State aid: Commission orders Hungary to recover incompatible state aid from national air carrier
09-Jan-2012 The European Commission found that financing granted to Hungarian flag carrier Malév between 2007 and 2010 in the context of its privatisation and renationalisation constitutes illegal state aid, as Malév would not have been able to obtain similar financing from the market on the terms conceded by the Hungarian authorities. Hungary now needs to recover the unlawful aid from the beneficiary.
Under EU State aid rules, interventions by public authorities in companies carrying out economic activities can be considered free of aid if they are made on terms that a private player operating under market conditions would have accepted (the so called "market economy investor principle"). The Commission's investigation concluded that Malév, given its consistently difficult financial situation, would have been unable to secure such financing on the market on the terms conceded by Hungary nor possibly any financing at all.
A company in difficulty may receive state aid under the strict conditions set in the 2004 EU Rescue and Restructuring Guidelines (see IP/04/856, MEMO/04/172). However, the measures in favour of Malév did not meet these criteria, because Malév could not demonstrate how it would become viable again under its current business model. Malév's business plan contained no evidence that a private source would be contributing to the cost of restructuring and the plan contained no compensatory measures to minimise the competition distortions brought about by the significant state support. Moreover, Malév had already repeatedly received state support over the last few years.
In order to remedy the distortion of competition brought about by the economic advantages that Malév received from the state, Hungary needs to recover the aid from Malév. This will re-establish the situation that existed on the market prior to the granting of the aid, thereby cancelling out or at least alleviating the distortion of competition brought about by the aid. This is necessary to ensure a level-playing field in the internal market. The Commission's recovery policy is set out in its 2007 Recovery Notice.
Background
After several unsuccessful attempts at privatisation, in 2007 Hungary concluded a sales agreement with AirBridge Zrt. concerning the majority ownership of its national flag carrier Malév. Following press reports and information by a complainant about Hungary's intention to re-nationalise Malév, the Commission opened an in-depth investigation in December 2010 (see IP/10/1753) scrutinising the following measures:
- The takeover in December 2007 of a €76 million loan granted to Malév in 2003;
- A de facto cash facility in the context of the abortive sale of Malév's Ground Handling subsidiary amounting to HUF 4.3 billion;
- A tax and social debt deferral in the amount of HUF 13.8 billion;
- Two capital increases of HUF 25.4 billion in February 2010 and HUF 5.7 billion in September 2010;
- Shareholder loans granted between May to September 2010 totalling HUF 14.9 billion;
- The conversion of part of these shareholder loans (along with the interest owed thereon) into shares of Malév in September 2010;
The non-confidential version of the decision will be made available under the case number C38/2010 in the State Aid Register on the DG Competition website once any confidentiality issues have been resolved. New publications of state aid decisions on the internet and in the Official Journal are listed in the State Aid Weekly e-News