European Commission opens inquiry into Cyprus Airways €31.3 million rescue package

The European Commission has opened an in-depth investigation into a number of public support measures in favour of Cyprus Airways. The Commission states that it has doubts whether these measures are in line with EU state aid rules. The opening of an in-depth investigation gives interested third parties an opportunity to comment on the measures under assessment but it does not prejudge the outcome of the investigation. However, the Commission emphasises that no further state aid measures in favour of Cyprus Airways should be implemented without the Commission's prior approval.
The Commission started a preliminary investigation in February 2012 when it learned from press reports that a capital increase was planned for Cyprus Airways. “The capital increase took place in early 2013 and it appears that the Cypriot State contributed €31.3 million, whereas private participation was minimal. Public support measures constitute state aid in the meaning of EU rules if they were not made on terms that a private player operating under market conditions would have accepted. At this stage, the Commission has doubts that the capital increase was made on market terms. Indeed, in view of the company's financial difficulties and viability prospects the majority of private shareholders decided not to participate in the capital increase.”
In addition, the Cypriot authorities notified to the Commission a rescue aid loan of €73 million for Cyprus Airways in December 2012. “It appears that loan payments have already been made in 2013,” states the Commission. “This would violate the so-called "standstill obligation" in EU state aid rules, according to which state aid must not be granted before the Commission has approved it. Moreover, Cyprus Airways had already received rescue and restructuring aid in 2007. According to EU state aid rules, companies in difficulty can receive rescue and restructuring aid only once over a period of ten years (according to the so-called "one time last time" principle). The Commission also doubts whether there is a credible restructuring plan for Cyprus Airways.”
The Commission is also investigating the Cypriot State’s plans to grant ex gratia compensation to redundant personnel of Cyprus Airways, in addition to what they are entitled under the Cypriot law. “The Commission notes that the ex gratia compensation to redundant employees may constitute an advantage to the company.”