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Commission approves Dutch plans to provide €3.4 billion in urgent liquidity support to #KLM

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Executive Vice President Margrethe Vestager, in charge of competition policy, said: “KLM plays a key role for the Dutch economy in terms of employment and air connectivity. The crisis has hit the aviation sector particularly hard. This €3.4bn state guarantee and state loan will provide KLM with the liquidity that it urgently needs to withstand the impact of the coronavirus outbreak. The Netherlands imposed certain conditions on the aid measure with respect to profit allocation, working conditions and sustainability. Very good. Member states are free to design measures in line with their policy objectives and EU rules.”

The Dutch support measure to KLM

KLM is a major network airline operating in the Netherlands. It is part of the Air France-KLM group, in which the Dutch state holds a participation. KLM is the Netherlands' second-largest private employer with over 36,600 employees. KLM is also a very important company for the Dutch economy, as it ensures the connectivity of the Netherlands with many destinations in Europe, with the Dutch regions overseas and the rest of the world. Since the start of the coronavirus outbreak, KLM has also played an essential role in the repatriation of citizens and for the transport of medical equipment.

As a result of the imposition of travel restrictions introduced by the Netherlands and by many destination countries to limit the spread of the coronavirus, KLM has suffered a significant reduction of its services, which resulted in high operating losses.Since the gradual easing of restrictive measures, as of the beginning of June 2020, air passenger traffic is slowly recovering. KLM does not have sufficient liquidity in order to finance the ramp up of its activities. Therefore, the support from the Dutch state is essential to obtain vital liquidity to face this difficult period. The Netherlands has also demonstrated that all other potential means to obtain liquidity on the markets have already been explored and exhausted.

The Netherlands notified to the Commission, under EU state aid rules, an aid measure to KLM to enable the company to mitigate the negative consequences of the coronavirus outbreak. The measure, which has a total budget of €3.4bn, will take the form of: (i) a state guarantee on loans provided by a consortium of banks, and (ii) a subordinated loan to the company by the Dutch state.

The Commission found that the state guarantee is in line with the conditions set out in the Temporary Framework: (i) the guarantee premium is in line with the conditions under the Temporary Framework, increasing over time to encourage early reimbursement, (ii) the guarantee will be granted before 31 December this year, (iii) the loan backed by the guarantee cannot exceed €2.4bn and is below the limits of the Temporary Framework, (iv) the maximum duration of the guarantee is six years and will not cover more than 90% of the loan backed by such a guarantee, and (v) KLM was not in difficulty on or before 31 December 2019. Safeguards are in place to ensure that the advantage is entirely passed to the beneficiary.

With respect to the subordinated state loan, the Commission found that this measure is also in line with the Temporary Framework: (i) the remuneration is in line with the conditions under the Temporary Framework, increasing over time to encourage early reimbursement, (ii) the loan will be granted before 31 December this year, (iii) the amount of the loan is below the limits of the Temporary Framework, (iv) the maximum duration of the loan is 5.5 years, and (v) KLM was not in difficulty on or before 31 December 2019.

The Commission concluded that the Dutch measure will contribute to managing the economic impact of the coronavirus in the Netherlands. It is necessary, appropriate and proportionate to remedy a serious disturbance in the economy of a member state, in line with Article 107(3)(b) TFEU and the conditions set out Temporary Framework.

On this basis, the Commission approved the measure under EU state aid rules.

Background

The Commission has adopted a Temporary Framework to enable member states to use the full flexibility foreseen under state aid rules to support the economy in the context of the coronavirus outbreak. This state aid Temporary Framework adopted by the Commission on 19 March 2020, as amended on 3 April8 May and 29 June 2020, provides for the following types of aid, which can be granted by member states:

(i) Direct grants, equity injections, selective tax advantages and advance payments of up to €100,000 to a company active in the primary agricultural sector, €120,000 to a company active in the fishery and aquaculture sector and €800,000 to a company active in all other sectors to address its urgent liquidity needs. Member states can also give, up to the nominal value of €800,000 per company zero-interest loans or guarantees on loans covering 100% of the risk, except in the primary agriculture sector and in the fishery and aquaculture sector, where the limits of €100,000 and €120,000 per company respectively, apply.

(ii) State guarantees for loans taken by companies to ensure banks keep providing loans to the customers who need them. These state guarantees can cover up to 90% of risk on loans to help businesses cover immediate working capital and investment needs.

(iii) Subsidised public loans to companies (senior and subordinated debt) with favourable interest rates to companies. These loans can help businesses cover immediate working capital and investment needs.

(iv) Safeguards for banks that channel state aid to the real economy that such aid is considered as direct aid to the banks' customers, not to the banks themselves, and gives guidance on how to ensure minimal distortion of competition between banks.

(v) Public short-term export credit insurance for all countries, without the need for the member state in question to demonstrate that the respective country is temporarily “non-marketable”.

(vi)  Support for coronavirus related research and development (R&D) to address the current health crisis in the form of direct grants, repayable advances or tax advantages. A bonus may be granted for cross-border cooperation projects between member states.

(vii)  Support for the construction and upscaling of testing facilities to develop and test products (including vaccines, ventilators and protective clothing) useful to tackle the coronavirus outbreak, up to first industrial deployment. This can take the form of direct grants, tax advantages, repayable advances and no-loss guarantees. Companies may benefit from a bonus when their investment is supported by more than one member state and when the investment is concluded within two months after the granting of the aid.

(viii)  Support for the production of products relevant to tackle the coronavirus outbreak in the form of direct grants, tax advantages, repayable advances and no-loss guarantees. Companies may benefit from a bonus when their investment is supported by more than one member state and when the investment is concluded within two months after the granting of the aid.

(ix) Targeted support in the form of deferral of tax payments and/or suspensions of social security contributions for those sectors, regions or for types of companies that are hit the hardest by the outbreak.

(x) Targeted support in the form of wage subsidies for employees for those companies in sectors or regions that have suffered most from the coronavirus outbreak, and would otherwise have had to lay off personnel.

(xi) Targeted recapitalization aid to non-financial companies, if no other appropriate solution is available. Safeguards are in place to avoid undue distortions of competition in the Single Market: conditions on the necessity, appropriateness and size of intervention; conditions on the state's entry in the capital of companies and remuneration; conditions regarding the exit of the state from the capital of the companies concerned; conditions regarding governance including dividend ban and remuneration caps for senior management; prohibition of cross-subsidization and acquisition ban and additional measures to limit competition distortions; transparency and reporting requirements.

The Temporary Framework enables member states to combine all support measures with each other, except for loans and guarantees for the same loan and exceeding the thresholds foreseen by the Temporary Framework. It also enables Member States to combine all support measures granted under the Temporary Framework with existing possibilities to grant de minimis to a company of up to €25,000 over three fiscal years for companies active in the primary agricultural sector, €30,000 over three fiscal years for companies active in the fishery and aquaculture sector and €200,000 over three fiscal years for companies active in all other sectors. At the same time, member states have to commit to avoid undue cumulation of support measures for the same companies to limit support to meet their actual needs.

Furthermore, the Temporary Framework complements the many other possibilities already available to member states to mitigate the socio-economic impact of the coronavirus outbreak, in line with EU State aid rules. On 13 March 2020, the Commission adopted a Communication on a Coordinated economic response to the COVID-19 outbreak setting out these possibilities. For example, member states can make generally applicable changes in favour of businesses (e.g. deferring taxes, or subsidising short-time work across all sectors), which fall outside state aid rules. They can also grant compensation to companies for damage suffered due to and directly caused by the coronavirus outbreak.

The Temporary Framework will be in place until the end of December 2020. As solvency issues may materialize only at a later stage as this crisis evolves, for recapitalization measures only the Commission has extended this period until the end of June 2021. With a view to ensuring legal certainty, the Commission will assess before those dates if it needs to be extended.

The non-confidential version of the decision will be made available under the case number SA.57116 in the state aid register on the Commission's competition website once any confidentiality issues have been resolved. New publications of State aid decisions on the internet and in the Official Journal are listed in the State Aid Weekly e-News. More information on the Temporary Framework and other action the Commission has taken to address the economic impact of the coronavirus pandemic can be found here.

Aviation Strategy for Europe

Boeing subsidy case: World Trade Organization confirms EU right to retaliate against $4 billion of US imports

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The World Trade Organization (WTO) has allowed the EU to raise tariffs up to $4 billion worth of imports from the US as a countermeasure for illegal subsides to the American aircraft maker, Boeing. The decision builds upon the WTO's earlier findings recognizing the US subsidies to Boeing as illegal under the WTO law.

An Economy that Works for People Executive Vice President and Trade Commissioner Valdis Dombrovskis (pictured) said: “This long-awaited decision allows the European Union to impose tariffs on American products entering Europe. I would much prefer not to do so - additional duties are not in the economic interest of either side, particularly as we strive to recover from the COVID-19 recession. I have been engaging with my American counterpart, Ambassador Lighthizer, and it is my hope that the US will now drop the tariffs imposed on EU exports last year. This would generate positive momentum both economically and politically, and help us to find common ground in other key areas. The EU will continue to vigorously pursue this outcome. If it does not happen, we will be forced to exercise our rights and impose similar tariffs. While we are fully prepared for this possibility, we will do so reluctantly.”

In October last year, following a similar WTO decision in a parallel case on Airbus subsidies, the US imposed retaliatory duties that affect EU exports worth $7.5bn. These duties are still in place today, despite the decisive steps taken by France and Spain in July this year to follow suit Germany and the UK in ensuring that they fully comply with an earlier WTO decision on subsidies to Airbus.

Under the current economic circumstances, it is in the mutual interest of the EU and the US to discontinue damaging tariffs that unnecessarily burden our industrial and agricultural sectors.

The EU has made specific proposals to reach a negotiated outcome to the long running transatlantic civil aircraft disputes, the longest in the history of the WTO. It remains open to work with the US to agree a fair and balanced settlement, as well as on future disciplines for subsidies in the civil aircraft sector.

While engaging with the US, the European Commission is also taking appropriate steps and involving EU member states so that it can use its retaliation rights in case there is no prospect of bringing the dispute to a mutually beneficial solution. This contingency planning includes finalizing the list of products that would become subject to EU additional tariffs.

Background

In March 2019, the Appellate Body, the highest WTO instance, confirmed that the U.S. had not taken appropriate action to comply with WTO rules on subsidies, despite the previous rulings. Instead, it continued its illegal support of its aircraft manufacturer Boeing to the detriment of Airbus, the European aerospace industry and its many workers. In its ruling, the Appellate Body:

  • Confirmed the Washington State tax programme continues to be a central part of the S. unlawful subsidization of Boeing;
  • found that a number of ongoing instruments, including certain NASA and U.S. Department of Defence procurement contracts constitute subsidies that may cause economic harm to Airbus, and;
  • confirmed that Boeing continues to benefit from an illegal U.S. tax concession that supports exports (the Foreign Sales Corporation and Extraterritorial Income Exclusion).

The decision confirming the EU right to retaliate stems directly from that previous decision.

In a parallel case on Airbus, the WTO allowed the United States in October 2019 to take countermeasures against European exports worth up to $7.5bn. This award was based on an Appellate Body decision of 2018 that had found that the EU and its Member States had not fully complied with the previous WTO rulings with regard to Repayable Launch Investment for the A350 and A380 programmes. The US imposed these additional tariffs on 18 October 2019. The EU member states concerned have taken in the meantime all necessary steps to ensure full compliance.

More information

WTO Appellate Body ruling on US subsidies to Boeing

Public consultation on preliminary list of products in the Boeing case

Preliminary list of products

History of Boeing case

History of Airbus case

 

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Aviation Strategy for Europe

Single European Sky: For a more sustainable and resilient air traffic management

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The European Commission is proposing an upgrade of the Single European Sky regulatory framework which comes on the heels of the European Green Deal. The objective is to modernize the management of European airspace and to establish more sustainable and efficient flightpaths. This can reduce up to 10% of air transport emissions.

The proposal comes as the sharp drop in air traffic caused by the coronavirus pandemic calls for greater resilience of our air traffic management, by making it  easier to adapt traffic capacities to demand.

Transport Commissioner Adina Vălean declared: “Planes are sometimes zig-zagging between different blocks of airspace, increasing delays and fuel consumed. An efficient air traffic management system means more direct routes and less energy used, leading to less emissions and lower costs for our airlines. Today's proposal to revise the Single European Sky will not only help cut aviation emissions by up to 10% from a better management of flight paths, but also stimulate digital innovation by opening up the market for data services in the sector. With the new proposed rules we help our aviation sector advancing on the dual green  and digital transitions.”

Not adapting air traffic control capacities would result in additional costs, delays and CO2 emissions. In 2019, delays alone cost the EU €6 billion, and led to 11.6 million tonnes (Mt) of excess CO2. Meanwhile, obliging pilots to fly in congested airspace rather than taking a direct flight path entails unnecessary CO2 emissions, and the same is the case when airlines are taking longer routes to avoid charging zones with higher rates.

The European Green Deal, but also new technological developments such as wider use of drones, have put digitalization and decarbonization of transport at the very heart of EU aviation policy. However, curbing emissions remains a major challenge for aviation. The Single European Sky therefore paves the way for a European airspace that is used optimally and embraces modern technologies. It ensures collaborative network management that allows airspace users to fly environmentally-optimal routes. And it will allow digital services which do not necessarily require the presence of local infrastructure.

To secure safe and cost-effective air traffic management services, the Commission proposes actions such as:

  • Strengthening the European network and its management to avoid congestion and suboptimal flight routes;
  • promoting a European market for data services needed for a better air traffic management;
  • streamlining the economic regulation of air traffic services provided on behalf of member states to stimulate greater sustainability and resilience, and;
  • boosting better co-ordination for the definition, development and deployment of innovative solutions.

Next Steps

The current proposal will be submitted to the Council and the Parliament for deliberations, which  the Commission hopes will be concluded without delay.

Subsequently, after final adoption of the proposal, implementing and delegated acts will need to be prepared with experts to address more detailed and technical matters.

Background

The Single European Sky initiative was launched in 2004 to reduce fragmentation of the airspace over Europe, and to improve the performance of air traffic management in terms of safety, capacity, cost-efficiency and the environment.

A proposal for a revision of the Single European Sky (SES 2+) was put forward by the Commission in 2013, but negotiations have been stalled in Council since 2015. In 2019, a Wise Person's Group, composed of 15 experts in the field, was set up to assess the current situation and future needs for air traffic management in the EU, which resulted in several recommendations. The Commission then amended its 2013 text, introducing new measures, and drafted a separate proposal to amend the EASA Basic Regulation. The new proposals are accompanied by a Staff Working Document, presented here.

More information

Questions and Answers: Single European Sky: for an efficient and sustainable air traffic management

 

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Aviation/airlines

#Aviation - Statement by Commissioner Vălean on the Commission's intention to extend the slot waiver 

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Transport Commissioner Adina Vălean has issued a statement following the adoption of the Commission report on the potential extension of the Slot Regulation amendment

Commissioner Vălean said: “The report shows that air traffic levels remain low, and more importantly, they are not likely to recover in the near future. In this context, the lack of certainty over slots makes it difficult for airlines to plan their schedules, making planning difficult for airports and passengers. To address the need for certainty and responding to traffic data, I intend to extend the slot waiver for the 2020/2021 winter season, until 27 March 2021.”

The full statement is available online.

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