Executive Vice President Margrethe Vestager, in charge of competition policy, said: “KLM plays a key role for the Dutch economy in terms of employment and air connectivity. The crisis has hit the aviation sector particularly hard. This €3.4bn state guarantee and state loan will provide KLM with the liquidity that it urgently needs to withstand the impact of the coronavirus outbreak. The Netherlands imposed certain conditions on the aid measure with respect to profit allocation, working conditions and sustainability. Very good. Member states are free to design measures in line with their policy objectives and EU rules.”
The Dutch support measure to KLM
KLM is a major network airline operating in the Netherlands. It is part of the Air France-KLM group, in which the Dutch state holds a participation. KLM is the Netherlands’ second-largest private employer with over 36,600 employees. KLM is also a very important company for the Dutch economy, as it ensures the connectivity of the Netherlands with many destinations in Europe, with the Dutch regions overseas and the rest of the world. Since the start of the coronavirus outbreak, KLM has also played an essential role in the repatriation of citizens and for the transport of medical equipment.
As a result of the imposition of travel restrictions introduced by the Netherlands and by many destination countries to limit the spread of the coronavirus, KLM has suffered a significant reduction of its services, which resulted in high operating losses.Since the gradual easing of restrictive measures, as of the beginning of June 2020, air passenger traffic is slowly recovering. KLM does not have sufficient liquidity in order to finance the ramp up of its activities. Therefore, the support from the Dutch state is essential to obtain vital liquidity to face this difficult period. The Netherlands has also demonstrated that all other potential means to obtain liquidity on the markets have already been explored and exhausted.
The Netherlands notified to the Commission, under EU state aid rules, an aid measure to KLM to enable the company to mitigate the negative consequences of the coronavirus outbreak. The measure, which has a total budget of €3.4bn, will take the form of: (i) a state guarantee on loans provided by a consortium of banks, and (ii) a subordinated loan to the company by the Dutch state.
The Commission found that the state guarantee is in line with the conditions set out in the Temporary Framework: (i) the guarantee premium is in line with the conditions under the Temporary Framework, increasing over time to encourage early reimbursement, (ii) the guarantee will be granted before 31 December this year, (iii) the loan backed by the guarantee cannot exceed €2.4bn and is below the limits of the Temporary Framework, (iv) the maximum duration of the guarantee is six years and will not cover more than 90% of the loan backed by such a guarantee, and (v) KLM was not in difficulty on or before 31 December 2019. Safeguards are in place to ensure that the advantage is entirely passed to the beneficiary.
With respect to the subordinated state loan, the Commission found that this measure is also in line with the Temporary Framework: (i) the remuneration is in line with the conditions under the Temporary Framework, increasing over time to encourage early reimbursement, (ii) the loan will be granted before 31 December this year, (iii) the amount of the loan is below the limits of the Temporary Framework, (iv) the maximum duration of the loan is 5.5 years, and (v) KLM was not in difficulty on or before 31 December 2019.
The Commission concluded that the Dutch measure will contribute to managing the economic impact of the coronavirus in the Netherlands. It is necessary, appropriate and proportionate to remedy a serious disturbance in the economy of a member state, in line with Article 107(3)(b) TFEU and the conditions set out Temporary Framework.
On this basis, the Commission approved the measure under EU state aid rules.
The Commission has adopted a Temporary Framework to enable member states to use the full flexibility foreseen under state aid rules to support the economy in the context of the coronavirus outbreak. This state aid Temporary Framework adopted by the Commission on 19 March 2020, as amended on 3 April, 8 May and 29 June 2020, provides for the following types of aid, which can be granted by member states:
(i) Direct grants, equity injections, selective tax advantages and advance payments of up to €100,000 to a company active in the primary agricultural sector, €120,000 to a company active in the fishery and aquaculture sector and €800,000 to a company active in all other sectors to address its urgent liquidity needs. Member states can also give, up to the nominal value of €800,000 per company zero-interest loans or guarantees on loans covering 100% of the risk, except in the primary agriculture sector and in the fishery and aquaculture sector, where the limits of €100,000 and €120,000 per company respectively, apply.
(ii) State guarantees for loans taken by companies to ensure banks keep providing loans to the customers who need them. These state guarantees can cover up to 90% of risk on loans to help businesses cover immediate working capital and investment needs.
(iii) Subsidised public loans to companies (senior and subordinated debt) with favourable interest rates to companies. These loans can help businesses cover immediate working capital and investment needs.
(iv) Safeguards for banks that channel state aid to the real economy that such aid is considered as direct aid to the banks’ customers, not to the banks themselves, and gives guidance on how to ensure minimal distortion of competition between banks.
(v) Public short-term export credit insurance for all countries, without the need for the member state in question to demonstrate that the respective country is temporarily “non-marketable”.
(vi) Support for coronavirus related research and development (R&D) to address the current health crisis in the form of direct grants, repayable advances or tax advantages. A bonus may be granted for cross-border cooperation projects between member states.
(vii) Support for the construction and upscaling of testing facilities to develop and test products (including vaccines, ventilators and protective clothing) useful to tackle the coronavirus outbreak, up to first industrial deployment. This can take the form of direct grants, tax advantages, repayable advances and no-loss guarantees. Companies may benefit from a bonus when their investment is supported by more than one member state and when the investment is concluded within two months after the granting of the aid.
(viii) Support for the production of products relevant to tackle the coronavirus outbreak in the form of direct grants, tax advantages, repayable advances and no-loss guarantees. Companies may benefit from a bonus when their investment is supported by more than one member state and when the investment is concluded within two months after the granting of the aid.
(ix) Targeted support in the form of deferral of tax payments and/or suspensions of social security contributions for those sectors, regions or for types of companies that are hit the hardest by the outbreak.
(x) Targeted support in the form of wage subsidies for employees for those companies in sectors or regions that have suffered most from the coronavirus outbreak, and would otherwise have had to lay off personnel.
(xi) Targeted recapitalization aid to non-financial companies, if no other appropriate solution is available. Safeguards are in place to avoid undue distortions of competition in the Single Market: conditions on the necessity, appropriateness and size of intervention; conditions on the state’s entry in the capital of companies and remuneration; conditions regarding the exit of the state from the capital of the companies concerned; conditions regarding governance including dividend ban and remuneration caps for senior management; prohibition of cross-subsidization and acquisition ban and additional measures to limit competition distortions; transparency and reporting requirements.
The Temporary Framework enables member states to combine all support measures with each other, except for loans and guarantees for the same loan and exceeding the thresholds foreseen by the Temporary Framework. It also enables Member States to combine all support measures granted under the Temporary Framework with existing possibilities to grant de minimis to a company of up to €25,000 over three fiscal years for companies active in the primary agricultural sector, €30,000 over three fiscal years for companies active in the fishery and aquaculture sector and €200,000 over three fiscal years for companies active in all other sectors. At the same time, member states have to commit to avoid undue cumulation of support measures for the same companies to limit support to meet their actual needs.
Furthermore, the Temporary Framework complements the many other possibilities already available to member states to mitigate the socio-economic impact of the coronavirus outbreak, in line with EU State aid rules. On 13 March 2020, the Commission adopted a Communication on a Coordinated economic response to the COVID-19 outbreak setting out these possibilities. For example, member states can make generally applicable changes in favour of businesses (e.g. deferring taxes, or subsidising short-time work across all sectors), which fall outside state aid rules. They can also grant compensation to companies for damage suffered due to and directly caused by the coronavirus outbreak.
The Temporary Framework will be in place until the end of December 2020. As solvency issues may materialize only at a later stage as this crisis evolves, for recapitalization measures only the Commission has extended this period until the end of June 2021. With a view to ensuring legal certainty, the Commission will assess before those dates if it needs to be extended.
The non-confidential version of the decision will be made available under the case number SA.57116 in the state aid register on the Commission’s 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. More information on the Temporary Framework and other action the Commission has taken to address the economic impact of the coronavirus pandemic can be found here.