Estonian Air: Conflicting business plans main reason for declaring state aid unlawful

Estonian Air couldn't decide which way to go (Martin Dremljuga/ERR)
3/19/2016 11:02 AM
Source: BNS
Category: Business

The European Commission deemed state aid granted to Estonia’s bankrupt flagship carrier Estonian Air unlawful mostly because of three contradictory business plans, the Baltic News Service reported.

The main reason why the European Commission didn’t deem state aid to Estonian Air acceptable was that the strategies of three different business plans didn’t match.

There was the 2011 expansion strategy based on the hub-and-spoke model, which is built on short-haul flights carrying passengers to a hub airport, where they would then catch long-haul flights. This was followed by a strategy to reduce capacity, implemented in 2012-2014, and again by a new moderate expansion strategy in 2015 supposed to make entry of a private investor possible.

Even if the Commission had accepted the airline's last business strategy and restructuring plan, questions concerning the compatibility of planned restructuring aid with internal market rules would have remained.

A capital injection of €2.4m and the selling of Estonian Air's ground-handling business to Tallinn Airport in 2009 were not deemed state aid, and consequently EU law was not violated by the Estonian state in this case.

But a €17.9m capital injection in 2010, a capital increase of €30m in 2011-2012, rescue aid in the amount of €27m in 2012-2014, and finally planned restructuring aid amounting to €40.7m were all deemed state aid incompatible with the common European market, and the instruction issued that the funds needed to be recovered.

Estonian Air could contest the European Commission's decision until the end of March, but the government decided in January not to appeal. However, the EC’s decision can still be contested by the Estonian Air bankruptcy committee.

Editor: Dario Cavegn

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