EUROPEAN Union competition regulators are investigating whether €104 million in state aid granted to national carrier Cyprus Airways (CY) complies with EU state aid rules, it was announced yesterday.
“The European Commission has opened an in-depth investigation into a number of public support measures in favour of Cyprus Airways,” a statement from the commission said. “At this stage, the commission has doubts whether these measures are in line with EU state aid rules.”
The European Commission said it doubted that the airline's capital increase, with a €31.3 million contribution from the Cypriot state, was conducted on market terms.
"In view of the company's financial difficulties and viability prospects the majority of private shareholders decided not to participate in the capital increase," the EU executive said.
The commission was also looking into a €73 million rescue loan for the ailing airline.
“It appears that loan payments have already been made in 2013. 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,” it said.
Moreover, Cyprus Airways had already received rescue and restructuring aid in 2007, the statement added.
According to EU state aid rules, companies in difficulty can receive rescue and restructuring aid only once over a period of ten years.
“The commission also doubts whether there is a credible restructuring plan for Cyprus Airways.”
The EU watchdog also questioned the state’s intention to grant compensation to redundant personnel over and above what they were entitled.
“The commission notes that the ex gratia compensation to redundant employees may constitute an advantage to the company,” it said.
The opening of an in-depth investigation gives interested third parties an opportunity to comment on the measures under assessment.
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.”
On Monday, the airline said it more than doubled its losses in 2012 to €55.8 million, hit by falling passenger figures and freight earnings.
The company said it is implementing a turnaround plan, which includes outsourcing, redundancies and pay cuts.
The airline employs about 1,000 people and the restructuring plan, based on proposals by Air France-KLM, has called for cutting staff by 407.
CY has asked for €73 million to implement the restructuring plan.
Parliament begrudgingly made €16.3 million available to CY in December as part of a share capital increase. The state has a stake of almost 70 per cent in the airline.