The European Commission considers, at this stage, that the capital increases approved by the regional Government of the Azores in Sata constitute illegal State aid, which justified the opening of an investigation process to the support given to the Azorean airline company since 2017. This assessment, still preliminary, appears in the letter sent to the Portuguese authorities by Vice-President Margrethe Vestager, who has the responsibility of the competition and which accompanies the authorization given to Brussels for additional emergency support, in the amount of 113 million euros to Sata.
In this letter addressed to the Minister of Foreign Affairs, Augusto Santos Silva, the European Commission invokes three capital increases approved between 2017 and 2020 and which were not notified to Brussels under the State aid scheme. If the investigation confirms this preliminary conclusion, the support given by the Azorean government constitutes illegal aid or rescue, given the difficult situation in which the airline was in 2017, with negative equity, and due to structural problems that are not attributable to Covid – 19.
In this scenario, and in addition to the return of aid, the European rule that allows the granting of State aid to airline companies – like the 113 million euros now approved – just in case the companies have not received any support the past ten years. The Commission recognizes the peripheral nature of the Azores, the public service obligations provided by Sata and the need to ensure connectivity in the region, as well as the current shortage of competing offers on flights to the region and between islands. It therefore allows to proceed with emergency support, while investigating the aid given in the past.
Brussels authorizes 133 million for SATA, but will investigate past aid given by the Azores
At issue are three increases approved by the sole shareholder of Sata, the Azorean government, between 2017 and 2020, in the total amount of 128, 6 millions of euros. Of this amount, 6 million euros have been made so far 72 (the rest would be delivered by 2023). These operations were justified by the need for the company to comply with article 35 of the Companies Code according to which accumulated losses cannot “eat” more than half of the company's share capital (a situation that is classified as technical bankruptcy and that has existed for example at TAP for several years).
Portugal argues that they are not State aid – having not been notified as such to the European Commission – because the regional government acted as a private investor under normal market conditions in a structural intervention that aims at the long-term return of the invested capital . In addition, a possible situation of non-compliance with Sata's commitments would have had a greater financial impact and the funds are supported by the regional budget.
The specific circumstance of a regional company providing a service is also highlighted. fundamental public for the transport of the local population and Azorean communities abroad in an outermost region that could not be filled by private competitors. In other words, Sata fulfills public service obligations, in addition to providing services of general interest.
Brussels notes that there are other companies flying to the Azores, such as Ryanair, Jetairfly and Arkefly, which did not have access to the same support, so the capital increases, such as the recently approved loan “distort or threaten distort competition. ” And it questions the private investor's argument. Sata has had losses at least since 2014 and the value of its assets would be insufficient to cover all claims from creditors in the event of insolvency, so the Commission concludes that a private investor would have little to lose in this scenario. In these circumstances, the carrier's shareholder could not expect a return on capital invested in 2017 and unless that expectation was “sustained on unrealistic or unreasonable assumptions. ”
Unless Portugal provides additional data or responses to support the claim that the capital increase decided by the Azores could have been carried out by a private investor, Brussels argues at this stage that the operations appear to have given its recipient an advantage over its competitors. And the conclusion that there was unlawful State aid in the past makes its compatibility with the support now granted doubtful, adds the document accompanying the published decision on the Azorean airline.