State aid: Commission approves restructuring aid for Slovenian airline Adria Airways

The European Commission has concluded that restructuring measures taken by Slovenia in favour of the national airline Adria Airways were in line with EU state aid rules. The Commission found in particular that the company’s restructuring plan will enable it to become viable in the long term without unduly distorting competition in the Single Market. Moreover, two capital injections in 2007 and 2009 and the sale of an Adria Airways subsidiary in 2010 were carried out on market terms and therefore did not involve any state aid.

Adria Airways is a majority state-owned company that has been facing difficulties for several years. In order to address these difficulties, Adria Airways adopted a restructuring plan in September 2011. The Commission opened an in-depth investigation in November 2012 (see IP/12/1246).

Adria Airways benefitted from three public capital injections in 2007, 2009 and 2010, amounting to around €15.2 million in total, carried out through the state-owned holding Posebna družba za podjetniško svetovanje d.d. (PDP) and its predecessor Kapitalska druzba d.d. (KAD), respectively. The in-depth investigation has shown that these capital injections were based on reliable valuations and that Adria Airways paid the market price for the capital. The measures therefore provided no undue advantage to Adria Airways and do not constitute state aid.

The investigation has also shown that the share price for the sale of Adria Airways’ subsidiary Adria Airways Tehnika (AAT) to PDP and the majority state-owned manager of Ljubljana’s airport in 2010-2011 was determined on the basis of a valuation report prepared by an independent expert. The Commission concluded that the decision to invest in AAT was taken on the basis of market-oriented considerations. The sale therefore did not involve state aid.

In relation to the €50 million cash injection carried out in 2011 by Slovenia and PDP, the Commission has concluded that it does constitute state aid. Although several banks converted €19.7 million of debt into equity at the same time, these conversions cannot be compared to the cash injection provided by the state. The banks improved their credit position vis-à-vis Adria Airways given that their remaining debt received improved terms and collateralisation whilst the state assumed new risks by increasing its shareholding. This measure therefore constitutes state aid within the meaning of EU rules as it provided the company with an advantage.

The Commission then assessed whether this aid is compatible with the Commission’s 2004 guidelines on state aid for the rescue and restructuring of companies in difficulty (see MEMO/04/172). This assessment has shown that:

- Adria Airways’ restructuring plan is based on realistic assumptions and should enable the company to return to long-term viability within a reasonable timeframe;

- the cancellation of scheduled routes, the surrender of slots and reduction of the fleet led to a capacity reduction that will limit the distortions of competition brought about by the aid; and

- Adria Airways will sell several assets, including AAT, in order to bear part of the restructuring costs.

The granting of the aid therefore complies with the conditions set out in the guidelines: the aid is accompanied by a restructuring plan that should enable the company to become viable again, appropriate measures are foreseen to compensate for the distortions of competition created by the aid, and the company contributes to the costs of restructuring at the required level. The debt-to-equity conversion carried out by the banks in 2011 is a sign that the markets believe that Adria Airways may become viable.