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Inception date: 13 Dec 2012 | Removal date: 13 Apr 2015

Loan guarantee

On 13 December 2012, Cyprus notified a planned provision of EUR 73 million to rescue the airline Cyprus Airways. Between September and December 2012, the state already disbursed EUR 31.3. million to Cyprus Airways as 'in advance' payments'
Cyprus Airways is a Cypriot airline established in 1947. The airline is mainly owned by the state, with a share of 69.62 per cent. (para. 11, letter from the EC to Cyprus, Brussels 6.3.2013) The share increased due to the capital increases and shareholding of the state finally amounts to 93.3 per cent. (para. 39)
The airline already received state aid several times between 2005-2007:
- EUR 51 million state loan
- EUR 96 million state loan & EUR 78 million state guarantees
- EUR 24 million capital increase
In 2011, Cyprus Airways received unlawful compensation aid from the state related to the Turkish overflight ban amounting for EUR 20 million.
The rescue aid from December 2012 is provided in the form of a government loan with a preferential interest rate of 1.76 per cent and must be repaid by 30 June 2013.
The EC confirms the state aid character of the measure by stating that: 'In view of the significant difficulties of Cyprus Airways, the absence of viability prospects at the date of granting as well as given the alternative of a shareholder loan including appropriate securities, it seems reasonable to consider that a private investor would not have provided capital to that company under those conditions'. (para. 62)
Furthermore: 'Since Cyprus Airways competes in the liberalised EU market for air transport with other EU airlines, therefore the measures identified above have the potential to distort competition and affect trade between Member States. Several competitors have already expressed their concern in this respect. The Commission notes that a small market share of the company is irrelevant for the assessment of the distortion of competition.' (para. 68)

Update: A new restructuring plan has been released on 23 October 2013
The plan foresees additional state intervention but according to the Cypriot authorities, also implies compensatory measures to limit potential trade distortions:Sale of 2 airplanes and non-renewal of leasing contracts for 5 airplanes. Discontinuation of two profitable routesSale of two slots at LHR airport to potential competitors. (para. 50, letter from the EC to Cyprus, Brussels 4.2.2014)
The EC finds that the discontinuations are not compensatory because: 'The Cypriot authorities have provided very limited and inconclusive information as regards the profitability of these routes. (para. 100). The distortions are therefore considered ongoing despite the compensatory measures taken.
Update 2: EC decision on 9 January 2015
In a letter to Cyprus, published on 8 July 2015, the European Commission announced the state aid to Cyprus Airways to be incompatible with the internal market. The Airlines was required to return all state aid received within four months after the date of notification regarding the decision.
A state measure in the GTA database is assessed solely in terms of the extent to which its implementation affects the extent of discrimination against foreign commercial interests. On this metric, the state aid proposed here is discriminatory.



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