European Commission approves French plans to provide €7 billion in urgent liquidity support to Air France

New Delhi: The European Commission has approved, under EU State aid rules, a €7 billion French aid measure consisting of a State guarantee on loans and a shareholder loan to Air France to provide urgent liquidity to the company in the context of the coronavirus outbreak. The measures were approved under the State aid Temporary Framework adopted by the Commission on 19 March 2020, as amended on 3 April 2020, and directly based on Article 107(3)(b) of the Treaty on the Functioning of the European Union (TFEU), respectively.

Executive Vice-President Margrethe Vestager, in charge of competition policy, said: “The aviation industry is important in terms of jobs and connectivity. In the context of the coronavirus outbreak, Air France has also been playing an essential role in the repatriation of citizens and for the transport of medical equipment. This €7 billion French guarantee and shareholder loan will provide Air France with the liquidity that it urgently needs to withstand the impact of the coronavirus outbreak. We have cooperated closely with France, as with many other Member States, to ensure that public support to tackle the current crisis can be put in place as quickly and effectively as possible, in line with EU rules. France has also announced plans for certain green policy choices as regards Air France. Good. Member States are free to design measures in line with their policy objectives and EU rules.”

The French support measure to Air France

Air France is a major network airline operating in France. It is part of the Air France-KLM group, in which the French state holds a participation. With a fleet of over 300 planes, Air France is a very important company for the French economy, in terms of employmentand connectivity for many French regions including those overseas (Départements et Régions d’outre-mer “DOM-TOM”). Since the start of the coronavirus outbreak, Air France has also played an essential role in the repatriation of citizens and for the transport of medical equipment.

As a result of the imposition of travel restrictions introduced by France and by many destination countries to limit the spread of the coronavirus, Air France has suffered a significant reduction of its services, which resulted in high operating losses.

France notified to the Commission, under EU State aid rules, an aid measure to Air France in the context of the coronavirus outbreak to enable the company to mitigate the negative consequences of the coronavirus. The measure, which has a total budget of €7 billion, will take the form of: (i) a State guarantee on loans, and (ii) a subordinated shareholder loan to the company by the French State.

Air France requires the state-backed guarantee and the shareholder loan to obtain vital liquidity to face this difficult period, before an expected recovery in sales once the restrictions are lifted progressively. France has also demonstrated that all other potential means to obtain liquidity on the markets have already been explored and exhausted.

With respect to the State-backed guarantees, France submitted an individual notification because the guarantee provides greater loan coverage (90%) than under the French general guarantee scheme approved by the Commission on 21 March 2020 (70% loan coverage). The Commission’s assessment concluded that the State guarantee in favour of Air France is in line with the conditions under the Temporary Framework: (i) the guarantee premium is in line conditions under the Temporary Framework, increasing over time to encourage early reimbursement, (ii) the guarantee will be granted before 31 December this year, (iii) the loan backed by the guarantee cannot exceed € 4 billion and below the limits of the Temporary Framework, (iv) the maximum duration of the guarantee is 6 years and will not cover more than 90% of loan backed by such a guarantee, and (v) Air France was not in difficulty on or before 31 December 2019.

As regards the subordinated shareholder loan, the Commission assessed the measure under EU State aid rules, and in particular Article 107(3)(b) TFEU, which enables the Commission to approve State aid measures implemented by Member States to remedy a serious disturbance to their economy. The Commission is currently in the process of expanding the Temporary Framework to set horizontal conditions for the assessment of subordinated loans. Against this background, the Commission found that the French measure is in line with the principles set out the in the EU Treaty as it is well targeted to remedy a serious disturbance to the French economy. The Commission found that, in the absence of the public support, Air France would likely face the risk of bankruptcy due to the sudden erosion of its business. This would likely cause severe harm to the French economy.

The Commission concluded that the measure will contribute to managing the economic impact of the coronavirus in France. It is necessary, appropriate and proportionate to remedy a serious disturbance in the economy of a Member State, in line with Article 107(3)(b) TFEU and the Temporary Framework.

On this basis, the Commission approved the measure under EU State aid rules.