European airlines – including TAP – can already see the light at the end of the Covid-19 crisis tunnel. European Commission Executive Vice President Margrethe Vestager has proposed a provisional framework under which there may be state aid for air carriers, publicly released this Tuesday, March 17th.
Currently, there is a framework in European Union (EU) law to proceed with aid, but the European Commission announces that it wants to go further, to prepare a specific legislative framework for support in the context of the current Covid-19 crisis, thus complementing the other possibilities available to Member States.
This will not be a specific legislation for air carriers, but the European Commission highlighted the air transport sector in the statement it makes today, saying that it is “urgent to act” and gives as an example the possibility of being awarded “compensation to air carriers” for the damage suffered as a result of Covid-19 ”. In addition, this whole process will be quick because the European Commission admits that “this legislation must be ready in the next few days”.
Last night, the European Commission sent to Member States for consultation a draft proposal for a temporary state aid framework to support the economy in the context of the COVID-19 outbreak, based on Article 107 of the Treaty on the Functioning of the European Union (TFEU) to remedy serious disturbances in the EU economy.
Executive Vice President Margrethe Vestager believes that “managing the economic impact of the COVID-19 outbreak requires decisive action”. One minute will not be lost: “We need to act quickly”, he says. And “we need to act in a coordinated manner”.
EU state aid rules provide the tools for Member States to take quick and effective action. We have two goals in common: first, that companies have the liquidity to continue to function or to be able to temporarily freeze their activities, if necessary, but this support must now reach the companies that need it ”, he says.
Secondly, he says that “such support for companies in a Member State does not undermine the unity that Europe needs, especially during a crisis. Because we must be able to rely on the single European market, to help our economy withstand the outbreak and recover strongly afterwards ”.
Thus, the European Commission will allow Member States to use “all the flexibility provided for in the state aid rules to face this unprecedented situation in the Civid-19 crisis”.
“We are working on a new provisional structure, to complement the existing possibilities. It is based on Article 107 (3) (b) TFEU to remedy a serious disturbance in the economy, ”says Vestager. And he explains that the measures adopted by the Member States to “delay the spread of the COVID-19 outbreak have made this work even more urgent and necessary”.
For this reason, he adds, “we have sent a draft proposal to capture the opinions of the Member States to ensure that it is suitable for this objective, being applicable across the EU”. Vestager’s goal is to implement this new interim structure in the coming days.
Compared to this process with the last financial crisis, the speed of execution now sought is completely different, since, recalls Vestager, in the last crisis “it took three weeks from the launch of the internal consultation of the intervention framework to its adoption, but now we are able to act even faster than a decade ago, because we are taking advantage of the experience gained from the 2009 structure ”.
This new Provisional Framework “will allow Member States to allocate direct subsidies, or tax benefits, up to 500 thousand euros to a company, grant subsidized state guarantees on bank loans and provide public and private loans with subsidized interest rates”, argues Vestager.
The new framework will recognize “the important role of the banking sector in dealing with the economic effects of the Covid-19 outbreak, namely channeling aid to end customers, in particular small and medium-sized companies”, says the vice president of the EC.
But he makes it clear that “this aid is a direct aid to the bank’s customers, not the banks themselves”. And it provides guidance on “how to minimize any undue residual aid to banks, according to EU rules”. Explains that this new framework “does not replace”, but “complements” existing tools with many other possibilities already available to Member States, “in accordance with state aid rules” – be general measures to pay “wage subsidies ”, Whether the“ suspension of tax payments ”by companies or to compensate companies for damages suffered due to the Covid-19 outbreak.
The “compensation” mechanism can, in particular, be useful in supporting sectors that are particularly hard hit, says Vestager. And he gives the example of “damage to the European civil aviation sector, which needs urgent action”.
“The EC is ready to work immediately with the Member States to find viable solutions that preserve this important part of our economy, using all the flexibility provided for in the state aid rules”, he says.
The vice-president says that “compensation may be granted to airlines, pursuant to Article 107 (2) (b) TFEU for the losses suffered by the Covid-19 outbreak, even if they have received emergency aid in the past ten years”. In other words, Vestager is proposing that the “one time last time” principle does not apply. But the Commission is also working on models that facilitate the work of developing measures to combat the impact of the Covid-19 outbreak.
It also provides for aid in the form of “bank loan guarantees”. Vestager argues that Member States can grant state guarantees or establish guarantee schemes to support bank loans taken out by companies. With reductions in the estimated market rate for annual premiums and new guarantees for SMEs and non-SMEs. There will be limits set for the maximum loan amount, which are based on the operational needs of the companies and their liquidity needs.
Only “companies that entered into difficulties after December 31, 2019 are eligible for aid under this Provisional Framework”, ensuring that “it will not be used to support situations of difficulties unrelated to the Covid-19 outbreak” and providing for “obligations transparency ”, defends Vestager.