Impact of COVID-19 pandemic on aircraft industry
In light of the COVID-19 pandemic, almost all nations worldwide have enacted extensive entry restrictions. Consequently, many flights have been cancelled and tickets already paid for have had to be refunded. Further, as airlines' revenues collapsed severely, airlines faced severe financial challenges.
The Swiss airlines SWISS and Edelweiss and SR Technics, a company mainly active in maintenance and repair services for commercial aircrafts, were likewise affected and struggled with liquidity shortages. Therefore, they applied to the government for financial support.
State aid in Switzerland: almost non-existent in law and practice
Financial support from the government to companies (eg, a discounted loan) constitutes state aid. The law and regulation on state aid is an important pillar of EU competition law. Article 107 of the Treaty on the Functioning of the European Union (TFEU) stipulates that state aid which distorts or threatens to distort competition is incompatible with the European internal market insofar as it affects trade between EU member states and is therefore in principle prohibited.
Swiss competition law contains no corresponding provision. An exception is the Air Transportation Agreement (ATA) between the European Union and Switzerland which contains, within the scope of the aircraft industry, a provision regarding the prohibition of state aid that is mainly aligned with the EU standard. However, until now, this provision has scarcely played a role in practice.
Pursuant to the ATA, any intended state aid must be submitted to the Competition Commission (ComCo) for an assessment concerning its compatibility with the ATA. As the government intended to support SWISS, Edelweiss and SR Technics with state aid, particularly by means of federal guarantees to secure loans, it submitted the intended state aid to ComCo for a (non-binding) assessment.
However, since the provisions are rarely applied, practical questions were raised, including with regard to the form in which ComCo must be involved and how much time ComCo needs for the review. ComCo provided quickly and without delay the Federal Office of Civil Aviation, which is responsible for the notification, with information on those questions.
Assessment of state aid for SWISS, Edelweiss and SR Technics
In its assessment, ComCo considered an EU notification issued due to the COVID-19 pandemic (ie, the Temporary Framework for State Aid to Support the Economy in Light of the Current COVID-19 Outbreak). This notification contains provisions for the granting of state aid.
With regard to SWISS and Edelweiss, ComCo considered the intended state aid to be compatible with the EU notification and the ATA. It emphasised the relevance of air transport for the functioning of domestic value chains and concluded that the intended state aid appeared to be appropriate and necessary in their contribution to mitigating a serious disturbance of the Swiss economy.
However, ComCo drew a different conclusion regarding SR Technics. As the abovementioned EU notification stipulates that no guarantees may be granted to companies that were already in difficulty on 31 December 2019 and given that this requirement was not substantiated in the case of SR Technics, ComCo considered that the intended state aid was not compatible with the ATA.
Unlike EU competition law, Switzerland has no actual state aid regime. However, in the area of air transport, there is an exception due to the agreement with the European Union. The ATA between the European Union and Switzerland contains a provision that corresponds to the European Union's prohibition on state aid as provided for in Article 107 of the TFEU. Until now, this provision had little significance in practice. Due to the ongoing downturn in air transport in light of the COVID-19 pandemic and the financial difficulties resulting therefrom, this is now changing and a practice regarding its application and interpretation from a Swiss perspective is being established for the first time.
