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EU Commission opens in-depth investigation into aid for Cyprus Airways

04 February, 2014

The European Commission announced that it has opened an in-depth investigation to verify whether Cyprus` plans to support the restructuring of Cyprus Airways with €102 million are in line with EU state aid rules, noting that the Cypriot authorities have not provided yet an adequate justification to that end.

The Commission will investigate in particular whether the restructuring plan is suitable to make Cyprus Airways viable without continued state support and to offset the competition distortions created by the state aid.

“The opening of an in-depth investigation gives interested third parties an opportunity to comment on the measures under assessment; it does not prejudge the outcome of the investigation,” the Commission says.

In December 2013, Cyprus notified the Commission of a € 102.9 million aid package to restructure the national flag carrier Cyprus Airways, which has experienced financial difficulties for several years. The restructuring plan runs from 2012 to 2017. The plan includes a € 31.3 million capital injection granted in 2012, a conversion of debts of the company into equity amounting to € 63 million and € 8.6 million to cover the deficit of the company`s Provident Fund, a benefit scheme for the Cyprus-based employees (excluding pilots), financed through contributions from the employees and Cyprus Airways.

The Commission has doubts whether the restructuring plan is suitable to ensure Cyprus Airways` long-term viability and whether the airline is capable of withstanding likely challenges in the air transport market during the next years. It is also uncertain whether the proposed capacity reduction through the cancellation of routes is sufficient to compensate for the distortions of competition created by the state support. The Commission also has concerns that the airline`s contribution to the cost of restructuring may be insufficient.

Moreover, according to EU rules restructuring aid may be granted only once over a period of ten years to avoid that inefficient companies are kept artificially alive with repeated subsidies. The Commission already approved restructuring aid for Cyprus Airways in 2007. Since then, the airline has benefited from additional public interventions, including the 2012 capital injection and a € 34.5 million rescue aid loan in 2013. In March 2013, the Commission opened an in-depth investigation into these measures and an envisaged state compensation to the airline`s redundant staff.

“An exception to the "one time, last time" principle can be granted in exceptional and unforeseen circumstances. However, at this stage, the Cypriot authorities have not provided an adequate justification to that end”, notes the Commission.