Airlines Lose Challenge to Clawback of Italian State Aid

LUXEMBOURG (CN) — Three budget airlines on Wednesday lost their challenge to a European Union ruling that they received illegal aid from Italy.

British airline EasyJet, Lufthansa-owned Germanwings and Spanish airline Volotea contested a 2016 European Commission decision that regional airports on the Italian island of Sardinia had illegally subsidized the expansion of routes by low-cost airlines.

The airlines argued that it was the regional airports of Cagliari and Olbia that were the beneficiaries of the scheme, not the airlines themselves. 

But the EU’s second-highest court ruled Wednesday that Italy would need to claw back the money.

“The airport operators acted only as intermediary between the contract awarder and the providers of those services,” a five-judge panel of the European General Court found.

In 2010, the Italian government implemented a scheme to ensure year-round flights to the Mediterranean island by funding plans from the regional airports to entice airlines to plan routes to those destinations.

Following a three-year investigation, the European Commission found that the scheme violated EU regulations covering the development of regional airports and told Italy to launch an investigation into how much money should be paid back. Another Sardinian airport, Alghero, was also investigated but investments that airport made were covered in another state aid case in 2014. 

Publicly owned airports and other organizations such as tourism boards are allowed under EU law to offer airlines attractive conditions to boost traffic, but those offers cannot go beyond what privately owned organizations would offer. Subsidies are limited to the development of new routes and must be designed to eventually make these routes profitable without public investment. 

“It is not apparent from the aid scheme at issue or from the documents produced by the applicant that the air routes ... were profitable without the funding in question,” the Luxembourg-based General Court found.

The judges also concluded that no tender procedure had been followed by the Sardinian government, another complaint from the commission. 

The EU has cracked down on sweetheart deals made by airports to attract more flights. Last year, the commission ordered Ryanair to return 8.5 million euros ($9.2 million) of illegal state aid in 2018 after an investigation revealed that the tourism board of the French city of Montpellier had paid the Irish budget airline to promote the city.  

At least three other French cities have been found to have similar arrangements with various airlines, as well as airports in Germany, Belgium, Sweden, and Austria. 

Wednesday’s decision from the General Court is the second ruling in as many months over state aid to the Italian island. In March, only two days after the country imposed a nationwide lockdown to combat the spread of Covid-19, the EU’s highest court, the European Court of Justice, fined Italy for failing to collect back state aid for subsidizing hotel construction on Sardinia. 

EasyJet, Germanwings and Volotea airlines have about two months to appeal the decisions to the Court of Justice.

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