The European Commission approves restructuring aid for LOT Polish Airlines

On 29 July, the Commission approved restructuring aid of PLN 804 million (circa €200 million), which Poland plans to grant to its national flag carrier LOT. As the Commission established, LOT's restructuring plan will allow it to become viable in the long-term without unduly distorting competition in the internal market. In this respect, apart from presenting a credible restructuring plan, LOT gives up some profitable routes and slots at several congested airports. This reduces the competition distortions.

LOT is a state-owned undertaking that employs approximately 1 660 people and operates a fleet of 47 planes. It has reported losses in every financial year since 2008 (except from 2013) and faced increasing liquidity problems as the sources of funding used so far (e.g. the sale of subsidiaries) have been exhausted. In November 2012, the Commission ruled out aid resulting from the sale of three of LOT's subsidiaries to state-owned entities (see IP/12/1243). The restructuring attempts undertaken in 2009-2012 failed while the financial difficulties culminated in December 2012 when LOT was forced to ask for rescue aid in order to avoid bankruptcy. In May 2013, the Commission accepted temporarily a €100 million rescue loan, upon the commitment of Poland to notify a restructuring plan capable of ensuring the long-term viability of the firm (see IP/13/431).

The restructuring plan was notified in June 2013. It provided for a €200 million capital increase intended to help LOT finance the restructuring. The formal investigation procedure, which was opened in November 2013 (see IP/13/1045), aimed at verifying the compatibility of the plan with the requirements of the 2004 guidelines on state aid for the rescue and restructuring of companies in difficulty (see MEMO/04/172).

R&R Guidelines require, in particular, that beneficiaries present a sound restructuring plan that enables them to become viable in the long-term on the basis of realistic assumptions. This is to avoid that a company that cannot become viable again keeps asking for public support. The plan must provide for measures to reduce the distortions of competition induced by the state support, such as the reduction of capacity or market share. Furthermore, the beneficiary needs to make a significant own contribution to the costs of restructuring. Finally, rescue and/or restructuring aid may be granted only once over a 10-year period (“one time, last time” principle).

In the Commission’s view, the submitted restructuring plan, which aims to restore LOT's viability by 2015, is based on realistic assumptions. Thus, it should enable the company to return to long-term viability within a reasonable timeframe. LOT's actual financial results in 2013 were already better than expected and the company reported a net profit for the first time since 2007. In addition, the proposed capacity reduction includes a withdrawal from some profitable routes and return of several airport slots. This will limit the distortions of competition resulting from aid. Finally, LOT's own contribution to the costs of restructuring, provided in the form of a finance lease obtained on market terms, covers more than 50% of these costs, which even exceeds the level required in the guidelines.

Importantly, in the course of assessment, the Commission examined information received from third parties who claimed that LOT had already received aid in the form of deferred airport charges by Polish state-owned airports. It also examined other transactions that allegedly involved aid, including the sale of real estate and of subsidiaries, the provision of several loans from public and private companies and the purchase of fuel. These assessments were crucial in light of the "one time, last time" principle according to which a firm can receive restructuring aid only once over a period of 10 years. As the Commission concluded, none of these measures involved aid within the meaning of EU State aid rules. This was because they either involved no state resources or were carried out on market terms and thus did not confer any undue economic advantage to LOT (they complied with the Market Economy Investor Principle)

The non-confidential version of the decision will be made available under the case number SA.36874 in the State Aid Register on the DG Competition website once any confidentiality issues have been resolved.