On November 23, 2023, the Court of Justice (“ECJ”) delivered two important judgments in the Ryanair v. Commission cases concerning Ryanair’s challenge of two State aid schemes granted by France and Sweden to airlines holding “national operating licenses”[1] during the COVID-19 pandemic.[2]
Background
French Scheme. On March 31, 2020, the Commission decided not to raise objections to a €200.1 million French aid scheme providing a moratorium to airlines with a “French operating license”[3] on the civil aviation tax and solidarity tax on airline tickets, declaring the measure compatible with Art. 107(2)(b) TFEU (i.e., “aid to compensate damage caused by an exceptional occurrence”).[4]
Swedish Scheme. On April 11, 2020, the Commission decided not to raise objections to a €455 million Swedish aid scheme providing a State guarantee on new loans to airlines with a “Swedish operating license”,[5] declaring the measure compatible with Art. 107(3)(b) TFUE (i.e., “aid to remedy a serious disturbance in the economy”) as interpreted in light of the then applicable COVID-19 State aid Temporary Framework.[6]
Procedure. In May 2020, Ryanair sought the annulment of the Commission decisions authorizing the French and Swedish Schemes, but the General Court dismissed the actions in their entirety in February 2021.[7] Ryanair appealed the General Court judgments in April 2021 to the Court of Justice. These cases were the first in a long series of appeals brought by Ryanair and other low cost airlines against Commission decisions clearing aid (whether granted through schemes or individual aid measures) by Member States to national airlines.
Below we discuss the main findings of the EU Courts concerning: (i) the application of the principle of non-discrimination on grounds of nationality and free movement rules in State aid; and (ii) the so-called “balancing test” in Article 107(3)(b) TFEU.
Application Of Non-discrimination On Grounds Of Nationality And Free Movement Provisions In State Aid (French And Swedish Schemes)
Ryanair challenged the two Commission decisions authorizing the French and Swedish Schemes before the General Court, raising the incompatibility of their eligibility criteria, which conditioned the grant of aid on airlines holding a “national licence” with the principle of non-discrimination on grounds of nationality (Art. 18 TFEU) and freedom to provide services (Art. 56 TFEU).
The General Court rejected Ryanair’s actions, finding in essence that Articles 107(2)(b) and 107(3)(b) TFEU are lex specialis to Art. 18 TFEU and free movement rules.[8] Accordingly, the General Court found that the Commission only had to review whether the aid measures complied with the requirements of Arts. 107(2)–(3) TFEU, and to that extent were appropriate, necessary and proportionate.[9] The General Court concluded that limiting the eligibility of aid to airlines holding a national operating license complied with these requirements because “by adopting that criterion [Member States] sought, in essence, to ensure a permanent link between [them] and the airlines benefiting from [the aid], resulting in the presence of an important legal entity, namely the principal place of business of those airlines, on its soil, which would not have existed in that regard with airlines operating under a licence issued by [another] Member State […], in that the latter are not subject to financial and reputational monitoring by the [national] authorities within the meaning of Regulation No 1008/2008 and, in their situation, that reciprocal stable link between it and the airlines holding an operating licence which it issued is absent.”[10]
On appeal, the ECJ found that any State aid is by nature selective and therefore discriminatory and restrictive.[11] Hence, it is sufficient for the aid to be granted for the purposes of an objective recognised in Arts. 107(2)–(3) TFUE and“within the limits of what is necessary and proportionate to the achievement of that objective”, without the need to assess whether the aid measures comply with Article 18 TFEU and free movement rules separately.[12] To substantiate that an aid measure infringes free movement rules, applicants have to show that the contested measure produces restrictive effects that “gobeyond” those inherent in State aid from selectivity.[13] The ECJ, however, appeared to implicitly dismiss the reasoning of the General Court insofar as it relied on the financial and reputational monitoring mechanisms provided in Regulation 1008/2008 to justify the discriminatory approach of the aid schemes.[14]
Balancing Test Under Article 107(3)(b) TFEU (Swedish Scheme)
Another key question that was raised in the Swedish Scheme case was whether aid granted under Article 107(3)(b) TFEU requires the Commission to conduct a so-called “balancing test”, i.e., to weigh the beneficial effects of the aid against its adverse effects on trading conditions and the maintenance of undistorted competition “within an EU context”.[15]
The General Court held that the balancing test would have “no raison d’être in the context of Article 107(3)(b) TFEU, as its result is presumed to be positive [as] the fact that a Member State manages to remedy a serious disturbance in its economy can only benefit the European Union in general and the internal market in particular.”[16] The General Court relied on the textual differences between Article 107(3)(b) and 107(3)(c) TFEU, citing the ECJ ruling Austria v. Commission.[17]
Following Ryanair’s appeal, Advocate General Pitruzzella opined that the General Court had erred in law because, according to established case law, the balancing test applies to all limbs under Article 107(3) TFUE, and Austria v. Commission did not support the General Court’s reasoning, even if in this case he ultimately found the balancing test to be embodied in the COVID-19 Temporary Framework.[18] Nonetheless, the ECJ reiterated the General Court’s ruling, finding that aid measures aimed at remedying a serious disturbance in the economy under Article 107(3)(b) TFUE contribute to objectives of an exceptional nature and therefore, are “considered to ensure a fair balance between their beneficial effects and their adverse effects on the internal market and are therefore in the common interest of the European Union”, provided that they are necessary and proportionate.[19]
What Possible Consequences For The EU’s Internal Market?
The EU Courts’ findings on the application of non-discrimination on grounds of nationality in State aid appear to restrict the scope of previous case law, which so far stated that the Commission had to assess the compatibility of an aid measure with Article 107 TFEU and, in parallel, the compatibility of any requirements that are “indissolubly linked” thereto[20] with any other provisions of primary law, secondary law, and general principles,[21] including a fortiori free movement rules.[22] They also appear at odds with the ensuing Commission guidance in some fields of State aid law, which explicitly prohibits Member States from conditioning the award of State aid on beneficiaries having their central seat, or being predominantly established, in their territories.[23] Moreover, the Commission’s practice during COVID-19 showed that discrimination on grounds of nationality is not a feature inherent to State aid, as the Commission authorized, without impediment, a number of aid schemes that, though selective, also had open eligibility criteria that were neutral to the nationality of eligible beneficiaries.[24]
The EU Court’s application of the balancing test under Article 107(3)(b) TFEU further departs from the case law, based on which the Commission had also set out its decisional guidance. For instance, in Spain v. Commission, the ECJ stated that the “difference in wording [between the limbs in Article 107(3) TFEU] cannot lead to the conclusion that the Commission should take no account of the Community interest […] without assessing the[..] impact [of the measures involved] on the relevant market or markets in the Community as a whole”.[25] Accordingly, the Commission’s guidance, including under Article 107(3)(b) TFEU, required a balancing test.[26]
In sum, the EU Courts’ rulings in the French and Swedish cases leave little room for the application of the principle of non-discrimination on grounds of nationality and free movement rules in State aid, and no room for the application of the balancing test in crisis aid granted under Article 107(3)(b) TFEU. The Commission would still arguably be bound by its general guidelines under Article 107 (3)(b) TFEU, and more generally by the principles of necessity and proportionality of the aid. But Member States with “deep pockets” might feel freer to support national champions of their choice without regard to the principles of non-discrimination on grounds of nationality and free movement rules, and without accounting for the negative effects of the aid to the EU internal market as a whole as long as there is a “serious disturbance in the economy” in the sense of Article 107(3)(b) TFEU or an “exceptional occurrence” in the sense of Article 107(2)(b) TFEU. It remains to be seen whether the consequences of such a relaxation of State aid principles will be limited to the airline industry or whether it might lead to a more serious fragmentation of the single market in times of recurring crises.
[1] Articles 2(1) and 3 of Regulation 1008/2008 establish that any undertaking seeking to carry by air passengers and/or cargo for remuneration and/or hire requires an operating license. To obtain such a license, an air carrier has to comply with the conditions set out in Chapter II of Regulation 1008/2008, notably the air carrier has to have its “principal place of business” in the Member State granting the license inter alia (Arts. 4-11 Regulation 1008/2008). Article 2(26) of Regulation 1008/2008 clarifies that the “principal place of business” is “the head office or registered office of a Community air carrier in the Member State within which the principal financial functions and operational control, including continued airworthiness management, of the Community air carrier are exercised”. Once the air carrier obtains the operating license from a Member State, it is “entitled to operate intra-Community air services”, without the need for any additional permits or authorizations in other Member States pursuant to Article 15 of Regulation 1008/2008 and the principle of mutual recognition.
[2] Ryanair v. Commission (COVID-19; Swedish Scheme) (Case C-209/21), EU:C:2023:905, and Ryanair v. Commission (COVID-19; French Scheme) (Case C-210/21), EU:C:2023:908, (respectively, “ECJ Swedish Scheme” and “ECJ French Scheme”).
[3] See footnote 1 above.
[4] Commission decision not to raise objections of March 31, 2020 (SA.56765).
[5] See footnote 1 above.
[6] Commission decision not to raise objections of April 11, 2020 (SA.56812).
As for the Temporary Framework (communication from the Commission “Temporary Framework for State aid measures to support the economy in the current COVID-19 outbreak” of March 19, 2020 in OJ 2020 CI 91, p. 1), at the time of the Swedish decision it had already been amended for the first time (communication of April 3, 2020 in OJ 2020 CI 112, p. 1).
[7] Ryanair v. Commission (COVID-19; French Scheme) (Case T-259/20), EU:T:2021:92, and Ryanair v. Commission (COVID-19; Swedish Scheme) (Case T-238/20), EU:T:2021:91 (respectively, “GC French Scheme” and “GC Swedish Scheme”).
[8] Art. 18 TFEU only applies “[w]ithin the scope of application of the Treaties, and without prejudice to any special provisions contained therein […]”. The French Scheme and Swedish Scheme cases are the first precedents where the EU Courts have found Article 107 TFEU to be a special provision of Article 18 TFEU.
[9] GC Swedish Scheme, paras. 31 et seq; GC French Scheme, paras. 32 et seq.
[10] GC Swedish Scheme, paras. 40–44; GC French Scheme, paras. 35–41.
[11] ECJ Swedish Scheme, para. 29; ECJ French Scheme, para. 34.
[12] ECJ Swedish Scheme, paras. 31–36 and ECJ French Scheme, paras. 36–41.
[13] ECJ Swedish Scheme, para. 75 and ECJ French Scheme, para. 86.
[14] ECJ Swedish Scheme, para. 51 and ECJ French Scheme, para. 56.
[15] HH Ferries v. Commission (Case T-68/15), EU:T:2018:563, paras. 210–214; Philip Morris ν. Commission (Case 730/79), EU:C:1980:209, paras. 11–12; and AITEC and Others v. Commission (Case T-447/93), EU:T:1995:130, paras. 124, 127, 133, and 142.
[16] GC Swedish Scheme, para. 68.
[17] GC Swedish Scheme, para. 82; Austria v. Commission (Case C-594/18), EU:C:2020:742, paras. 20 and 39.
[18] Advocate General Opinion in ECJ Swedish Scheme, para. 84–88 and 95.
[19] ECJ Swedish Scheme,para. 86.
[20] Iannelli v. Meroni (Case C-74/76), EU:C:1977:5, para. 14.
[21] Nuova Agricast (Case C-390/06), EU:C:2008:224, para. 50, and Hinckley Point (Case C-594/18 P), EU:C:2020:742, para. 44.
[22] Niki Lufthart (Case T-511/09), EU:T:2015:284, paras. 215–216: “[The] obligation on the part of the Commission to ensure that Articles 87 EC and 88 EC are applied consistently with other provisions of the EC Treaty is all the more necessary where those other provisions also pursue the objective of undistorted competition in the common market, as Art. 43 EC does in the present case in seeking to preserve freedom of establishment and free competition between the economic operators of one Member State established in another Member State and the economic operators of the latter Member State.”(Emphasis added)
[23] See e.g., Commission IPCEI Communication, para. 10; Commission R&D&I Guidelines, paras. 38 and 104, Commission Risk Finance Guidelines, para. 41.
[24] See e.g., Aid schemes in Romania (SA.57817), Denmark (SA.58157), Cyprus (SA.57691), Hungary (SA.57767), Slovenia (SA.59124), which establish eligibility criteria that do not discriminate on the basis of nationality but are selective, i.e., airlines: (i) “starting or resuming operations” at a given airport; (ii) “landing in and departing from” a given Member State; (iii) “operating routes to/from” a given Member State, etc.
[25] Spain v. Commission (Case C-169/95), EU:C:1997:10, paras. 15–17 and Spain v. Commission (Case C-113/00), EU:C:2002:507, para. 67.
[26] See e.g., Commission IPCEI Communication, paras. 28 and 42–47.