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Major investigation launched into Estonian Air funding

Feb 05, 2014
From wire reports, TALLINN

Major investigation launched into Estonian Air funding
EU officials will assess whether Estonia Air should receive 40m euros of state funding (photo: flickr)

A major investigation has been launched to verify Estonia's plans to grant over 40 million euros of state aid for the restructuring of the struggling national flag carrier Estonian Air. 

European Commission officials will ascertain whether the move is in line with EU state aid rules.They will assess whether the airline's restructuring plan is suitable to restore the company's long term viability and to offset the distortions of competition created by the state support. 

Estonian economy ministry adviser Rasmus Ruuda told Public Broadcasting said he hoped the European Commission would come to a decision soon. He said: "Initiating the investigation was expected by Estonia, since with similar state aid applications, it is a customary step and Estonia applied for it last summer. This is another stage in the proceedings of state aid to Estonian Air and a step further towards the European Commission making its final decision," said Ruuda.

In June 2013, Estonia notified the Commission that it would need a 40 million euro funding to help restructure the company, which had experienced financial difficulties for several years. The restructuring plan covers a five year restructuring period from 2013 to 2017.

The Commission said that it has doubts whether the restructuring plan is capable of ensuring that Estonian Air will become viable without continued state support and whether the airline will be able to meet the challenges that the air transport sector will likely face over the next years.

It is also uncertain whether the proposed capacity reduction through the cancelation of routes is sufficient to compensate for the distortions of competition created by the state support, the Commission said. The Commission also has concerns that the contribution of Estonian Air to the costs of its restructuring may be insufficient.

The Commission noted also that moreover, according to EU rules rescue and/or 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 ('one time, last time' principle). Since 2009, Estonian Air seems to have benefited from several other public interventions, including three capital injections totaling over 57 million euros.

In December 2012, Estonia notified its intention to grant a 8.3 million euros rescue loan to Estonian Air. The Commission opened an in-depth investigation with respect to these measures in February 2013; its scope was extended in April.

On Tuesday, the Commission has also opened an in-depth investigation into restructuring aid for Cyprus Airways. Moreover, the Commission has recently opened other investigations into public support measures granted to national flag carriers, namely airBaltic, Adria Airways, Cyprus Airways, SAS and LOT.

The Commission said that rescue and restructuring aid is highly distortive of competition as it artificially keeps a company in the market that would otherwise have exited it. It can therefore only be granted under strict conditions, ensuring that the aided company will become viable without continued state support and that the distortion of competition created by the aid is effectively off-set.

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