The Gerichtshof der Europäischen Union (EuGH, Court of Justice of the European Union) dismissed an airline’s appeal against the annulment of the approval of its state recapitalisation (EuGH, judgment of 23 April 2026 – C-457/23). Although the EuGH rejected almost all of the key findings made by the Gericht der Europäischen Union (General Court of the European Union), an error by the European Commission concerning the conditions for converting a silent participation into equity was sufficient to uphold the annulment of the approval decision.
State recapitalisation during the COVID-19 pandemic
The airline is the parent company of several airlines. On 12 June 2020, Germany notified the European Commission of individual aid in favour of the company. The recapitalisation amounted to a total of EUR 6 billion. It was intended to stabilise the financial position of the group companies in the exceptional circumstances caused by the COVID-19 pandemic and restore their liquidity.
The measure was financed and administered by the Wirtschaftsstabilisierungsfonds (Economic Stabilisation Fund). It was based on Art. 107(3)(b) AEUV (Treaty on the Functioning of the European Union) and on the European Commission’s Temporary Framework for State aid measures during the COVID-19 pandemic.
Three components of the recapitalisation
The recapitalisation measure consisted of three elements:
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Germany acquired an equity interest amounting to EUR 306,044,326.40.
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A non-convertible silent participation amounting to EUR 4,693,955,673.60 was treated as equity under international accounting standards.
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A further silent participation amounting to EUR 1 billion had the characteristics of a convertible bond.
Further support measures for group companies were also provided. These included, in particular, state-guaranteed loans and additional liquidity and financing measures from Germany, Austria, Belgium and Switzerland.
The Commission classified the recapitalisation as State aid within the meaning of Art. 107(1) AEUV. By decision of 25 June 2020, it concluded that the measure was compatible with the internal market under Art. 107(3)(b) AEUV and raised no objections.
Actions brought by other airlines before the General Court
Two airlines brought actions before the Gericht der Europäischen Union seeking annulment of the Commission decision. The General Court held that both actions were admissible. The airlines were interested parties with an interest in safeguarding their procedural rights under Art. 108(2) AEUV. They were also directly and individually concerned by the decision.
One airline challenged, among other things, the application of the Temporary Framework, the assessment under Art. 107(3)(b) AEUV, the failure to initiate the formal investigation procedure and the statement of reasons for the decision. The other airline likewise argued that the Commission should have initiated a formal investigation procedure. It also alleged a manifest error of assessment and a breach of the duty to state reasons.
Several errors in the State aid assessment
By judgment of 10 May 2023, the General Court annulled the Commission decision. In its assessment, the decision was flawed in several respects. The objections concerned, in particular:
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the airline’s eligibility under point 49(c) of the Temporary Framework,
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the absence of a mechanism for increasing the State’s remuneration or a comparable instrument,
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the share price upon conversion of the silent participation with convertible bond characteristics,
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the assessment of significant market power at the relevant airports,
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certain commitments intended to preserve effective competition.
In the General Court’s view, each of these errors was sufficient in itself to justify annulment of the Commission decision. It was therefore no longer necessary to examine the remaining pleas and complaints.
The airline’s appeal
The airline relied on six grounds of appeal against the General Court’s judgment. It sought to have that judgment set aside and the actions brought by the other airlines dismissed. The Commission and Germany essentially supported the appellant’s position.
The EuGH upheld the first, second, fourth, fifth and sixth grounds of appeal. By contrast, it rejected the third ground of appeal, which concerned the determination of the share price upon conversion of the silent participation into equity, as partly inadmissible and otherwise unfounded.
Eligibility of the aid beneficiary
Under point 49(c) of the Temporary Framework, a recapitalisation measure required the aid beneficiary to be unable to obtain financing on the markets at affordable terms. Furthermore, the horizontal measures available in the Member State concerned to cover liquidity needs had to be insufficient to ensure its viability.
The General Court had interpreted that provision as requiring the Commission, when assessing eligibility, to examine whether the aid beneficiary could cover a material part of its needs on the market or through horizontal measures.
Distinction between eligibility and the amount of aid
The EuGH did not follow that interpretation. Point 49(c) concerned the question of whether there was any unmet financing need at all. At that stage of the assessment, the Commission was not required to determine the precise amount of recapitalisation needed or establish whether an insignificant or significant part of the financing need could be met by other means.
The proportionality of the aid was a separate issue. Under point 54 of the Temporary Framework, the recapitalisation could not exceed the minimum amount needed to ensure the beneficiary’s viability. The question of whether part of the financing need could be met on the market formed part of the assessment of the amount of aid rather than the preceding eligibility assessment.
According to the EuGH, the General Court had therefore erred in law in finding that the Commission had failed to take all relevant circumstances into account in its assessment under point 49(c).
Remuneration of the State and incentives for its exit
The Temporary Framework required mechanisms intended to incentivise the aid beneficiary to repurchase the State’s equity interest. In the case of equity instruments, the State’s remuneration was to increase after four and six years under certain conditions. A step-up mechanism was likewise provided for hybrid capital instruments following their conversion into equity.
Under points 62 and 68 of the Temporary Framework, the Commission was also permitted to accept other mechanisms. In terms of exit incentives, these had to produce a similar result and have a comparable overall impact on the State’s remuneration.
Overall impact of the recapitalisation terms
The Commission had based its assessment on several interrelated circumstances. These included the substantial discount on the acquisition of the shares, increasing interest rates for the silent participations, the growing likelihood of conversion and certain behavioural commitments, such as the prohibition on dividend distributions until the aid had been repaid in full.
The General Court had rejected each of these aspects individually. The EuGH found that, in doing so, the General Court had failed to take account of the combined effect of the various elements. A feature could contribute to an exit incentive even if it also served another requirement of the Temporary Framework.
In the EuGH’s view, the General Court had not demonstrated that the Commission’s assessment was implausible or based on a manifest error of assessment. The General Court’s judgment was therefore also vitiated by an error of law on this point.
Conversion of the silent participation into equity
The provision governing the share price upon conversion of silent participation II was decisive for the outcome of the appeal. Under point 67 of the Temporary Framework, hybrid capital instruments had to be converted at a price at least 5% below the theoretical ex-rights price at the time of conversion.
Silent participation II was divided into two parts. One part could be converted at a fixed price of EUR 2.56 per share. For the other part, the market price at the time of conversion less 10% or 5.25% was stipulated, depending on the relevant triggering event.
Alternative calculation method did not ensure compliance with the requirements
Although the Temporary Framework permitted alternative remuneration methods, they had to have an overall effect similar to that of the expressly prescribed method. The General Court had found that the calculation accepted by the Commission could produce results different from a calculation based on the theoretical ex-rights price.
In the event of a discrepancy, Germany had merely undertaken to obtain the Commission’s approval before conversion. According to the EuGH judgment, this was insufficient. Neither had the criteria by which the Commission was to assess a subsequent conversion been specified, nor was there any guarantee that the requirements of the Temporary Framework would be met.
The Commission was not entitled to postpone the assessment of this aspect, which was material to the compatibility of the aid, until after the adoption of its approval decision. The error in determining the conversion price therefore remained and was independently sufficient to support the annulment of the Commission decision.
Assessment of significant market power
Under point 72 of the Temporary Framework, additional measures to preserve effective competition had to be provided for where the beneficiary of a recapitalisation exceeding EUR 250 million had significant market power on at least one relevant market.
The Commission had based its assessment primarily on three criteria:
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the share of slots allocated to the group,
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the level of congestion at the airports concerned,
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the share of slots held by competitors.
The General Court took the view that the number of flights and seats offered should also have been taken into account. It further criticised the Commission for finding that there was no significant market power at Düsseldorf and Vienna airports, at least during the 2019 IATA summer season.
General Court was not entitled to substitute its assessment for that of the Commission
The EuGH clarified that a slot designates the right to operate a flight. The General Court had misinterpreted the term insofar as it had assumed that multiple flights could take place within a single slot.
Although the number of flights and seats offered could be useful in assessing market position, it did not follow that the distribution of slots used by the Commission was manifestly inappropriate.
With regard to Düsseldorf and Vienna airports, the General Court had relied on the same data as the Commission but assessed them differently. It had therefore not confined itself to reviewing whether there had been a manifest error of assessment, but had substituted its own assessment for that of the Commission. According to the EuGH judgment, this exceeded the limits of judicial review.
Transfer of slots to competitors
Germany had committed to ensuring that the group would transfer certain daily slots and other assets at Frankfurt and Munich airports. New entrants were to be given priority initially. Airlines already operating at those airports would have been permitted to participate only if the slots had not been taken up after three seasons.
The General Court had found that the Commission should have examined in greater detail whether giving priority to new entrants and temporarily excluding existing competitors was appropriate and necessary. Competitors already present might be better placed to exert effective competitive pressure.
By contrast, the EuGH held that the Commission was not required to identify the measure that would promote competition to the greatest conceivable extent. The only relevant question was whether the proposed commitments were sufficient to preserve effective competition. The fact that other measures might have promoted competition more strongly did not render the Commission decision unlawful.
Statement of reasons concerning transfer for consideration
The General Court had also found a breach of the duty to state reasons. It held that the Commission had failed to explain why the slots were to be transferred for consideration rather than free of charge. The requirement to pay consideration could reduce the attractiveness of the slots and therefore the effectiveness of the commitments.
This assessment likewise did not withstand review by the EuGH. In a decision adopted within a short period under Art. 108(3) AEUV, the Commission had to set out the reasons why it did not encounter serious difficulties in assessing the compatibility of the aid. However, it was not also required to explain why an alternative that had not been selected would have been less appropriate.
As the Commission was required only to assess whether the proposed measures were sufficient to preserve effective competition, it did not have to explain why it had not required the slots to be transferred free of charge.
Appeal unsuccessful despite five successful grounds
Five of the airline’s six grounds of appeal were successful. Nevertheless, this did not result in the General Court’s judgment being set aside. Its decision was based on several errors in the Commission decision, each of which independently justified annulment.
The remaining error in determining the share price for converting the silent participation into equity was therefore sufficient to uphold the annulment. The EuGH dismissed the appeal in its entirety.
In addition to bearing its own costs, the airline must pay the costs incurred by the two other airlines. Germany and the Commission must each bear their own costs.
Further examination of the recapitalisation measure
Following the General Court’s judgment, the European Commission initiated a more in-depth examination of the recapitalisation measure. Germany and the interested parties were given an opportunity to submit observations. The conclusion of that examination is separate from the EuGH’s decision on the appeal.
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