On 23 April 2018, the European Commission announced the opening of a formal investigation into a bridge loan of €900 million granted by the Italian State to Alitalia.
Alitalia is owned by the consortium Compagnia Aerea Italiana (CAI) (51%) and Etihad Airways (49%). It is widely known that Alitalia has been in financial difficulty for several years.
Following the Italian airline staff’s rejection of a cost-cutting plan in April 2017, the shareholders decided against providing additional financing to Alitalia. As a result, on 2 May 2017 Alitalia was placed under extraordinary administration under Italian bankruptcy law.
To cover Alitalia’s costs during the period of extraordinary administration, the Italian State granted a €600 million bridge loan to Alitalia. In October 2017, it added an additional €300 million to the initial loan. During the same period, the extraordinary administrators launched a tender procedure to find a buyer for Alitalia's assets. Lufthansa, easyJet and Wizz Air have recently submitted offers.
In January 2018, Italy notified to the European Commission the total €900 million State loan granted to Alitalia as rescue aid under the Commission's Rescue and Restructuring Aid Guidelines. The European Commission had already received several complaints that these loans constituted illegal and incompatible aid.
Rescue aid, which must be notified by the Member State prior to its grant, must fulfil the following conditions before it can be formally authorized by the European Commission:
- The beneficiary must be a firm in difficulty that has not received any rescue or restructuring aid in the past 10 years.
- The aid should normally consist of liquidity support and should be restricted to the minimum amount necessary to keep the firm in business during the rescue period.
- The aid must be granted in the form of loans or guarantees.
- The aid must be limited to a period of not more than six months, during which time the Member State must present to the Commission a restructuring or liquidation plan or provide evidence of the reimbursement of the rescue aid.
At this stage of the inquiry, the Commission has doubts that the loan complies with the above conditions. For instance, extending the loan’s duration from May 2017 to at least December 2018 exceeds the six months limit. Furthermore, the Commission has doubts as to whether the aid could exceed the minimum necessary limit. The rescue aid must only cover the cash flow needs of the undertaking in difficulty for the six months period. It is therefore restricted to the amount needed to keep it in business for that period, which must be demonstrated by a credible cash flow plan.
Owing to these doubts, the Commission decided to open the formal investigation procedure. The Italian State will have the opportunity to respond to the decision, which will also be published in the Official Journal of the EU to allow interested third parties, such as the beneficiary, competitors, potential rescuers, etc., to present their observations to the Commission. When the investigation concludes, the Commission will decide whether the loan qualifies as an aid and in that case, whether it constitues a compatible rescue aid or illegal and incompatible aid that must be recovered from Alitalia. The investigation may take two to three years.
Candidates interested in Alitalia’s assets will have to be aware that, in acquiring the undertaking’s assets, they may be held liable for repaying the illegal aid to the Italian State if there is an economic continuity between Alitalia and the entity that will acquire the assets and hire again the staff and pilots.
Rescue and restructuring aid have been common in the air transport industry following the sector’s liberalization and the necessity for legacy carriers to adapt to a new economic framework and new business models.
Air France, Sabena, Malev, airBaltic, Olympic Airways, Cyprus Airways and Air Malta, among others, have been through this process with mixed results.
Annabelle Lepièce, Partner, annabelle.lepiece@cms-db.com
