EU Commission Launches Probe into Lufthansa’s €6 Billion State Aid

Lasse Fuss, CC BY-SA 3.0 , via Wikimedia Commons

The European Commission has initiated a comprehensive investigation into the €6 billion German state aid recapitalization measure for Deutsche Lufthansa AG.

This probe aims to determine whether the state aid aligns with EU regulations. The decision by the EU Commission to launch this investigation follows a complex legal journey.

It highlights the delicate balance between supporting critical industries and maintaining fair competition in the European market.

Aid Package Background

The Lufthansa support grant was initially approved in June 2020 under the COVID Timeout Framework. Basically, the aid package was designed to bolster Lufthansa’s financial position during the unprecedented challenges posed by the coronavirus pandemic.

However, the General Court annulled this decision in May 2023, casting doubt on the measure’s compatibility with EU state aid rules.

The aid package consists of three main components:

  • A €306 million equity injection
  • A €4.7 billion Silent Participation I, resembling a non-convertible equity instrument
  • A €1 billion Silent Participation II, structured as a convertible debt instrument

In exchange for this substantial support, Lufthansa agreed to several conditions. These included restrictions on dividend payments, limitations on management compensation, and the divestment of up to 24 slots per day at Frankfurt and Munich airports.

These commitments were intended to offset potential market distortions resulting from the state intervention.

The Lufthansa Group sign in front of the airline Group's headquarters.

EU Commission’s Investigation Focus

The Commission’s new investigation will focus on several key areas:

  • Lufthansa’s eligibility for the aid
  • The necessity of mechanisms to encourage state exit from the company’s capital
  • Share pricing considerations for potential conversion of Silent Participation II
  • Lufthansa’s market power at airports beyond Frankfurt and Munich, particularly Dusseldorf and Vienna
  • The appropriateness of structural commitments imposed on the airline

This thorough examination allows both Germany and interested third parties to provide input. It thus ensures a comprehensive review of the aid package’s implications.

The Commission emphasizes that the investigation’s initiation does not predetermine its outcome.

A Lufthansa A380 is prepared for departure from Munich.
Photo Credit: Lufthansa

Summary: A Complex Balancing Act

The Lufthansa case underscores the complexities of balancing economic support for crucial industries with the preservation of fair competition within the EU.

As the aviation sector continues to navigate the aftermath of the pandemic, the outcome of this investigation could set important precedents for future state aid decisions in the region.

The Commission’s approach reflects its commitment to maintaining a level playing field in the European market while acknowledging the extraordinary circumstances brought about by the COVID-19 crisis.

As the investigation unfolds, stakeholders across the aviation industry and beyond will be watching closely, recognizing the potential far-reaching implications of the final decision.

This case highlights the ongoing challenges faced by governments and regulatory bodies in supporting key industries during times of crisis while adhering to established competition rules.

The final verdict on Lufthansa’s aid package could influence future policy approaches to industry support and market regulation in the EU.

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By Len Varley - Assistant Editor 4 Min Read
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