The future of Olympic Airlines is in doubt followinf a European Commission declaration on September 14 that a number of measures taken by the Greek State which gave an unfair advantage to Olympic Airways and Olympic Airlines, the new company which has taken over its flight operations, were illegal. This decision closes the Commission investigation, started on March 16, 2004, into the State aid granted since December 2002, when the airline was ordered to repay EUR 160 million in illegal aid.
Between 1994 and 2000 the Commission took a number of decisions authorising public aid for the restructuring of Olympic Airways. In December 2002, however, the Commission found that further aid had been granted to the airline which was incompatible with the common market, and demanded that †160 million be repaid.
That aid has still not been repaid. Following a detailed analysis of the finances of both Olympic Airways and Olympic Airlines, the Commission today found that Greece has continued to grant further aid to these companies, which is incompatible with the common market and therefore illegal, including:
*EUR 40 million from the Greek State and Olympic Airways to cover part of the costs to Olympic Airlines of leasing aircraft;
*an unjustified payment of some †90 million from the Greek State to Olympic Airways when Olympic Airlines was set up and transferred to the State, achieved by overvaluing the assets transferred to the State;
*the Greek State’s toleration of Olympic Airways’ failure to pay more than EUR 350 million in tax and social security liabilities due between December 2002 and December 2004;
*the assumption by the Greek State of a number of Olympic Airways’ financial obligations, e.g. in connection with aircraft leasing contracts and the repayment of a bank loan, amounting to up to EUR 60 million.
The exact amount to be recovered by the Greek state will be defined during the execution of the decision on September 14.
By granting this aid, Greece has given Olympic Airways and Olympic Airlines an advantage not available to their competitors. The Commission therefore asked Greece to recover the illegal aid payments. Greece has two months in which to inform the Commission of the measures it intends to take to comply with the decision.
Background
On 11 December 2002 the Commission took a final decision ruling that aid granted to Olympic Airways was illegal, and asked Greece to recover EUR 160 million. At the end of 2003 Greece adopted a specific law setting up a new company, Olympic Airlines, which took over the flight operations and most of the assets of Olympic Airways, leaving behind almost all of its debts.
The creation of this new company, contrary to standard economic and accounting practice, would have had the effect of circumventing the obligation to recover the aid, as the Court found in its judgment of 12 May 2005.
When it opened its investigation in March 2004, the Commission expressed doubts about the compatibility with the Treaty of the continuing non-payment by Olympic Airways of tax and social security liabilities and about the way in which Olympic Airlines was established in late 2003.
In effect, what appears to have happened in December 2003 is that all flight operations that were previously carried out within the Olympic Airways Group by Olympic Airways, Olympic Aviation and Olympic Macedonian were concentrated in a new entity renamed Olympic Airlines. Olympic Airlines also took over the slots, traffic rights and public service obligations of Olympic Airways. All other activities — principally groundhandling, maintenance and engineering — remained within Olympic Airways (which has been renamed Olympic Air Services). The latter retained ownership of a number of majority shareholdings in other aviation-related companies in Greece such as catering, information technology and fuel services.
The Commission has therefore found that Olympic Airlines is a successor company to Olympic Airways and that since its creation it has received substantial State aid. Olympic Airlines leases aircraft either from Olympic Airways or directly from the Greek State and pays significantly less than the head-lease payments, the resultant losses being borne by the State or by Olympic Airways at the State’s behest.
The Commission has also found that by overvaluing the assets transferred to Olympic Airlines and by using this valuation as the basis of a ‘cash pre-payment’ to Olympic Airways, Greece has granted illegal and incompatible aid.
The Commission has found that the Greek State has also granted State aid to Olympic Airways. The most important part of this aid has been its continued forbearance in relation to the company’s tax and social security liabilities.
These new aid payments constitute a violation of the “one time, last time” principle, as the company had already benefited from restructuring aid in the past.
