Cyprus Airways Rescue Plan Approved

by Ulrika Lomas, for LawAndTax-News.com, Brussels

08 March 2007

The European Commission announced on Wednesday that it has found the restructuring plan proposed by the Republic of Cyprus in order to restore the viability of Cyprus Airways to be compatible with the common market.

Following an in-depth investigation, the Commission has decided that the plan is in line with the Community rules regarding the rescue and restructuring of firms in difficulty.

Previously, in May 2005 the Commission authorised a grant of rescue aid, which took the form of a government-backed loan for CYP 30 million (EUR 51 million).

In November 2005 the Cypriot authorities notified a restructuring plan for Cyprus Airways comprising the following elements:

• A loan in the sum of CYP 55 million (EUR 96 million) of which CYP 45 million (EUR 78 million) is backed by government guarantee;
• The sale of Cyprus Airway’s charter arm Eurocypria to the government for 13.425 million (EUR 23.6 million) - these two State-owned airlines will thereafter have to be run at arm's length as effective and independent competitors;
• Ongoing cost cutting necessary to restore the airline's viability;
• A capital increase of CYP 14 million (EUR 24 million) involving public and private shareholders.

On 22 March 2006, the Commission announced that it had decided to open an investigation, as it had doubts as to whether certain elements of the plan complied with Community rules for the authorisation of restructuring aid. It asked the Cypriot authorities a number of questions, and invited comments from interested third parties.

In a statement published yesterday, the EC confirmed that:

"Following its investigation the Commission has concluded that the restructuring plan is compatible with European law. The decision considers that the State aid elements contained in the plan are compatible with the internal market in the light of the community guidelines on restructuring aid, since the restructuring plan is such as it should lead to the long term viability of the Cyprus Airways and, given the capacity reductions and level of own contribution to the restructuring plan, it is not contrary to the common interest."

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