictions was subject to changes over time, i.e., travel restrictions were lifted at a certain date but reinstated later21. As a general rule, on 12 October 2020, the restrictions were reinstated for almost all foreign countries following the irruption of the second wave of the pandemic. The Finnish government adopted new containment measures in a resolution on local and regional recommendations to prevent the spread of COVID-19 (remote work for all workplaces, restrictions on public events and leisure activities, etc.)22.

(14) For some Member States and Schengen Associated States, the Finnish authorities stated that the prohibition of non-essential travels remained in place for the whole Second Compensation Period. This concerned the following countries: France, Portugal, Spain, Czechia, Croatia and the United Kingdom. For Hungary, the restrictions were lifted on 13 July 2020 but reinstated on 19 September 2020.

(15) Concerning third countries, Finland kept the full prohibition of travels in place during the Second Compensation Period for all countries with only few exceptions, notably Singapore, Hong Kong, Japan and Thailand. For Thailand, Finland lifted travel restrictions on 28 July 2020. For Singapore and Hong Kong, Finland lifted all travel restrictions on 9 November 2020. As for Japan, all travel restrictions were lifted on 27 July 2020, reinstated on 24 August 2020 and lifted again on 18 September 2020 onward.

(16) The timeline of the restrictions imposed by the Finnish authorities over the period 1 July – 31 December 2020 and relevant for the purposes of the present decision can be summarised as follows:

Table 1: Finnish travel restrictions per country between 1 July and 31 December 2020

Member States and the United Duration of the travel restrictions Kingdom

Croatia 1 July - 31 December

Czechia 1 July – 31 December

France 1 July – 31 December

Hungary 1 July – 12 July

19 September – 31 December

20 The Finnish authorities reviewed the epidemiological situation of each country on 27 July, 10 and 24 August, 18 and 28 September, 5 and 12 October, 9 and 19 November and 10 December 2020.

21 For example, Finland lifted all travel restrictions to Austria on 13 July 2020 but reinstated them as of 27 July 2020.

22 See press release of the Finnish government of 23 October 2020: https://valtioneuvosto.fi/en/- /1271139/government-adopts-resolution-on-local-and-regional-recommendations-to-prevent-the-spread-of- covid-19.

Portugal 1 July – 31 December

Spain 1 July – 31 December

United Kingdom 1 July – 31 December

Third countries

China 1 July – 31 December

Hong Kong 1 July – 9 November

India 1 July – 31 December

Israel 1 July – 31 December

Japan 1 July – 26 July

24 August – 18 September

Singapore 1 July – 9 November

Turkey 1 July – 31 December

USA 1 July – 31 December

Source: Finland

Restrictions recommended by the European Union during the Overall Compensation Period

(17) At Union level, on 16 March 2020 the Commission invited Member States to apply a coordinated restriction on non-essential travel from third countries to the Union for an initial period of 30 days to contain the spread of the virus.23 The Commission subsequently extended its recommendation twice until 15 June 202024. On 11 June 2020 the Commission further recommended to prolong the travel restrictions, with a perspective for re-allowing travel for certain third countries as of 1 July 2020.25 The Commission recommendations were directed to the “EU+” States (30 States in total)26.

23 COM(2020) 115, 16 March 2020.

24 COM(2020) 148, 8 April 2020; COM(2020) 222, 8 May 2020.

25 COM(2020) 399 final.

26 The “EU+ area” includes all Schengen Member States (as well as Bulgaria, Croatia, Cyprus and Romania), as well as the four Schengen Associated States. (Iceland, Liechtenstein, Norway, and Switzerland). The inclusion of Ireland and the UK was subject to their alignment decision.

(18) Most Member States reopened their borders with other Member States and the Schengen Associated States as of mid-June 2020,27 following the recommendation of the Commission to lift the internal borders controls and restrictions on free movement within the Union by 15 June 2020.28

(19) On 30 June 2020, the Council adopted a recommendation on the gradual lifting of the temporary restrictions on non-essential travel into the EU.29 That recommendation urged that travel restrictions should be lifted for countries listed in the recommendation, with that list being reviewed and updated every two weeks. For countries where travel restrictions continue to apply, the Council recommended to exempt from the travel restrictions Union citizens and their family members, the long- term residents of the Union and their family members and travellers with an essential function or need as listed in the recommendation. The recommendation also indicated that a Member State should not decide to lift travel restrictions for non-listed third countries before this had been decided in a coordinated manner. That recommendation remained in place without substantial modification for the whole Second Compensation Period and beyond 31 December 2020.

(20) Furthermore, the Council adopted its new recommendation to coordinate measures affecting free movement within the Union on 13 October 202030. That recommendation invited Member States to provide data to the European Centre for Disease Prevention and Control (newly notified cases per 100 000 population in the last 14 days, number of tests per 100 000 population carried out in the last week, percentage of positive tests) with the aim of publishing a weekly map of Member States, broken down by regions, to support Member States in their decision-making on travel restrictions. Areas would be marked with different colours (green, orange and red) according to the level of risk infections. As a general rule, the recommendation considered that Member States should not restrict the free movement of persons travelling to/from green areas and should apply proportionate restrictions on free movement of persons travelling to/from orange and red areas. Member States should in principle not refuse entry to persons travelling from other Member States. Those Member States that consider it necessary to introduce restrictions could require persons travelling from non-green areas to undergo quarantine and/or undergo a test prior and/or after arrival.

27 This was the case on 10 June 2020 for Slovakia, Latvia and Cyprus; 12 June 2020 for Portugal; 13 June 2020 for Romania and Poland; 15 June 2020 for Austria, Belgium, Croatia, Finland, France, Germany, Greece, the Netherlands, Czechia and Sweden; on 17 June 2020 for Bulgaria; on 21 June 2020 for Spain and on 27 June 2020 for Denmark.

28 Communication of 11 June 2020 from the Commission to the European Parliament, the European Council and the Council on the third assessment of the application of the temporary restriction on non-essential travel to the EU, COM/2020/399 final.

29 Council Recommendation (EU) 2020/912 of 30 June 2020 on the temporary restriction on non-essential travel into the EU and the possible lifting of such restriction, OJ L 208I, 1.7.2020, p. 1.

30 Council Recommendation (EU) 2020/1475 of 13 October 2020 on a coordinated approach to the restriction of free movement in response to the COVID-19 pandemic, OJ L 337, 14.10.2020, p. 3.

Restrictions applicable in the USA on travels to/from Finland

(21) The USA have adopted two Presidential Proclamations that have been in force without interruption or suspension since March/April 2020, including during the Second Compensation Period.

(22) On 11 March 2020, the USA issued Presidential Proclamation No 9933,31 effective as of 14 March 2020 until further notice32. As a general rule that Proclamation suspended the entry into the USA, as immigrants or non-immigrants, of all aliens who were physically present within the Schengen Area during the 14-day period preceding their entry or attempted entry into the USA. Exemptions from that rule applied to citizens from the USA, permanent residents in the USA, direct relatives of a citizen from the USA and any other foreign citizen falling under the following category:

- Alien of national interest for the USA;

- Alien invited by the USA’s public authorities;

- Crew members;

- Foreign government official or immediate family member of an official;

- Any alien whose entry would further important USA law enforcement objectives, as determined by the Secretary of State, the Secretary of Homeland Security, or their respective designees.

(23) Presidential Proclamation No 9933 provides that an alien who circumvents the application of that proclamation through fraud, willful misrepresentation of a material fact, or illegal entry shall be a priority for removal by the Department of Homeland Security.

(24) On 22 April 2020, the USA also adopted Presidential Proclamation No 10014.33 That Proclamation suspended as a general rule visa grants to immigrants for travels into the USA, except for very specific categories of people.34 That Proclamation was prolonged until 31 December 2020 and complemented by Presidential Proclamation of 22 June 202035 suspending the grant of several categories of non-immigrant visas (temporary work visas, intern and exchange visitors visas, temporary intracompany transferees visas) with only limited exceptions.

31 Presidential Proclamation No 9933 - Suspension of entry as immigrants and non-immigrants of certain additional persons who pose a risk of transmitting 2019 novel coronavirus.

32 That Proclamation was applied at least until 31 December 2020.

33 Presidential Proclamation No 10014 of 22 April 2020 suspending entry of immigrants who present risk to the U.S. labor market during the economic recovery following the COVID-19 outbreak.

34 Visa could be granted only to lawful permanent resident of the USA, medical purposes, certain investment purposes, direct relatives of citizens from the USA (spouse or child) and any alien of national interest or that would further important USA law enforcement objectives.

35 Presidential Proclamation of 22 June 2020 suspending entry of aliens who present a risk to the U.S. labor market following the coronavirus outbreak.

Restrictions applicable in Japan on travels to/from Finland

(25) Since 4 April 2020, the Japanese authorities have issued a full ban on entry to any foreigners who have stayed in Finland within 14 days prior to the application for landing in Japan, except for special exceptional circumstances.36 Those special exceptional circumstances were admitted for the following categories of foreigners: direct relatives of a Japanese citizen; permanent resident in Japan; medical workers and professors filling a vacancy at a Japanese educational institution they belong or will belong to; workers invited by companies established in Japan that can ensure the required epidemic prevention and control measures37; and any other individual application justified by exceptional circumstances subject to approval by the Japanese authorities.

(26) In addition, the Japanese authorities suspended all visa validity and visa exemptions with Finland as of 20 March 2020. Since 1 April 2020, the Japanese authorities are requesting airlines to curb the number of arrival passengers to Japan by such measures as reducing the number of passenger arrival flights in order to ensure the appropriate implementation of quarantine measures.38

(27) All those measures were in force without modification at least until 31 December 2020.

Restrictions applicable in India on travels to/from Finland

(28) As of 16 June 2020, the Indian authorities applied a general prohibition for foreigners to enter into the country subject to very few exceptions, namely direct relatives of Indian citizens (spouses, children, parents) and certain workers (healthcare professionals; engineering, managerial, design or other specialists travelling to India on behalf of foreign business entities located in India; and technical specialists and engineers travelling for installation, repair and maintenance of foreign-origin machinery and equipment facilities in India on the invitation of a registered Indian business entity). 39

(29) In the same vein, all existing visas were suspended and all incoming passenger traffic prohibited except for the exemptions mentioned in recital (28).

(30) Subsequently India established further but limited specific exemptions.40 Those conditions applied until 21 October 2020, when India allowed all foreign nationals intending to visit India for any purpose except for those on a tourist visa.41

36 Article 5, paragraph (1), item (xiv) of the Immigration Control and Refugee Recognition Act, Cabinet Order No. 319 of 4 October 1951.

37 That exception applied only as of 1 October 2020.

38 See the website of the Ministry of foreign affairs: https://www.mofa.go.jp/ca/fna/page4e_001053.html.

39 Order of 12 June 2020 of the Ministry of Home Affairs No.25022/24/2020-F.V/F.I. and Order of 1 June 2020 of the Ministry of Home Affairs No.25022/24/2020-F.V/F.I.

40 The following categories of persons could be admitted into the Indian territory (Order of 30 June 2020 of the Ministry of Home Affairs No. 25022/24/2020-F.V/F.I): foreign nationals who are persons of Indian origin who wish to come to India on account of family emergencies like critical medical conditions of

(31) Although as of 22 October 2020 the Indian authorities relaxed the rules for travelling to India except for those on tourist visa, all scheduled international commercial air passenger services had been suspended by the Indian Directorate General of Civil Aviation since 14 April 2020 and continued to be so throughout the entire Second Compensation Period and beyond 31 December 2020.42

Restrictions applicable in Israel on travels to/from Finland

(32) Since March 2020, Israel implemented an entry ban for all foreigners except for exceptional circumstances, subject to approval by the public authorities. Exceptional circumstances applied to direct relatives of Israeli citizens, foreign experts in specific fields, health motives or important family events (funerals or births only for direct relatives and with proof).43 That ban was extended throughout the Second Compensation Period.44 The ban was applied together with an exit ban whereby all citizens including nationals leaving the country had to justify their exit from Israel with reference to essential reasons only.

Restrictions applicable in China and Hong Kong on travels to/from Finland

(33) On 26 March 2020, the Chinese government decided to temporarily suspend the entry into China by foreign nationals holding visas or residence permits (expired or still valid). Only foreign nationals coming to China for necessary economic, trade, scientific or technological activities or for emergency humanitarian needs could apply for a specific visa45. That restriction remained valid for travellers from Finland until 28 September 2020, when the Chinese authorities eased the restriction by allowing the entry of foreign nationals holding valid Chinese residence permits for work, personal matters and reunion. Entry of foreigners with other visas remained prohibited46.

(34) In addition, the Civil Aviation Administration of China (“CAAC”) adopted and implemented specific flight restrictions in response to the COVID-19 outbreak. As of 26 March 2020, each Chinese airline was allowed to maintain only one route to any

immediate family members or death; foreign nationals stranded in the close neighbouring countries and seeking to exit to their destination country through India; and foreign nationals coming to India on any sub- categories of Employment Visa along with their dependents holding Dependent Visa.

41 Order of 21 October 2020 of the Ministry of Home Affairs, No.25022/24/2020-F.V/F.I.

42 See Circular of the Director General of Civil Aviation of 14 April 2020, prolonged on several occasions (for example: Circular of the Director General of Civil Aviation of 26 June 2020 and Circular of Director General of Civil Aviation of 27 October 2020 and Circular N4/1/2020-IR of 30 December 2020 of the Director General of Civil Aviation).

43 See for example the list of exemptions applicable on 12 July 2020: https://www.gov.il/en/departments/news/covid19-entering-israel. See also https://www.gov.il/en/departments/news/border_closing_coronavirus_14062020.

44 See for example the announcement of the extension of the ban on foreigners (https://www.jpost.com/health- science/ban-on-foreign-entry-to-israel-extended-through-aug-1-632772).

45 See https://www.fmprc.gov.cn/mfa_eng/wjbxw/t1761867.shtml.

46 See https://www.fmprc.gov.cn/mfa_eng/wjbxw/t1817370.shtml.

specific country with no more than one flight per week, while each foreign airline (designated in a plan called ‘Phase Five flight plans’ established by the CAAC) 47 was allowed to maintain only one route to China with no more than one weekly flight.

(35) That measure was further prolonged and complemented by other provisions on 8 June 202048: as of that date, all foreign airlines not mentioned in the ‘Phase Five flight plans’ (such as Finnair) could choose one city with airport(s) capable of accommodating international passenger flights based on their operating permits, and operate one weekly international passenger flight49. If no arriving passenger flying on the same flight and same route operated by an airline was found positive in his/her nucleic acid test after arrival in China for three consecutive weeks, the airline could add one weekly flight by referring to the weekly number of flights allowed in the route operating permit, and could cap their weekly flights at two50.

(36) In addition, the Chinese authorities implemented circuit-breakers restrictions, according to which if 5 to 9 arriving passengers flying the same flight and same route operated by an airline were found positive in their nucleic acid tests after arrival, the airline’s operation on that specific route would be suspended for 1 week; if 10 or over 10 passengers tested positive after arrival, the airline’s operation on the route would be suspended for 4 weeks51. That restriction applied until at least 31 December 2020.

(37) As for Hong Kong, the public authorities adopted an entry ban for all foreigners on 25 March 2020. It has been in place until at least 31 December 2020. In addition, all persons arriving in Hong Kong (either via the airport or land boundary control points) who stayed in places outside China on the day of arrival in Hong Kong had to undergo compulsory quarantine for 21 days in designated quarantine hotels52.

Restrictions applicable in Thailand on travels to/from Finland

(38) The Thai authorities forbade international commercial flights and entry to Thailand as of March 2020 until 30 August 2020 to all foreigners except for those meeting specific requirements. Those exceptions concerned Thai nationals or direct relatives of Thai nationals, foreigners with an essential motive to travel, permanent residents, holders of a work permit and students53.

47 See http://www.caac.gov.cn/en/XWZX/202003/t20200326_201748.html. It is to be noted that the CAAC exposed a plan of the routes that airlines could fly, which did not include Finnair.

48 See http://www.caac.gov.cn/en/XWZX/202006/t20200604_202949.html.

49 The Finnish authorities indicated that Finnair was allowed to fly to/from Shanghai airport.

50 The Finnish authorities indicated that Finnair was allowed to fly to/from a second airport (Nanjing) and twice a week on its Shanghai and Nanjing routes.

51 The Finnish authorities indicated that Finnair lost the permission to fly on the Nanjing route as of 20 November 2020 due to COVID cases registered on its flights on that route.

52 https://www.coronavirus.gov.hk/eng/inbound travel.html#:~:text=All%20non%2DHong%20Kong%20residents,in%20the%20past%2014%20days.

53 See Order of 2 July 2020 of the Centre for the Administration of the Situation due to the Outbreak of the Communicable Disease Coronavirus 2019 (COVID-19) No. 8/2563. See also https://www.caat.or.th/en/archives/51895.

Restrictions applicable in Singapore on travels to/from Finland

(39) The Singapore authorities have de facto prohibited all non-essential travels to Singapore by suspending the delivery of all visas except for Work and Student Visas54.

Restrictions applicable in other Member States, the United Kingdom and Turkey to/from Finland during the Second Compensation Period

(40) During the Second Compensation Period, Hungary did not impose particular travel restrictions to/from Finland until 1 September 2020, when it imposed an entry ban on foreigners from all countries including Member States55. Those travel restrictions remained in force until 31 December 2020. Finland indicated that the Measure covers damage suffered by Finnair on its routes to Hungary as of 1 September 2020 up to 31 December 2020.

(41) France applied the principle of reciprocity of its travel restrictions. Given that Finland imposed a prohibition of non-essential travels for incoming travellers from France, the French authorities have also applied a prohibition of non-essential travels for incoming travellers from Finland throughout the whole Second Compensation Period in return56.

(42) Lastly, Portugal, Spain, Czechia, Turkey and the United Kingdom did not impose specific travel restrictions to/from Finland apart from general sanitary measures prior to departure and upon arrival for travellers from countries ranked as high infectious risks. Nevertheless, those countries maintained strict internal rules on movement of citizens throughout the Second Compensation Period that necessarily discouraged international travel, in particular in reaction to the second wave of pandemic that hit Europe as of October 2020.

2.1.2. Impact of the travel and containment restrictions on Finnair

(43) According to Finland, Finnair’s business activities were significantly affected by the spread of the COVID-19 virus and by the disruptive effects that the virus and the travel bans had on the air transport sector at European and world level, causing a drastic reduction in the operating network and routes operated by the company.

First Compensation Period (16 March to 30 June 2020)

(44) The measures adopted to contain the COVID-19 outbreak negatively affected the European aviation sector, impairing airlines’ operations substantially. Estimates by

54 The Singapore authorities only allowed during the Overall Reference Period the entry of nationals, permanent residents and holders of long-term pass and work pass and their dependants. See https://safetravel.ica.gov.sg/arriving/overview.

55 See for example https://hu.usembassy.gov/covid-19/.

56 See https://www.diplomatie.gouv.fr/fr/le-ministere-et-son-reseau/actualites-du-ministere/informations- coronavirus-covid-19/coronavirus-declarations-et-communiques/article/communique-de-presse-restrictions- de-circulation-et-mise-en-place-de-mesures. See also https://www.diplomatie.gouv.fr/fr/conseils-aux- voyageurs/conseils-par-pays-destination/finlande/#.

Eurocontrol show a significant decrease in flights between 9 March and 1 July 2020, between a minimum of 14% (on 9 March 2020) and a maximum of 93% (reached on 12 April 2020) in comparison with the number of flights operated on the same dates in 2019.57

(45) Before the COVID-19 outbreak, Finnair operated a fleet of 59 planes with flights to more than 130 destinations, with a business focused on European and Asian markets. In February 2020, the rapid spread of the COVID-19 pandemic and the adoption of the first governmental restrictions worldwide, in particular in Eastern Asia, started to affect Finnair’s operations substantially. In two weeks, the total number of passengers transported by Finnair decreased by [40-50]% between 1 and 15 March 2020.58 Table 2 shows the impact of the COVID-19 outbreak on Finnair’s activities in March 2020.

Table 2: Impact of the COVID-19 outbreak on Finnair’s flight activities in March 2020

PAX PAX Delta Load Load Delta Ticket Ticket Delta 2019 2020 factor factor revenues revenues (‘000) 2019 (%) 2020 2019 2020 (mln EUR)

1-7 […]* […] - 15 % […]% […]% -12 […] […] -25% March

8-15 […] […] -33.5% […]% […]% -19 […] […] -40% March

16-22 […] […] -77.5% […]% […]% -25 […] […] -70.5% March

23-31 […] […] - 94% […]% […]% -38 […] […] -90% March

Source: Finnair

(46) According to the Finnish authorities, the general lockdown measures had a severe impact on Finnair’s activities between March and June 2020. Table 3 shows the significant reduction of Finnair’s flight operations between March and June 2020.

57 Eurocontrol - COVID19 Impact on European Air Traffic – Comprehensive Assessment. Air Traffic situation for Wednesday 1 July 2020 compared with equivalent period in 2019. Available at: eurocontrol.int/publication/eurocontrol-comprehensive-assessment-covid-19s-impact-european-air-traffic.

58 On 1 March 2020 Finnair transported […] passengers (-16% compared with 2019) against […] passengers on 15 March 2020 (-50% compared with 2019). Finnair’s load factor went down from […]% on 1 March 2020 ([…]% in 2019) to […]% on 15 March 2020 ([…]% in 2019).

* Confidential information.

Table 3: Finnair’s flight activities from March to June 2020

Item March 2020 April 2020 May 2020 June 2020

ASK (mln)59 2 266.2 117 98.2 129.4

Load factor60 58% 24% 30% 44%

RPK (mln)61 1309.6 27.9 29.3 56.6

Passengers 503 21862 16 074 26 806 55 240

# of routes63 105 28 28 28

# of flights64 6701 936 1144 1502

Source: Finnair

(47) Finnair’s flight operations from March to June 2020 starkly contrast with those registered for the same period in 2019, as shown by Tables 4 and 5.

59 Available Seat Kilometres (ASK) measures an airplane's carrying capacity available to generate revenues. It refers to how many seat kilometres are actually available for purchase on an airline. Seat kilometres are calculated by multiplying the number of kilometres that a given airplane will be flying on a route by the number of seats available on that airplane. ASK can be used to assess how efficient an airline is at generating revenues from the availability of seats to customers. Thus the airline operates at below capacity if all the seats on the plane are not sold.

60 Passenger Load Factor is a percentage indicating how effective the airline is at selling seats and earning revenues.

61 Revenue Passenger Kilometers. The revenue passenger kilometre (RPK) shows the number of kilometre travelled by paying passengers. It is calculated by multiplying the number of paying passengers by the distance travelled. For example, an airplane with 100 passengers that flies 250 kilometres generates 25.000 RPK.

62 16 March to 31 March 2020: […] passengers.

63 Number of routes.

64 Number of flights.

Table 4: Finnair’s flight activities from March to June 2019

Item March 2019 April 2019 May 2019 June 2019

ASK (mln) 3742.7 3923 4184.9 4199

Load factor 78% 81% 80% 86%

RPK (mln) 2931.4 3191.6 3339.4 3614.5

Passengers 1 151 68965 1 237 927 1 304 540 1 398 135

# of routes 110 113 115 125

# of flights 11 032 11 061 11 635 11 270

Source: Finnair

Table 5: Proportion of Finnair’s flight activities from March to June 2020 compared with March to June 2019

March 2020/ April 2020/ May 2020/ June 2020/ Item March 2019 April 2019 May 2019 June 2019

ASK 61% 3% 2% 3%

Load factor 74% 29% 37% 51%

RPK 45% 1% 1% 2%

Passengers 44%66 1% 2% 4%

# of routes 95% 25% 24% 22%

# of flights 61% 8% 10% 13%

Source: Finnair

(48) The offering of Finnair (ASK) in March 2020 was at 61% of the level of March 2019. The offering decreased by 97-98% in April, May and June 2020 compared with the same period in 2019. In parallel, the RPK drastically decreased by 98-99% in April, May and June 2020 compared with 2019, as a consequence of both a fall in revenues and in the number of kilometres flown. Additionally, Finnair registered very low seat load factor figures between March and June 2020 with an average seat load factor of 39% during that period compared with 81.25% on the same period in 2019.

65 16 March to 31 March 2019: […] passengers.

66 For the period 16 March to 31 March the flight activities in 2020 represented [10-20]% of the flight activities in 2019.

(49) The notified Measure assumes that the First Compensation Period ends on 30 June 2020.

(50) According to Finland, despite the limited easing of the travel bans on domestic and international air services in Finland respectively as of 29 May 2020 (domestic) and 15 June 2020 (for Estonia, Iceland, Latvia, Lithuania, Norway and Denmark67), Finnair’s activities were still extremely low at that time compared with the previous year68. As shown in Table 5, Finnair’s total traffic in June 2020 was still at only 4% of the passenger volume of 2019. Revenues from ticket sales were still [90-100] % lower in June 2020 than in June 201969.

(51) More precisely, the total ticket sales registered by the company between 15 and 30 June 2020 still only represented [0-5]% of the ticket sales in the same period in 201970.

(52) The number of routes still affected between 15 and 30 June 2020 by travel restrictions (110 routes out of 117) represented more than 90% of Finnair’s revenues in 2019 at that period of the year.

(53) The Commission notes that Denmark (until 27 June 2020) and Iceland (until 1 July 2020) maintained travel restrictions on travels from Finland during that period.

(54) Furthermore, the proportion of passengers travelling on domestic routes71as well as Baltic and Norwegian routes represented only slightly more that [10-15]% of the total number of passengers transported by Finnair between 15 and 30 June 2019, and only around [5-10]% of Finnair’s total revenues for the period of 15 to 30 June 2019.72

(55) As to the impact of the lifting of Finnish travel restrictions for Estonia, Iceland, Latvia, Lithuania, Norway and Denmark on 15 June 202073, Finnair’s passenger volume between 15 and 30 June 2020 for the 6 countries was still substantially lower than traffic during the same period in 2019. For example, the number of passengers transported by Finnair between 15 and 30 June 2020 on routes to Norway was [85-

67 Denmark and Iceland continued to maintain restrictions on entry from foreign countries respectively until 27 June 2020 and 1 July 2020.

68 In June 2020, the total number of domestic passengers represented only [5-10]% of the domestic traffic registered in June 2019. Furthermore, half of the domestic passengers of June 2019 were connecting passengers on a journey involving an international leg. This category of domestic passengers were still affected by the travel restrictions in June 2020.

69 In June 2019, Finnair registered EUR [200-300] million compared with EUR [0-50] million in 2020.

70 Finnair registered EUR [0-50 000 000] of ticket sales in 2020 against EUR [100 000 000-200 000 000] in 2019.

71 See recital 109 for the calculation of the relevant domestic passengers.

72 Domestic traffic (excluding connecting passengers) represented approximately [0-5]% of the total traffic between 15 and 30 June 2019.

73 See recital (11).

90]% lower than in 201974, while the total passenger traffic (all airlines) between Norway and Finland during the same period in 2020 represented only [5-10]% of the total traffic in 201975. As for the Baltic countries, the traffic also remained substantially lower (-[90-100]% of passengers transported by Finnair between 15 and 30 June 2020 compared with 2019; the decrease is the same for the overall traffic between the Baltics and Finland).

(56) Table 6 gives an overview of Finnair’s flight operations during the period running from 15 to 30 June 2020 compared with the same period in 2019:

Table 6: Finnair’s flight operations for the period 15 to 30 June 2020 compared to 15 to 30 June 2019

Total variation (2020 International EU National vs 2019)

delta delta delta 2020 2020 2020 (2019) (2019) (2019)

Departures […] -98% […] -94.7% […] -84.6% -94%

Passengers […] -99% […] -98.5% […] -92% -98% transported

Source: Finnair

(57) As shown in Table 6 Finnair’s overall passenger volume between 15 and 30 June 2020 was still only at 2% of the passenger volume in the 2019 reference period, while the passenger volume of the whole of June 2020 was at 4% on passenger volume of June 2019 (see Table 5).

(58) On the other hand, although a major part of the travel restrictions concerning the rest of the Member States and Schengen Associated States were only lifted as of 13 July 2020 or later, passenger volume data shows that Finnair’s activities progressively restarted as of 1 July 2020. The upcoming lift of the travel restrictions to other Member States was announced publicly at the end of June76, in time for passengers

74 Finnair transported […] passengers over the period of 15 to 30 June 2020 on its Norwegian routes against around […] over the period 1-15 July 2020.

75 The total passenger traffic increased almost sixfold for the month of July 2020 from around […] passengers transported between 15-30 June 2020 to close to […] passengers in July 2020.

76 See for example https://www.schengenvisainfo.com/news/finland-to-allow-entry-for-nationals-of-12- european-countries/ published on 25 June 2020. It is worth noting that the company registered a significant increase in ticket sales as of 1 July 2020 onward.

planning some sort of summer vacation in July or August. Between 1 and 13 July 2020, Finnair registered an increase of 64% of daily average ticket sales compared with the period of 15 to 30 June 2020.77 The average daily number of passengers increased by 96% between the two periods (15 to 30 June 2020 vs. 1 to 13 July 2020).78 Finnair’s business was therefore visibly regaining momentum as of 1 July 2020, a period immediately preceding the reopening of the Finnish borders on 13 July 202079.

(59) Table 7 shows changes in passenger volume, average passenger volume per day as well as ticket sales for the periods 15 to 30 June 2020 and July 2020 compared to the same period in 2019. The figures visualise how sales and traffic started to gain momentum in July 2020 compared to the second half of July.

Table 7: Finnair’s flight operations for the periods 15 to 30 June 2020 and July 2020 compared to 2019 (change between 2020 and 2019 in %) Average daily Passenger volume Ticket revenues passenger volume

Baltics

15 – 30 June -90% -90% -85%

1 – 15 July -80% -80% -75%

Norway

15 – 30 June -88% -90% -77%

1 – 15 July -79% -78% -75%

Domestic

15 – 30 June -91% -91% -87%

1 – 31 July -76% -78% -73%

Source: Finnair

Second Compensation Period (1 July to 31 December 2020)

(60) As a general observation, the Finnish authorities reported that between 1 July and 31 December 2020, the total number of passengers travelling from/to Finland decreased

77 The average daily ticket sales increased from EUR [300 000-400 000] to almost EUR [600 000-700 000] in particular to the increase in tickets on routes to other Member States.

78 The daily average number of passengers increased from […] passengers transported to […] passengers.

79 It must be noted in that regard that the average amount of daily revenues on ticket sales cashed in between 1 and 13 July 2020 remained in line with the number of daily tickets sold after the lift of the restrictions on 13 July 2020. For example, the average daily number of ticket sales increased only by 15% over the period 13- 25 July 2020 compared with the period 1-13 July 2020.

by 92.4% compared with the same period in 2019, while the number of aircraft movements decreased by 78%80. Although the situation of the airline market improved as of July 2020 compared with the second quarter of 2020, air traffic remained severely affected by the ongoing COVID-19 pandemic, and tended to worsen as of the end of October 2020 with the increase of travel restrictions all over the world as a consequence of an emerging second wave of the pandemic.

(61) According to Finland, Finnair’s business activities were and continue to be significantly affected by the disruptive effects that the COVID-19 pandemic and associated travel bans have had on the air transport sector at European and world level, causing a drastic reduction in the operating network and routes operated by the company.

(62) According to Finland, the restrictions in place during the Second Compensation Period in the foreign countries listed in section 2.1.1 as well as in Finland hugely affected Finnair’s operations on certain routes as those countries continued to apply limitations on entry into the territory in relation to foreign citizens or to non-essential travels. As a result, Finnair incurred significant losses on specific routes to/from certain countries until at least 31 December 2020.

(63) Statistics from Finavia show that between July and December 2020, the entire air passenger traffic (regarding all airports and all companies) between the USA and Finland disappeared. The same fall in traffic is observed for traffic between Finland and other countries to/from which Finnair was operating flights: the traffic dropped by 100% between Finland and India, Israel, Portugal, Croatia and Singapore. In addition, the total passenger traffic volume between Finland and Spain, Hong Kong as well as Japan dropped by 98% in 2020 compared with 2019; by 90% between Finland and Turkey; by 92% between Finland and the United Kingdom; by 93% between Finland and France as well as Thailand; by 94% between Finland and China; and by 97% between Finland and Czechia as well as Hungary.

(64) The following paragraphs detail the traffic data from Finavia81 registered for each country listed in section 2.1.1 during the Second Compensation Period. They refer to the general traffic registered between Finland and each of the other countries referred to in section 2.1.1 (regarding all airports and all companies) so as to demonstrate the impact of the travel restrictions on the aviation activity of Finnair and, where applicable, other airlines.

Finland-USA

(65) In 2019, Finnair was the only company providing air services from Finland to the USA. Finnair transported […] passengers on its five routes from Helsinki to Chicago, New York, Miami, Los Angeles and San Francisco. It had an average load factor of […]%, with overall revenues of EUR […] million. Finnair did not operate any passenger flights in 2020.

Finland-Israel

80 This number includes cargo and mail traffic. For passengers, the decrease is therefore more important.

81 Finavia is the company managing almost the entire Finnish airport network.

(66) In 2019, 35 910 passengers were transported between Finland and Israel by Finnair and Norwegian Air Shuttle on two routes (Ovda and Tel Aviv from Helsinki). Finnair’s revenues in 2019 amounted to EUR […] million on those routes. Its average load factor was of […]%. None of the airlines operated the route in 2020.

Finland-India

(67) In 2019, Finnair was the only company providing air services from Finland to India during the reference period,82 when it transported […] passengers on its route from Helsinki to New Delhi. It had an average load factor of […]%, with EUR […] million of revenues. Finnair did not operate passenger flights in 2020.

Finland-Turkey

(68) In 2019, 226 790 passengers were transported between Finland and Turkey by Finnair, Turkish airlines, Freebird airlines, Corendon airlines and SunExpress on three routes (Antalya, Istanbul and Gazipasa from Helsinki). Only Finnair and Turkish airlines operated the route in 2020, transporting 22 276 passengers in 2020. Finnair’s revenues amounted to EUR […] million on those routes in 2019, while it registered EUR […] million of revenues in 2020. Its average load factor decreased from […]% in 2019 to […]% in 2020.

Finland-Singapore

(69) In 2019, Finnair was the only company providing air services from Finland to Singapore. Finnair transported […] passengers on its route from Helsinki to Singapore. It had an average load factor of […]%, with EUR […] million of revenues. The company transported […] passengers in 2020, registering a load factor of […]% and EUR […] million of revenues83.

Finland-Hong Kong

(70) In 2019, Finnair was the only company providing air services from Finland to Hong Kong. Finnair transported […] passengers on its route from Helsinki to Hong Kong. It had an average load factor of […]%, with EUR […] million of revenues. The company transported […] passengers in 2020, registering a load factor of […]% and EUR […] million of revenues.

Finland-Thailand

(71) In 2019, Finnair was the only company providing air services from Finland to Thailand, transporting […] passengers to Bangkok. In 2020, Finnair transported […] passengers. Finnair’s revenues amounted to EUR […] million on those routes in 2019, while it registered EUR […] million of revenues in 2020. Its average load factor decreased from […]% in 2019 to […]% in 2020.

Finland-Japan

82 i.e., 1 July to 31 December 2019.

83 The revenues registered on that route also include cargo flights.

(72) In 2019, 452 171 passengers were transported between Finland and Japan by Finnair and Japan Airlines on the routes Osaka, Tokyo, Chubu and Fukuoka to Helsinki. Finnair and Japan Airlines operated to Japan in 2020, transporting 4 500 passengers in 2020. Finnair’s revenues amounted to EUR […] million on those routes in 2019, while it registered EUR […] million of revenues in 2020. Its average load factor decreased from […]% in 2019 to […]% in 2020.

Finland-China

(73) In 2019, 399 276 passengers were transported between Finland and China by Finnair, Tibet airlines, Sichuan airlines and Juneyao airlines on the routes Beijing, Chongquing, Nanjing, Guangzhou, Shanghai and Xi’an to Helsinki. Finnair and Juneayo airlines operated flights to China in 2020, transporting 24 140 passengers in 2020. Finnair’s revenues amounted to EUR […] million on these routes in 2019, while it registered EUR […] million of revenues in 2020. Its average load factor decreased from […]% in 2019 to […]% in 2020. Finnair only flew to Shanghai where it obtained permission to fly, and to Nanjing where it had temporarily permission to fly.

Finland-Spain

(74) In 2019, 839 357 passengers were transported between Finland and Spain by Finnair, Norwegian Air Shuttle, Iberia, Enter Air, Transavia, TUI, Vueling, Sunclass Airlines, Jet Time and Air Europa on 11 routes to Helsinki. In 2020, only Finnair operated flights to Spain, flying on one route only and transporting […] passengers. Finnair’s revenues amounted to EUR […] million on those routes in 2019, while it registered EUR […] million of revenues in 2020. Its average load factor decreased from […]% in 2019 to […]% in 2020 (on one route).

Finland-Portugal

(75) In 2019, 141 028 passengers were transported between Finland and Portugal by Finnair, TAP Portugal, Enter Air, Sunclass Airlines, Jet Time and Air Europa on the routes Porto, Lisbon and Madeira to Helsinki. Finnair’s revenues amounted to EUR […] million on those routes in 2019. Its average load factor was of […]%. None of the companies operated the routes in 2020.

Finland-Czechia

(76) In 2019, 163 760 passengers were transported between Finland and Czechia by Finnair and Czech Airlines from Prague to Helsinki. Both companies operated in 2020 transporting 4 937 passengers. Finnair’s revenues amounted to EUR […] million on those routes in 2019, while it registered EUR […] million of revenues in 2020. Its average load factor decreased from […]% to […]%.

Finland-Croatia

(77) In 2019, 132 256 passengers were transported between Finland and Croatia by Finnair, Croatian airlines, Norwegian Air Shuttle, Enter Air, Sunclass airlines and Jet Time on the routes Split and Dubrovnik to Helsinki. Finnair’s revenues amounted to EUR […] million on those routes in 2019. Its average load factor was of […]%. None of the companies operated the routes in 2020.

Finland-Hungary

(78) In 2019, 79 747 passengers were transported between Finland and Hungary by Finnair, Norwegian Air Shuttle and Ryanair from Budapest to Helsinki. Only Finnair operated the route in 2020 transporting […] passengers. Finnair’s revenues amounted to EUR […] million on that route in 2019, while it registered EUR […] million of revenues in 2020. Its average load factor decreased from […]% in 2019 to […]% in 2020.

Finland-France

(79) In 2019, 340 223 passengers were transported between Finland and France by Finnair, Norwegian Air Shuttle, Enter Air, Transavia and TUI on the routes Bordeaux, Nice and Paris to Helsinki. Only Finnair operated flights to Paris in 2020. Finnair’s revenues amounted to EUR […] million on those routes in 2019, against EUR […] million in 2020. Its average load factor decreased from […]% in 2019 to […]% in 2020.

Finland-United Kingdom

(80) In 2019, 839 339 passengers were transported between Finland and the United Kingdom by Finnair, Norwegian Air Shuttle, British Airways, Easyjet, Enter Air, Wizz Air, TUI and Jet2.com on the routes Edinburgh, Manchester and London to Helsinki. Only Finnair operated on the three routes (mostly to London) in 2020. Finnair’s revenues amounted to EUR […] million on those routes in 2019, against EUR […] million in 2020. Its average load factor decreased from […]% in 2019 to […]% in 2020.

2.2. Other refinancing measures to the benefit of Finnair in the context of the pandemic

(81) On 18 May 2020 the Commission approved aid to Finnair in the form of a guarantee by the Finnish State on a loan (“the State guarantee decision”) under the Temporary Framework for State aid measures to support the economy in the current COVID19 outbreak84. The State guarantee covered 90% of a EUR 600 million loan, and is limited to a maximum duration of three years. The Commission found that the measure was in line with Article 107(3)(b) TFEU, in particular given the imminent and serious risk that Finnair would face a liquidity shortage as of the second quarter of 2020.85

(82) On 9 June 2020 the Commission approved aid to Finnair in the form of a recapitalisation of EUR 286 million (the “Finnair recapitalisation decision”). The total capital increase was of around EUR 500 million. Finland is Finnair's largest shareholder holding 55.8% of Finnair’s shares. The recapitalisation allowed the Finnish State to receive rights to subscribe for new shares in the amount of EUR 286 million, corresponding to its current shareholding level. The remaining shares were offered on the market, subject to pre-emptive subscription rights of other existing

84 Temporary framework for State aid measures to support the economy in the current COVID-19 outbreak, as adopted on 19 March 2020 (C(2020) 1863) and its amendments C(2020) 2215 of 3 April 2020 and C(2020) 3156 of 8 May 2020.

85 Commission decision of 18 May 2020, SA.56809, COVID-19 - State loan guarantee for Finnair, OJ C/269/2020.

shareholders. The Commission found that the measure was in line with Article 107(3)(b) TFEU.86

(83) In the Finnair recapitalisation decision of 9 June 2020, the Commission concluded in recitals 89 and 90 that the recapitalisation of Finnair did not exceed the minimum necessary to ensure the viability of the company and did not go beyond restoring the capital structure of the beneficiary to the one predating the COVID-19 outbreak. To conclude so, the Commission compared the equity projection for the end of 2020 with the equity position of Finnair on 31 December 2019 and looked inter alia at the financial ratios of the company (net debt to equity ratio) at the end of 2019 compared with the projection for 202087. In addition, the Commission had observed in recital 96 of that decision that Finnair’s business projections were based on a prudent and progressive return to its standard volume of activity for the medium-term.

(84) On 3 September 2020, Finnair issued a EUR 200 million “hybrid bond” with perpetual maturity on the market, with a fixed coupon rate of 10.25 % per annum (until the step- up date of 3 September 2023).

2.3. National legal basis

(85) The legal basis for the Measure are the State Shareholdings and Ownership Steering Act (1368/2007, as amended), the Limited Liability Companies Act (624/2006, as amended), and the Act on Central Government Lending and Guarantees (449/1988, as amended).

2.4. Form and budget of the Measure

(86) The Measure will take the form of a “hybrid loan”88 with perpetual maturity. That hybrid facility is not convertible into equity according to its terms. Due to its perpetual maturity, the hybrid loan is however qualified as equity under IFRS rules. The hybrid loan is not collateralised.

(87) The hybrid loan facility is provided by the Finnish State on a fully committed basis for the next two years. During the availability period, Finnair may issue debt to underwriters of the facility, i.e., the Finnish State. The facility drawdown is conditional on Finnair being below certain minimum thresholds for equity (EUR [400- 600] million) […]. Subject to those conditions the programme can be accessed at the option of the issuer in several instalments by giving the financing provider, i.e., the Finnish State, not less than 7 days prior written notice. There is no minimum

86 Commission decision of 9 June 2020, SA.57410, COVID - recapitalisation of Finnair, OJ C/310/20.

87 The Commission notes that the recapitalisation aimed in particular at strengthening Finnair’s equity in light of the potential immediate repayment of EUR 375 million of financial covenants binding on the company in Q3 2020. Those financial covenants indeed required Finnair to maintain a maximum level of gearing ratio that was however going to be breached in Q3 2020 due to the COVID-19 outbreak, thus potentially putting the company in a situation of serious and immediate economic distress at the time of adoption of the Finnair recapitalisation decision (see recital 4 of the Finnair recapitalisation decision).

88 Hybrid loans are perpetual loan instruments classified by IFRS accounting standards as equity. It is a financial instrument regulated by the Finnish Act on the Order of Priority (1578/1992, as amended; in Finnish “laki velkojien maksunsaantijärjestyksestä”).

drawdown requirement for the issuer at launch or during the duration of the programme.

(88) The […] coupon payments are based […]89 plus a […]90 and a […]91. The commitment fee is […]. The facility includes an optional deferral of interest and fees. Finnair may repay the loan at […]. Any undrawn amount may […].

(89) The maximum amount of the hybrid loan is set at EUR 351.38 million and is to be granted from the general budget of the Finnish State.

(90) Finland confirms that the notified aid to Finnair will be net of any amount recovered by insurance, litigation, arbitration or other source for the same damage. If the aid is paid out before such amounts have been established and paid, Finland will recover with interests an amount corresponding to such compensations from the beneficiary in a second step.

2.5. Administration of the Measure

(91) The Measure will be granted by the Government of Finland and managed by the Prime Minister’s Office and State Treasury.

2.6. Beneficiary

(92) The beneficiary of the Measure is Finnair plc, a publicly listed company. The Finnish State is its largest shareholder (55.8%).

(93) Finnair is a major network airline operating in Finland. Finnair is the principal air service carrier in Finland, with almost 15 million passengers transported in 2019 (67% of the total passengers transported within, to and from Finland in 2019).92 Before the COVID-19 outbreak, Finnair served more than 130 destinations all over the worldfrom its main hub at Helsinki Vantaa and other airports in Finland. At the end of 2019, Finnair had approximately 6,800 employees in active employment relationships.

2.7. Eligible losses and modalities for compensation

(94) The Finnish authorities have provided two compensation methodologies based on the evolution of the containment and travel restrictions implemented by Finland and foreign countries in 2020.

(95) On one hand, the compensation for the period 16 March to 30 June 2020 encompasses the net losses suffered by Finnair due to the general containment measures existing at domestic, European and international levels, by comparison with the same period in 2019 (the “reference period”).

89 […].

90 […].

91 […].

92 According to Finavia’s statistics in 2019, Finnair had a 62% share of passengers transported on international flights and 83% transported on domestic flights. Its total market share amounts to 44% of the airline operations at Finavia’s airports.

(96) On the other hand, the compensation methodology for the period 1 July to 31 December 2020 aims at targeting the damage suffered on certain routes by Finnair directly due to specific travel restrictions implemented by certain foreign countries and by Finland. That shift in the compensation methodology is justified by the different context of that Second Compensation Period. In that period Finnair was not entirely prevented from operating air services: restrictions were entirely lifted for travels to/from some foreign countries but temporarily or permanently remained in place to/from other countries. Thus, that methodology aims at better capturing the direct impact of the travel restrictions while at the same time excluding as precisely as possible the impact of other indirect factors resulting from the COVID-19 outbreak and causing damage to Finnair (such as the fall of demand due to uncertainty or the effects of the economic crisis following the COVID-19 outbreak and the normalisation of teleworking policy for previous business class travellers).

2.7.1. Common principles of the dual compensation methodology

(97) According to Finland, the eligible losses correspond for both periods to the damage directly suffered by Finnair due to the restrictions and containment measures. Finland defines the damage as the net losses due to the COVID-19 outbreak.

(98) The net losses registered are quantified as the difference between the profit/loss incurred between the Overall Compensation Period and those incurred during its reference period in 2019 that can be attributed to the COVID-19 outbreak and the related measures taken by governments. That calculation takes into account the following elements:

- loss of revenue: a review of the impact of the containment measures taken by governments as a consequence of the COVID-19 outbreak on total revenue, including (i) fare revenues from tickets (tickets which could not be sold), and (ii) additional / accessory revenues (seat reservation, upgrades);

- avoided costs: a review of Finnair’s cost base and the impact (both positive and negative) of the containment measures taken by governments as a consequence of the COVID-19 outbreak on variable costs, including deviation in (i) all variable costs (in particular fuel costs, fees and charges, maintenance costs, IATA93 commissions and catering costs), (ii) fixed costs that are not directly related to the operation of a flight, but that were nevertheless adjusted at corporate level due to the containment measures taken by governments as a consequence of the COVID- 19 outbreak (in particular lower personnel costs and marketing costs). Costs items do not include any refund (effectively paid or to be paid).

(99) The avoided costs correspond to all costs Finnair would have incurred if its activity had not been affected by the COVID-19 restrictions, and that Finnair has not actually incurred in the Overall Compensation Period due to its suspended activities94. The

93 International Air Transport Association.

94 Avoided costs are all costs that the airline could avoid thanks to the reduction of its activities. Notably, they include all costs directly related to operating flights: fuel costs; airport and air navigation charges; ground handling services; onboard catering services; passengers services (baggage compensation; hotel expenses for crew and transit passengers etc.).

avoided costs are calculated by comparing the costs actually borne by Finnair during the Overall Compensation Period and the costs incurred during the reference period.

2.7.2. Eligible losses for the First Compensation Period

(100) The net losses due to the eligible restrictive measures (actual damage) are calculated as the loss of revenues and avoided costs during the compensation period (16 March 2020 to 30 June 2020) by comparing the results of Finnair during that period with the results that it would have expected to achieve absent the COVID-19 restrictions. The proxy for the First Compensation Period of those foregone profits is the difference between the EBITDA95 results of Finnair in the First Compensation Period (in 2020) and its EBITDA results for the reference period (in 2019).

(101) Finland has submitted the actual net losses registered by Finnair for the First Compensation Period. It has established the actual net losses by comparing Finnair’s results over the First Compensation Period and its results for the reference period.

(102) The Finnish authorities have submitted the following actual ex post data on revenues and expenses for the First Compensation Period and for the reference period (see Tables 8 and 9).

Table 8 - Financial results of Finnair in the First Compensation Period (EBITDA based)

Group total Mar 19 Apr 19 May 19 Jun 19 Mar 20 Apr 20 May 20 Jun 20 Passenger revenue […] […] […] […] […] […] […] […] Ancillary and retail revenue […] […] […] […] […] […] […] […] Cargo […] […] […] […] […] […] […] […] Travel services […] […] […] […] […] […] […] […] Other operating income […] […] […] […] […] […] […] […] Operating Income […] […] […] […] […] […] […] […] Staff Costs […] […] […] […] […] […] […] […] Fuel costs […] […] […] […] […] […] […] […] Capacity rents […] […] […] […] […] […] […] […] Aircraft materials and overhaul […] […] […] […] […] […] […] […] Traffic charges […] […] […] […] […] […] […] […] Handling and other passenger […] […] […] […] […] […] […] […] services Sales, marketing and distribution […] […] […] […] […] […] […] […] costs Property, IT and other expenses […] […] […] […] […] […] […] […] EBITDA 33 30 35 62 -48 -47 -15 -27 Source: Finnair

Table 9: Finnair’s EBITDA from March to June 2020 vs. 2019 (EUR million)

95 Earnings Before Interest, Taxes, Depreciation, and Amortization.

March April May June March-June

EBITDA 2019 33 30 35 62 160

EBITDA 2020 -48 -47 -15 -27 -137

Net losses -81 -77 -50 -89 -297

Source: Finnair

(103) Finland then further adjusted the calculation of the damage to take into account that the First Compensation starts from 16 March (and not 1 March) to 30 June 2020. For the allocation of damage occurred in March 2020, it proposed a methodology to distribute the losses between the two halves of March 2020 on the basis of the delta of daily passengers transported by Finnair in March 2019 and 2020. The methodology used to calculate the share of damage that can be allocated to the period 16 March to 31 March 2020 is the following:

Share of damage for 16 to 31 March 2020 = (Passengers 16-31 March 2019 – Passengers 16-31 March 2020) / (Passengers March 2019 – Passengers March 2020)

Table 10: Allocation of losses for March 2020

March 2019 March 2020 Delta Share of damage

Passengers […] […] 648 471 100% (total)

Passengers (1- […] […] 140 545 21.67% 15 March)

Passengers (16- […] […] 507 926 78.33% 31 March)

Source: Finnair

(104) Finland attributed 78.33% of the EBITDA losses registered for the month of March 2020 (delta 2019-2020) to the second half of the month. Taking into account that specific allocation methodology for the month of March, the definitive quantification of the damage during the First Compensation Period was calculated as follows:

Table 11: Finnair’s adjusted EBITDA delta from 16 March to 30 June 2020 vs. 2019 (EUR million)

16-31 April May June March-June March

Net losses -62.596 -77 -50 -89 -278.5

96 EUR -62.5 million correspond to EUR -81 million x 0.7833.

Source: Finnair

(105) As a result, Finnair’s net losses directly caused by the COVID-19 pandemic is EUR 278.5 million for the period from 16 March to 30 June 2020.

2.7.3. Eligible losses for the Second Compensation Period

(106) During the Second Compensation Period, the relevant containment measures affected specific routes. In order to identify the damage directly caused by the COVID-19 outbreak through those containment measures, Finland submitted a detailed route-by- route assessment according to the following methodology.

(107) First, Finland identified a category of routes operated by Finnair free of travel restrictions, and compared the traffic registered therein during the Second Compensation Period with the traffic registered on those same routes for the same period in 2019. That exercise made it possible to identify the approximate volume of passengers that travelled in the absence of any travel restrictions.

(108) Domestic routes in Finland were not affected by the containment measures during the Second Compensation Period and therefore provided a good benchmark to identify the volume of passengers that travelled in the absence of any travel restrictions. The number of passengers on all Finnish domestic routes during the Second Compensation Period in 2020 was 59% lower than in 2019, meaning that 41% of the 2019 domestic passengers did travel in 2020 in the absence of travel restrictions.

(109) The approach applied by Finland to determine the relevant number of domestic passengers seeks to ensure that only those passengers whose journey is not affected by a travel restriction are taken into account. Thus, to establish the relevant number of domestic passengers, Finland took the total number of passengers transported by Finnair only on domestic routes in 2019 and 2020 during the Second Compensation Period. Finland excluded the connecting passengers transported by Finnair that had an international leg in their journey. With that approach, Finland took into account that such trips contained at least one leg affected by travel restrictions and would thus not have taken place at all. For example, a passenger travelling from Rovaniemi (Finland) to Frankfurt (Germany) via Helsinki on one ticket would not travel at all if the leg Helsinki-Frankfurt was affected by travel restrictions implemented by Germany and/or Finland. Given that travel restrictions affected episodically or permanently all the international routes during the Second Compensation Period, Finland decided not to take into account the portion of domestic passengers corresponding to connecting passengers, and to retain only domestic passengers travelling point-to-point within Finland to establish a counterfactual encompassing the entire Second Compensation Period97.

(110) By comparison, a number of international and intercontinental routes were affected by the containment measures during the Second Compensation Period and retained lower

97 Finland indicated that it could not be excluded that certain point-to-point domestic passengers would fly with Finnair from Rovaniemi to Helsinki, and take a different flight with another airline from Helsinki to abroad. These passengers should have also been excluded from the counterfactual, but Finnair did not have data on the final destination of all its passengers. Therefore, the counterfactual takes into account all domestic passengers travelling point-to-point with Finnair within Finland regardless of their final destinations. The counterfactual is therefore conservative.

percentages of passengers than the domestic routes. The difference between those lower percentages and the 41% of passengers travelling on domestic routes provides an estimate of the specific impact of the containment measures in terms of number of traveling passengers. That difference provides a proxy to identify the passengers who did not fly because of the containment measures while excluding the passengers who would probably not have flown in any event regardless of the existence of containment measures.

(111) Second, the loss of passengers attributable to the containment measures for a number of international and intercontinental routes implied a significant reduction of revenues as well as savings of variable costs. Data on revenues and variable costs for 2019 and 2020 have been used to estimate the lost revenues and avoided variable costs stemming from the loss of passengers directly attributable to the containment measures.

(112) Thirdly, while fixed costs do not tend to vary significantly with ordinary fluctuations of passengers that are observed in the normal course of business, they can show some variation when the change in the number of passengers is significant, as it is the case for reductions of more than 59% observed on routes to/from countries covered in section 2.1.1. At the same time, it cannot be assumed that fixed costs decreased proportionally to the number of passengers, as if they were fully variable. The lower than proportional variation of fixed costs with the number of passengers reflects the economies of scale of the economic activity. The level of fixed costs corresponding to a retention of 41% of passengers has been estimated using a linear approximation,98 based on the actual fixed costs and passenger volumes in 2019 and 2020.

(113) The allocation of fixed costs route-by-route is based on the actual allocation keys99 used by Finnair in 2019. Many routes exhibit in 2020 reduced or no traffic due to transitory and not permanent circumstances. Capacity cannot be adjusted quickly and temporarily; hence the fixed costs corresponding to routes temporarily suspended cannot be avoided. Thus, fixed costs have been allocated route-by-route in 2020 based on the allocation shares of 2019.100

(114) The application of that route-by-route analysis entailed the identification of the number of passengers, revenues, costs and profits for all affected routes to/from countries identified in section 2.1.1, as shown in Table 12.

Table 12: Figures for all eligible routes

98 The actual fixed costs and number of passengers at company level observed in 2019 and in 2020 provide empirical evidence of the fixed costs of Finnair that correspond to two very different levels of passengers. Those two pairs of data show that fixed costs can be adjusted downwards when the level of passengers is reduced very significantly, but only to a limited extent. The linear approximation consists in using the limited reduction of fixed costs observed between 2019 and 2020, applying it proportionally to the lower reduction of 59% of 2019 passengers that it is assumed would have occurred absent the relevant containment measures.

99 That is the percentage of the fixed cost of a given route from the total fixed costs of all routes.

100 Three new routes have been operated by Finnair in 2020 that were not operated in 2019. Fixed costs have been allocated to each of those three routes based on the average share of fixed cost of the routes in the same category (i.e., domestic, international). That adjustment does not have a significant impact on the results of the quantitative analysis.

Number of Revenues (EUR Variable costs Fixed costs Profits (EUR passengers ‘000s ) (EUR ’000s ) (EUR ‘000s) ‘000s ) (‘000s)

Actual 2019 […] […] […] […] […]

Adjusted based on […] […] […] […] […] 41% of 2019 passengers

Actual 2020 […] […] […] […] […]

Estimated damage n/a n/a n/a n/a 72 873

Source: Finnair

(115) Based on that route-by-route analysis, Finland submits that EUR 72.87 million can be considered to constitute a damage suffered by Finnair that is directly linked to the COVID-19 outbreak and the related containment measures in force between 1 July and 31 December 2020 on routes between Finland and the rest of the countries mentioned in section 2.1.1.

2.7.4. Verification of the losses

(116) The Finnish authorities commit to submit to the Commission by 31 December 2021 the results of the ex-post assessment of the damage suffered by Finnair during the period from 16 March to 30 December 2020 as a result of the containment measures linked to the COVID-19 outbreak, based on the operating accounts of Finnair for the year 2020 audited and duly certified by an independent body.

(117) Finland commits to recover with interest any compensation received in excess of the amount of damage verified and certified by the independent financial auditor.

2.8. Cumulation

(118) The Finnish authorities confirm that the aid cannot be cumulated with other aid (also de minimis) covering the same eligible costs.

(119) Finland stated that the aid subject to the present decision covers damage that have not been compensated for by other aid granted to Finnair, especially not the recapitalisation and the loan guarantee granted in the context of the pandemic earlier in 2020101. The aid given under Article 107(3)(b) TFEU was granted as a remedy for a serious disturbance in the economy. The State guarantee and recapitalisation of Finnair aimed at keeping the beneficiary afloat throughout the COVID-19 outbreak and the consequent economic turmoil. Neither of the Article 107(3)(b) TFEU measures were granted as damage compensation for specific losses directly linked to COVID-19 and the related restrictions.

101 Commission decision C(2020) 3970 of 9 June 2020, SA.57410, COVID – recapitalisation of Finnair, OJ C/310/2020, and Commission decision of 18 May 2020, SA.56809, COVID-19 - State loan guarantee for Finnair, OJ C/269/2020.

(120) Finland also indicated that in any event the financial situation of Finnair has further deteriorated after the grant of the loan guarantee and the recapitalisation measures, as demonstrated below.

(121) According to Finland, Finnair’s forecasted net results at the end of 2021 are expected to deteriorate from EUR [...] million (forecast June 2020102) to minus EUR […] million (current forecast) due to the worsening of the pandemic situation that occurred in autumn 2020 and that continues to significantly affect the economy of the Union at the time of adoption of the present decision (see Tables 13 and 14). In 2020, Finnair registered EUR 523 million of losses, for an overall amount of losses in 2020-2021 expected to reach EUR […] million.

Table 13: Finnair’s base case forecast (income statement in EUR millions) on 12 June 2020103

Income statement Scenario Scenario Scenario Scenario Scenario Scenario Q1 21 Q2 21 Q3 21 Q4 2021 FY 2021 FY 2022 Operating income […] […] […] […] […] […] Operating expenses […] […] […] […] […] […] Comparable operating […] […] […] […] […] […] result Result for the period -[…] […] […] […] […] […] Source: Finnair

Table 14: Finnair’s forecast in February 2021 (income statement in EUR millions)

Income statement Scenario Scenario Scenario Scenario Scenario Scenario Scenario Act 2020 Q1 2021 Q2 2021 Q3 2021 Q4 2021 FY 2021 FY 2022 Operating Income […] […] […] […] […] […] […]

Operating Expenses […] […] […] […] […] […] […]

Comparable operating result […] […] […] […] […] […] […]

Result for the period -523 -[…] -[…] -[…] -[…] -[…] -[…]

Source: Finnair

(122) In line with the most recent traffic projections provided by the aviation industry104, Finnair does not expect to return to its 2019 passengers volume before 2024, although it projects to closely reach that volume in 2023105. Finnair’s base case parameters for 2021-2023 can be summarised as follows:

102 The forecast was used by the Commission for the assessment of the recapitalisation in the case SA.57410.

103 Following the date of adoption of the Commission decision C(2020) 3970, SA.57410 – recapitalisation of Finnair, OJ C/310/2020.

104 See the projections of the International Civil Aviation Organisation (https://www.icao.int/sustainability/Documents/COVID- 19/ICAO%20COVID%202021%2002%2017%20Economic%20Impact%20TH%20Toru.pdf), of the International Air Transport Association (see https://www.iata.org/en/iata- repository/pressroom/presentations/outlook/), or Eurocontrol (see https://www.eurocontrol.int/publication/eurocontrol-draft-traffic-scenarios-january-2021-june-2021). The Commission also notes that the traffic projections of Finnair […] to the projections of the Finnish airport network manager (Finavia).

105 Finnair projects a […] recovery for 2021 with an increase of […]% compared with 2020 corresponding to [2-5] million passengers planned to be transported in particular in […].

Graphic 1: Finnair’s projected ASK, PLF and RASK for 2021-2023

[…]

(123) According to Finland, Graphic 1 shows that Finnair expects to redeploy its 2019 capacity in terms of ASK by 2022 with the view that the travel restrictions will decrease by the end of 2021. In addition, Finnair does not expect to return to the passengers volume of 2019 before at least 2023 on a […] basis, while the […] is not expected to reach the 2019 levels before 2025.

(124) Furthermore, Finland states that the forecasted equity position of Finnair at the end of 2021 is not expected to be better off than on 31 December 2019 (established at EUR 966.4 million106). In addition, Finland has pointed out that the drawdown of the loan is conditional upon Finnair being below certain minimum thresholds of equity and liquidity (EUR [400-600] million). Given the amount of the minimum equity threshold (EUR [400-600] million) and the amount of the hybrid loan (EUR 351.38 million), if the Measure was granted because Finnair’s equity position would fall below the minimum equity level threshold defined in the Measure, Finnair’s equity would be at a level that would be significantly lower than Finnair’s equity at the end of 2019.

106 See https://investors.finnair.com/~/media/Files/F/Finnair-IR/documents/en/reports-and- presentation/2020/annual-report-2019.pdf.

Table 15: Comparison of Finnair’s 2021 equity position forecasts of June 2020 with February 2021 (mln EUR)

Equity position in 2019 966.4

Equity position for end of 2021 (forecast June 2020) […]

Expected equity position for end of 2021 (forecast February 2021 […] base case scenario107)

Expected equity position for end of 2021 (forecast February 2021 […] worst-case scenario108)

Source: Finnair

(125) Finland also provided Finnair’s forecasted cash-flow in June 2020 and actual cash- flow registered from June to December 2020, as shown by Table 16. According to Finland, the table shows that the operating cash flow deteriorated by EUR 405.40 million from what was forecasted on 12 June 2020 after the recapitalisation and what Finnair actually registered at the end of 2020.

Table 16: Difference forecasted and actual Finnair’s operating cash flow (June to December 2020)

06/2020 07/2020 08/2020 09/2020 10/2020 11/2020 12/2020 Total Base case 12.6.2020 […] […] […] […] […] […] […] […] Realized Jun-Dec 2020 […] […] […] […] […] […] […] […] Difference -3.5 -22.0 -75.1 -123.4 -88.1 -78.9 -17.9 -405.4 Source: Finnair

(126) Lastly, Finland also provided Finnair’s financial ratios for 2021 projected in June 2020 and currently forecasted (including the grant of the Measure) as provided in Table 17.

107 The equity position currently projected by Finnair for the end of 2021 is EUR […] million. Hence, it does not intend to use the Measure in 2021. In the base case scenario, the equity position is expected to fall below EUR [400-600] million in […], justifying the need to draw the Measure in […].

108 The worst case scenario contemplates the situation where the equity position deteriorates as of 2021 below EUR [400-600] million, triggering the disbursement of the Measure.

Table 17: Comparison between Finnair’s financial ratios in 2019 and currently projected for 2021

Financial ratios (base case scenario) 2019 2020 2021 Gearing ratio % 64% 153% […]% Equity ratio 25% 25% […]% Net debt to EBITDA 1.3 -5.4 -[…]

Financial ratios (worst case scenario) 2019 2020 2021 Gearing ratio % 64% 153% […]% Equity ratio 25% 25% […]% Net debt to EBITDA 1.3 -5.4 -[…] Source: Finnair

3. ASSESSMENT

3.1. Legality of the Measure

(127) The Finnish authorities have respected the standstill obligation of Article 108(3) TFEU, requiring that when the Commission has been notified of plans to grant aid, the Member State concerned must not grant the aid until the Commission adopted a decision approving that aid.

3.2. Existence of State aid

(128) Article 107(1) TFEU defines State aid as any aid granted by a Member State or through State resources in any form whatsoever which distorts or threatens to distort competition by favouring certain undertakings or the production of certain goods shall, in so far as it affects trade between Member States.

(129) 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.

(130) The Measure is imputable to the State, since it is administered by the Prime Minister’s Office and the State Treasury. It is financed through State resources, since the Measure will be paid out from the general budget of the State. The Measure confers an advantage on Finnair in the form of a hybrid loan with perpetual maturity. The Measure thus relieves the beneficiary of costs that it would have had to bear under normal market conditions. This conclusion is not disputed by Finland109.

109 See judgment of the Court (Grand Chamber) of 5 June 2012, Commission v EDF, Case C-124/10 P, EU:C:2012:318, para 82-86. For the applicability of the market economy operator principle (“MEOP”) it is for the Member State to demonstrate that it is acting as a market economy operator when investing in the company. This has not been demonstrated by Finland. Finland merely contended that the amout of State aid should be the difference in interest rates between the hybrid load at hand and the market hybrid bond of September 2020, instead of the nominal amount of the loan. In such a case, where the Member State is acting as a public authority (and specifically as a grantor of aid), the Commission does not need to demonstrate that the MEOP applies.

(131) Finland argues that the amount of aid was limited to the coupon rate difference between the Measure and a similar hypothetical loan facility issued on the market. In particular, Finland holds that the issuance of a EUR 200 million “hybrid bond” on 3 September 2020 in the market confirms that Finnair would have been able to receive financing from the market, albeit at a higher coupon rate.

(132) Regarding the question on whether the hybrid bond issued on 3 September 2020 can be used as a valid comparator for market rates, the Commission notes that Finnair has already benefitted from two measures – a recapitalisation and a loan guarantee – in May and June 2020 in the context of the COVID-pandemic.110 The hybrid bond of 3 September 2020 was issued in a context where Finnair had received State support, enhancing Finnair’s creditworthiness in the market. Absent the aid measures that Finnair had already received in the preceding four months, i.e., the grant and the recapitalisation, the conditions for raising capital in the market would have been much worse. Thus, the Commission concludes that the hybrid bond issued on 3 September 2020 cannot be used as a comparator for market rates. In that context, the Commission also notes that during the pandemic in 2020 Finnair was the only European air carrier having placed a hybrid bond in the market.

(133) Regarding the amount of aid, the Commission notes that a hybrid loan with perpetual maturity qualifies as equity under IFRS rules due to its deeply subordinated ranking. However, Finland argues that the amount of aid taken into account should be limited to the coupon rate on the loan and should not cover the nominal value of the loan itself. That qualification cannot be retained by the Commission. First, the loan is not collateralised. Secondly, its maturity is perpetual and lastly, its ranking is deeply subordinated.111 In addition, the qualification as equity by IFRS rules has a positive impact on the company’s debt-to-equity ratio.

(134) Furthermore, the Commission notes that the outlook for the aviation industry remains uncertain in view of the duration of the pandemic and changes in travel behaviour and has deteriorated in the course of 2020. In the absence of any concrete evidence of similar transactions observed on the market, the Commission concludes that in those circumstances a market operator would not provide a measure comparable with the notified Measure to Finnair under the current circumstances. Thus, the Commission will consider the full nominal value of the hybrid loan facility as the aid amount.

(135) The Measure is selective, since it is granted only to Finnair and not to other companies active in the aviation sector.

(136) The Measure is liable to distort competition since it strengthens the competitive position of Finnair. It also affects trade between Member States, since Finnair is active in the aviation sector, in which intra-Union trade exists.

110 See Commission decision of 9 June 2020, SA.57410, COVID – recapitalisation of Finnair, OJ C/310/2020, and Commission decision of 18 May 2020, SA.56809, COVID-19 - State loan guarantee for Finnair, OJ C/269/2020.

111 See also the criteria for the qualification of hybrid debt capital instruments of Basel II: International Convergence of Capital Measurement and Capital Standards: A Revised Framework — Comprehensive Version, referred to in 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.).

(137) In view of the above, the Commission concludes that the Measure constitutes aid within the meaning of Article 107(1) TFEU. The Finnish authorities do not contest that conclusion.

3.3. Compatibility of the Measure

(138) Article 107(2)(b) TFEU covers aid which is, in law, compatible with the internal market, provided that it satisfies certain objective criteria. Since this is an exception to the general principle stated in Article 107(1) TFEU that State aid is incompatible with the internal market, Article 107(2)(b) TFEU must be interpreted narrowly. Therefore, only damage caused by natural disasters or exceptional occurrences may be compensated for under that provision. There must be a direct link between the damage suffered by an undertaking and the exceptional occurrence, and the compensation must not exceed the amount of damage.

(139) Article 107(2)(b) TFEU provides that aid to make good damage caused by natural disasters or exceptional occurrences shall be compatible with the internal market. Neither the TFEU nor other Union legislation contains a precise definition of the notion of exceptional occurrence. As they constitute exceptions to the general prohibition of State aid within the internal market laid down in Article 107(1) TFEU, 112 the Commission, in line with the consolidated Union case-law has consistently held that the notions of ‘natural disaster’ and ‘exceptional occurrence’ referred to in Article 107(2)(b) TFEU must be interpreted restrictively.

(140) The characterisation of an event as being an exceptional occurrence is made by the Commission on a case-by-case basis, having regard to its previous practice in the field.113 In that regard, the following indicators relating to the event concerned must be cumulatively met: (i) unforeseeable or difficult to foresee;114 (ii) significant scale/economic impact115 and (iii) extraordinary, i.e. differ sharply from the conditions under which the market normally operates.116

112 Judgment of the Court of Justice of 11 November 2004, Spain v Commission, C-73/03, EU:C:2004:711, paragraph 37 and judgment of the Court of Justice of 23 February 2006, Atzeni and others, in Joined Cases C-346/03 and C-529/03, EU:C:2006:130 paragraph 79.

113 Exceptional occurrences which have been accepted in the past by the Commission include war, internal disturbances and strikes, and, with certain reservations and depending on their extent, major industrial accidents which result in widespread economic loss, see Guidelines for State aid in the agricultural and forestry sectors and in rural areas 2014 to 2020, paragraph 330 (OJ C 204, 1.07.2014, p. 53).

114 Commission decision of 1 August 2008 in case SA.32163, Remediation of damage to airlines and airports caused by seismic activity in Iceland and the volcanic ash in April 2010, Slovenia, paragraph 31, OJ C 135, 9.5.2012, p. 1.

115 Elements taken into account by the Commission to consider that the occurrence reached a significant scale: negative consequences cannot be contained (Commission decision of 4 October 2000 in case NN 62/2000, Régime temporaire d'aides aux entreprises victimes des intempéries et de la marée noire – France, OJ C 127, 29.05.2003, p. 32), or the number of dead or injured people (Commission decision of 11 April 2012 in case SA.33487, Agricultural and fisheries aid to compensate for damage due to exceptional occurrence (red mud "Aluminium accident"), Hungary, paragraph 35, OJ C 120, 25.04.2012, p. 1; Commission decision of 2 May 2002 in case N241/2002, Régime en faveur des entreprises victimes de la catastrophe industrielle de Toulouse, France, paragraph 19, OJ C 170, 16.07.2002, p. 16), the immense ecological and economic damage (Commission decision of 11 April 2012 in case SA.33487, paragraph 36, OJ C 120, 15.04.2012, p.

3.3.1. COVID-19 outbreak as an exceptional occurrence

(141) Following the first reports of cases of acute respiratory syndrome (COVID-19) in the Wuhan municipality in China at the end of December 2019, the Chinese authorities identified a novel coronavirus (SARS-CoV-2) as the main causative agent, which had not been previously identified in humans. The outbreak rapidly evolved, affecting not only other parts of China but has also spread to the majority of countries worldwide, including all Member States. Outbreaks of novel virus infections among people are always a public health concern and can have a significant economic impact. Specific sectors and areas are particularly affected by the outbreak, be it because of national outbreak control measures, travel restrictions or supply chain disruptions.

(142) The World Health Organization (“WHO”) warned about the very high risk that COVID-19 would spread and have a global impact. The subsequent spread of COVID-19 ultimately resulted in far-reaching disruption of various economic sectors. That disruption was thus clearly outside the normal functioning of the market. In order to avoid an exponential increase in the number of cases, accompanied by social alarm and severe economic consequences, containment measures needed to be adopted.

(143) On 11 March 2020, the WHO characterised the COVID-19 disease as a pandemic. The public health risk deriving from the absence of therapeutics or vaccines for the novel COVID-19 virus determined the exceptionality of the circumstances. The rapidity of the spread caused enormous consequences both in terms of fatal outcomes in high-risk groups and in terms of economic and societal disruption.117 The necessity to adopt and encourage the respect of measures aimed at interrupting transmission chains stemmed from that acknowledgement.

(144) Since March 2020, Member States adopted various measures that aimed to limit the spread of the coronavirus, e.g. travel restrictions for non-essential travels, closure of borders, closure of non-essential shops, obligation for companies to organise working from home for every position where this is possible and various social distancing measures.

(145) In view of the above, the COVID-19 outbreak qualifies as an exceptional occurrence, as it was not foreseeable and is clearly distinguishable from ordinary events, by its character and its effects on the affected undertakings and the economy in general, and therefore falls outside the normal functioning of the market.

1), the amount of material damage, despite the local character of the industrial accident (Commission decision of 2 May 2002 in case N 241/2002, paragraph 19, OJ C 170, 16.07.2002, p. 16).

116 In its decision of 19 May 2004 in case C-59/2001 (OJ L 62, 2007, p. 14), the Commission considered that the (alleged) fall in sales of poultry meat in a Member State not directly affected by the dioxin contamination did not in itself constitute an exceptional occurrence. Even though it was an unforeseeable event, it formed part of the normal commercial risks to which an undertaking is exposed.

117 ECDC’s Rapid Risk Assessment, Outbreak of novel Coronavirus disease 2019 (COVID-19): increase transmission globally – fifth update, 2 March 2020.

(146) In that context, the COVID-19 outbreak can be considered as an exceptional occurrence within the meaning of Article 107(2)(b) TFEU.118

3.3.2. Causal link between the damage to be compensated by the notified Measure and the COVID-19 outbreak

(147) The Commission has examined the notified Measure pursuant to Article 107(2)(b) TFEU, which requires a direct link between the damage and the exceptional occurrence for which the State aid measure provides compensation. That assessment has led to the following observations.

(148) The notified Measure aims at compensating Finnair for the damage suffered due to the imposition of travel restrictions and other comparable containment measures linked to the COVID-19 outbreak in place during the Overall Compensation Period (recital (3)).

(149) As described in detail in section 2.1.1, the COVID-19 outbreak has resulted in travel restrictions all over the world and the closing down of the vast majority of passenger air transport. Those containment measures were intended to avoid the spread of the virus, but they negatively affected the aviation sector. The damage suffered by Finnair is directly linked to the COVID-19 outbreak through the effects on Finnair’s flights of the travel restrictions and other containment measures imposed by the Finnish government and other governments around the world.

(150) For the demonstration of the direct link between the damages and the exceptional occurrence, the Finnish authorities have considered the Overall Compensation Period running from 16 March to 31 December 2020. The Commission notes that Finland rightly assessed two sub-periods to distinguish on one hand the losses suffered by Finnair under the enforcement of general containment measures applied at domestic, regional and international level (First Compensation Period) and on the other hand, the losses suffered under the enforcement of specific containment measures affecting certain international and European routes (Second Compensation Period)119.

First Compensation Period (16 March to 30 June 2020)

(151) The Commission observes that under the First Commission Period lockdown measures were widely in force (see section 2.1.1) in Finland and within the Union, translating into an extensive grounding of Finnair’s fleet.

(152) First, Finland fully closed its borders as of 16 March 2020 and imposed very stringent travel restrictions at least until 14 May 2020, date as of when it allowed only specific essential travels (for persons having an employment contract in Finland). Finland

118 See Commission Decision of 12 March 2020 in State aid case SA.56685 (2020/N) – Denmark – Compensation scheme for cancellation of events related to COVID-19, OJ C 112, 03.04.2020, and Commission Decision of 31 March 2020 in State aid case SA.56765 (2020/N) – France – COVID-19 Moratoire sur le paiement de taxes et redevances aéronautiques en faveur des entreprises de transport public aérien sous licences d'exploitation délivrées par la France.

119 See judgment of the General Court of 25 June 2008, Olympiaki Aeroporia Ypiresies v Commission (T‑268/06, EU:T:2008:222, paragraph 49).

started to lift restrictions at domestic level and between regions at the end of May 2020.

(153) Data provided in recitals (46) to (52) confirm the impact of the general restrictions on Finnair’s operations. Table 2 shows that the number of passengers transported and the ticket revenues cashed by Finnair steadily decreased in the first half of March 2020, with a clear fall in the second half of the month following the closure of the borders on 16 March 2020. In addition, as shown in Tables 3 to 5, several of Finnair’s performance indicators (such as load factor, ASK, RPK,) were substantially affected in March, April and May 2020120 compared with the same period in 2019.

(154) Secondly, the Commission notes that by 29 May 2020, Finland lifted the restrictions on domestic travel. However, international traffic remained fully suspended. Intra- Union traffic was limited to specific essential travels. This limitation remained generally in place until 13 July 2020121. Only the Scandinavian and Baltic countries (apart from Sweden) were exempt from that restriction as of 15 June 2020. In addition and as pointed out in recitals (17) and (18), most of the Member States maintained their borders closed until approximately mid-June 2020 following a recommendation issued by the Commission to lift borders not before 15 June 2020.

(155) The data provided for June 2020 show that Finnair continued to be strongly affected by the existing restrictions in place in Finland and in other Member States despite the easing on domestic travel as of 29 May 2020. Domestic routes represented only 4% of Finnair’s total ticket revenues in June 2019. Hence, the main revenues of the company stemmed from international and intra-Union routes, where travel restrictions were still in place. Furthermore, the number of domestic passengers was still 92% lower than in June 2019.

(156) In addition, despite the removal of all restrictions to the Baltic and some Scandinavian countries, the overall number of routes still affected by the travel restrictions between 15 and 30 June 2020 represented approximately 90% of Finnair’s revenues in June 2019. As for Iceland and Denmark, the Commission notes that those countries did not reciprocally lift their travel restrictions with Finland on 15 June 2020. Furthermore, the proportion of revenues for traffic on domestic routes and Baltic/Norwegian routes represented only a small percentage of Finnair’s revenues between 15 and 30 June 2019.

(157) As shown in Table 6 the number of passengers still remained very low between 15 and 30 June 2020 on international routes and routes to other Member States compared with 2019 (-99% for international routes and -98.5% for EU routes). Therefore, the travel restrictions kept in place throughout June 2020 in Finland and elsewhere still paralysed almost all of Finnair’s activities. Passenger traffic for the six countries concerned by the lift of travel restrictions on 15 June 2020 (two of which still had travel bans in place on their side) did not revive until the end of June 2020 before regaining momentum.

120 See recitals 46 and 47 of the present decision.

121 See recitals 10 to 12 of the present decision.

(158) As to the beginning of the Second Compensation Period as assumed by Finland on the notified measure (i.e., 1 July 2020), the Commission notes that although Finland only reopened its borders as of 13 July 2020 to the majority of other Member States, ticket revenues and passenger volume already notably increased at the beginning of July (although both indicators remained significantly lower than in 2019 for the same period), as can be seen in Table 7. Further data provided by Finland shows that the average daily volume of ticket revenues between 1 and 13 July 2020 had increased by 64% compared to the period 15 to 30 June 2020.122 The average daily number of passengers transported increased by 96% between the same periods. The Commission concludes that as of 1 July 2020 Finnair was entering into a phase of increased momentum, immediately preceding the lift of the travel restrictions concerning the majority of other Member States on 13 July 2020. That phase was fuelled by the Finnish authorities’ announcement dof end of June 2020 regarding the lifting of the border closures and the general easing of the travel restrictions for most passengers from the Union and at global level.

(159) In those circumstances, the Commission considers that it was prudent and conservative of the Finnish authorities to assume the end of the First Compensation Period to be on 30 June 2020 and to start implementing a route-by-route analysis as of 1 July 2020 (instead of 13 July 2020 when the majority of EU-related travel restrictions were lifted) to assess the damage directly attributable to the travel restrictions adopted by Finland to some foreign countries and vice versa.

Second Compensation Period (1 July to 31 December 2020)

(160) The Measure aims at compensating losses suffered by Finnair on specific routes between 1 July and 31 December 2020 where specific governmental restrictions implemented both by Finland, other Member States and third countries listed in section 2.1.1 still existed on certain routes operated by Finnair.

(161) Such restrictions took the form of a full prohibition of foreign nationals and/or non- essential travels on both sides of a route operated by Finnair. On the one hand, Finland adopted a general prohibition of non-essential travel to/from third countries and other Member States listed in section 2.1.1. On the other hand, most of the third countries and Member States to which Finnair operated routes also implemented a full prohibition of foreign nationals with exceptions that only concerned specific categories of persons determined by law123, or persons that had to obtain prior approval by the public authorities to enter into the country based on a case-by-case assessment.124

(162) In some instances, the travel ban was unilaterally imposed either by Finland for travels to/from a foreign country125 or by a foreign country for travels to/from Finland126. The

122 The daily volume of ticket revenues registered between 1 and 13 July 2020 did not substantially increase after 13 July 2020. See recital 0 of the present decision.

123 For example, entry to the USA was strongly limited to foreigners who were either permanent residents, direct relatives (father, spouse or child) of a US citizen or a person of national interest for the USA (see section 2.1.1.3).

124 See for example the restrictions in place in Israel (see section 2.1.1.6).

125 See for example section 2.1.1.10.

Commission notes that those unilateral bans on travels were so extensive that they legally excluded a majority of an airline’s customers (including business), as it was the case for the Japanese restrictions. The Commission also regards a prohibition of non-essential travels as directly impacting the customer-base of an airline, as a part of those travellers is not allowed to travel to a given country (e.g. leisure). In addition, it must also be pointed out that the Finnish travel restrictions were updated every two weeks depending on the infection rates in a given foreign country. Under those circumstances, the Finnish travel restrictions were implemented on the basis of an unpredictable event that made it difficult for travellers to plan ahead regarding any non-essential travels.

(163) Taking into account in some instances the specificities of long-haul flights which usually require higher variable costs than short-haul flights,127 it follows from the above elements that the restrictions adopted on the specific routes eligible for compensation by the Measure formally prevented airline companies such as Finnair from transporting a vast majority of passengers, namely those in the categories that did not meet the conditions to benefit from the exemption to the prohibition on foreign nationals (leisure or business travel). That conclusion is not undermined by the entitlement of individuals to return to their respective country of nationality or residence, as in the context of the pandemic it is very likely that those individuals would travel only one way (and one time).

(164) The data provided by Finland show in addition that the governmental restrictions affected not only Finnair but all other airlines that were normally operating those routes prior to the COVID-19 outbreak, with significant decrease in passengers transported and flights operated, not to mention in certain cases the total disappearance of any air commercial services on certain routes and/or between Finland and foreign countries.

(165) Therefore, the Commission takes the view that the restrictions implemented by Finland and all foreign countries listed in section 2.1.1 had the effect of rendering the air services on the routes listed in section 2.1.2 de facto unviable or commercially difficult to operate under profitable terms, thus directly affecting Finnair’s operations.

Conclusion on the direct link between the damage and the exceptional event

(166) In light of those circumstances, the Commission concludes that the notified Measure aims at covering the net losses of Finnair caused by the suspension of flights as a direct effect of the COVID-19 outbreak and the general containment, lockdown and border restrictions in place during the First Compensation Period. Hence, there exists a direct causal link between the damage suffered by Finnair during the period from 16 March to 30 June 2020 and the exceptional occurrence, i.e. the COVID-19 outbreak.

(167) In addition, the Commission concludes that there is a direct link between the damage and the COVID-19 outbreak due to the travel restrictions adopted by Finland and the

126 See for example section 2.1.1.4 (Japan) and section 2.1.1.8 (Thailand).

127 Variable costs such as fuel, onboard catering services, ground handling services and airport charges necessarily increase with long-haul flights given the duration of the flight and the size of the aircraft.

foreign countries listed in section 2.1.1 affecting certain routes operated by Finnair during the Second Compensation Period.

3.3.3. Proportionality of the Measure

(168) In order to be compatible with Article 107(2)(b) TFEU, the aid must be proportional to the damage directly caused by the exceptional occurrence. Aid must not result in over-compensation of damage; it should only make good the damage caused by the exceptional occurrence.

(169) To ensure proportionality, it is necessary to analyse the assumptions and evidence on which the calculation of damage for the factual scenario is based. In particular, it is necessary to look at how the exceptional occurrence has actually and directly affected the operations of Finnair (e.g. Finnair has been prevented from operating) and what actual impact it has had on the costs and revenues of the company.

First Compensation Period (16 March to 30 June 2020)

(170) The damage to be compensated under the First Compensation Period corresponds to the net loss, defined as loss of revenues minus avoided costs. The loss of revenues is the difference between the revenues that Finnair would have expected during the First Compensation Period, had the containment measures linked to the COVID-19 outbreak not occurred, and the revenues that Finnair has actually generated during the First Compensation Period.

(171) To approximate counterfactual revenues, actual revenues for the same period of the previous year are used. Avoided costs correspond to costs that Finnair would have had during the First Compensation Period if its activity had not been affected by the containment measures linked to the COVID-19 outbreak, and that Finnair did not have to bear as a result of the cancelled operations (fuel, airport taxes, etc.). The avoided costs are quantified by comparing the costs borne by Finnair for the same period of the previous year with the costs borne by the company during the First Compensation Period.

(172) The Finnish authorities submitted an evaluation of the damage on the basis of a monthly EBITDA comparison for the period 16 March to 30 June 2020 and the same period in 2019, which established the total net losses of Finnair between 16 March and 30 June 2020 at EUR 278.5 million (see section 2.6.2).

(173) Finland has submitted the actual net losses registered by Finnair in the months of April, May and June 2020 on the basis of the monthly EBITDA delta, which reflects the operating revenue and expenses of the company and allows to capture the effective operating losses of the company. For the calculation of the net losses in March 2020 (i.e., from 16 to 31 March), Finland has estimated the corresponding proportion of revenues, variable costs and fixed costs based on the delta of daily passengers transported by Finnair between March 2019 and 2020128. The Commission notes that, in the absence of actual daily EBITDA data for March, the allocation of net losses by using that methodology is a robust and accurate approximation for the actual

128 See recital (103) of the present decision.

distribution of daily losses, which were logically concentrated in the second half of March 2020 following the closure of the Finnish borders on 16 March 2020.

Second Compensation Period (1 July to 31 December 2020)

(174) The Commission agrees that under the Second Compensation Period a route-by-route analysis has to be undertaken since only specific routes were affected by the relevant containment measures. The route-by-route quantitative analysis submitted by Finland appropriately identifies the damage attributable to the containment measures.

(175) By comparing routes affected by the containment measures and routes not affected by them in the Second Compensation Period (i.e., domestic routes), it is possible to distinguish the loss of passengers due to the containment measures from the reduction of passengers that would have been lost in any event regardless of the containment measures. That strategy appropriately identifies what would have been the level of passengers absent the containment measures (i.e., the counterfactual), and thus seeks to strip out from the profitability delta of a route those passengers who are not using aviation services during the Second Compensation Period for reasons other than the travel bans. It thereby has a robust determination of the damage arising on the routes subject to travel bans as a direct consequence of such measures.

(176) The distinct approach to revenues and variable costs, on the one hand, and fixed costs, on the other hand, appropriately takes into account the impact of large variations of output and the economies of scale that characterise the cost structure of an airline. Fixed costs can show some variation when confronted with large variations of output, as the one affecting Finnair, although any such variation is likely to be less than proportional. The linear adjustment of fixed costs submitted by Finland, as well as the allocation of fixed costs based on the 2019 data route-by-route, provides a reliable estimate of the avoided fixed costs at the level of the routes.

(177) The Commission considers that the methodology submitted by Finland allows a quantitative identification of the damage attributable to the COVID-19 outbreak and the relevant containment measures. The Commission considers that the route-by-route analysis submitted by Finland provides a reliable method to calculate as precisely as possible the damage suffered by Finnair directly due to the travel restrictions in place on certain routes operated by the company.

(178) The Commission scrutinised the application of that methodology to all routes operated by Finnair from Finland to other countries listed in section 2.1.1 for which the Commission concludes that there was a direct link between the damages suffered by Finnair and the travel restrictions in force on those routes. The relevant figures resulting from the application of that metohodology are displayed in Table 12 of the present decision, leading to an overall compensation of EUR 72.87 million for the Second Compensation Period.

(179) Hence, the Commission considers that the compensation of EUR 72.87 million for the eligible routes (see section 2.7.3.) is proportional and does not exceed what is necessary to make good the damage suffered by Finnair during the Second Compensation Period.

Cumulation with other aid already received by Finnair

(180) When assessing that aid under Article 107(2)(b) TFEU does not exceed what is necessary to make good the damage suffered by Finnair, the Commission has also ensured that the damage is not already covered by aid previously received by Finnair.

(181) As explained in section 2.2., the Commission has approved two previous State aid measures to the benefit of Finnair in the context of the pandemic: a State guarantee on a loan of EUR 600 million (the State guarantee decision of 18 May 2020) and a recapitalisaiton of EUR 286 million (the Finnair recapitalisation decision of 9 June 2020).

(182) The Commission notes that the State guarantee aimed at preserving the continuity of Finnair’s economic activity during and after the outbreak by providing Finnair with sufficient liquidity. The recapitalisation intended to strengthen Finnair’s equity in order to allow the company to raise sufficient liquidity in the market. Neither of the Art 107(3)(b) TFEU measures were expressly granted as compensation for specific losses caused by travel restrictions due to COVID-19.

(183) However, in order to exclude that the cumulation of aid through the different measures granted in the context of the COVID-19 outbreak would lead to an overcompensation of the damages compensated by the Measure, the Commission has taken into account the following aspects.

(184) The financial situation of Finnair has further deteriorated compared with Finnair’s updated financial projections immediately following the adoption of the recapitalisation decision (12 June 2020 - see recital (121)129), in particular due to the ongoing enforcement of the travel restrictions adopted by Finland and other foreign countries on routes with usually high profitability for Finnair throughout the second semester of 2020.

(185) In that context, the Commission also notes that the COVID-19 pandemic has worsened in particular since October 2020 with a second strong wave of general containment measures adopted worldwide, including in Finland, to prevent the spread of COVID-19.

(186) The Commission notes moreover that Finnair’s revenues projections submitted in the context of the Finnair recapitalisation decision for the third quarter (“Q3”) of 2020 were of EUR 234 million, while the actual figures for Q3 2020 showed revenues of EUR 97.4 million. According to the projections of May 2020, the projected available seat kilometres for that quarter would amount to 5.6 million. Instead the actual available seat kilometres amounted to 1.7 million in Q3 2020. Moreover the projections made in May 2020 forecasted a passenger load factor of 85% for Q3 2020. The actual passenger load factor for Q3 2020 however only reached 38.7%.

(187) For the year 2021, Finnair forecasted a net positive result of EUR […] million in June 2020. Its latest projections (see recital (121)), which the Commission considers credible and sufficiently reasonable in view of the context existing at the date of adoption of the present decision and the uncertainty still surrounding the effective

129 Projections taking into account both the State guarantee and the recapitalisation.

implementation of the vaccine campaign in 2021130, show a negative result of EUR […] million. Hence, Finnair now expects to face - in its most recent base case scenario - more than EUR […] million of losses in 2021 compared to its base case projections of June 2020.

(188) There is a further safeguard against cumulation of the Measure with previous measures taken in response to the effects on Finnair of the COVID-19 pandemic in that the Measure is conditional upon Finnair facing an equity level below EUR [400- 600] million. Thus, the disbursement of the Measure is conditional upon a weakening of the equity position to a level […] inferior to its pre-COVID level. Indeed, Finnair expects a deterioration to EUR […] million of losses by the end of 2021 in the most recent base case compared to the projections of June 2020. However, in that most recent base case scenario, Finnair expects an equity level of EUR […] million by the end of 2021, thus not triggering the disbursement of the Measure. The company projects to […], meaning that the equity position of the company in 2021 should remain below the level pre-dating the COVID-19 outbreak. The Commission notes in addition that, in the worst-case scenario, assuming the grant of the Measure in 2021, the projected equity position of Finnair as of 31 December 2021 would not exceed its equity position of 31 December 2019 established at EUR 966.4 million (see recital (124)). In addition, in such a situation, Finnair’s forecasted financial ratios at the end of 2021 would not be better than in 2019 (see recital (126)) so that the recapitalisation carried out in June 2020 when it is cumulated with the damage compensation Measure is still limited to what is necessary to ensure the viability of the beneficiary and does not go beyond restoring its pre-COVID-19 capital structure.

(189) Moreover, the Commission notes that Finnair’s cash position considerably deteriorated over the second half of 2020 for an amount exceeding EUR 400 million, although Finnair fully drew the EUR 600 million loan for which a State guarantee was approved by the Commission in its decision of 18 May 2020 and granted to Finnair131. The Commission recalls that the amount approved in that decision was designed to cover Finnair’s liquidity needs in Q2 and Q3 2020 but not beyond132. Hence, the amount approved in May 2020 has been insufficient to cover the liquidity needs that arose in the second part of the year 2020 and that are currently arising in the context of the new waves of the COVID-19 pandemic.

(190) It follows from the above that the negative impact of the COVID-19 outbreak on Finnair has been significantly greater than the projections on which the proportionality of the Finnair recapitalisation decision and the State guarantee decision were determined. The Commission is therefore satisfied that the grant of the Measure does not compensate damages that would already have been covered by previous aid

130 Those projections are also in line with the industry projections for the aviation sector. The Commission also verified that the projected cost and revenue per passenger of Finnair were in line with those registered in 2017-2019 to evaluate whether Finnair overestimated or not the expected losses. The Commission found that Finnair anticipates a decrease in costs per passenger in 2023 compared with 2019 while maintaining the same level of revenues per passenger, which tend to confirm that Finnair has a prudent estimation of its losses.

131 See recital (125) of the present decision.

132 See recital (41) of the State guarantee decision.

measures received under Article 107(3)(b) TFEU. Thus, the Commission concludes that the granting of the Measure does not lead to overcompensation.

Other considerations for the proportionality assessment

(191) The Finnish authorities have committed to submit to the Commission by no later than 31 December 2021 the results of the ex post assessment of the damage suffered by Finnair during the period from 16 March to 31 December 2020 as a result of the containment measures linked to the COVID-19 outbreak, based on the operating accounts of Finnair for the year 2020 audited and duly certified by an independent body (recital (116)). If the ex post assessment shows that Finnair has been overcompensated, the Finnish authorities commit to ensure that Finnair repays any such overcompensation with interest (see recital (117); see also recital (90)).

(192) Lastly, the Finnish authorities have confirmed that the aid cannot be cumulated with other aid (also de minimis) covering the same eligible costs.

Conclusion on proportionality

(193) In light of the above, the Commission considers that the Measure granted by Finland to Finnair under Article 107(2)(b) TFEU (i.e., a compensation of EUR 351.38 million) does not exceed the damage estimated to have been incurred by Finnair directly linked to the exceptional occurrence by the governmental restrictions.

(194) The Commission therefore concludes that the notified Measure of EUR 351.38 million provides for compensation that does not exceed what is necessary to make good the damage.

4. CONCLUSION

In light of the above, the Commission has decided not to raise objections to the aid on the grounds that it is compatible with the internal market pursuant to Article 107(2)(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 for Competition State Aid Greffe B-1049 Brussels [email protected]

Yours faithfully,

For the Commission

Margrethe VESTAGER Executive Vice-President