Hungary Ordered To Recover State Aid To Airline

by Ulrika Lomas, Tax-News.com, Brussels

11 January 2012

The European Commission has ruled that financing granted to Hungarian flag carrier Malev in the context of its privatization and re-nationalization constituted illegal state aid, and has requested that the aid be recovered.

Under EU State aid rules, interventions by public authorities in companies carrying out economic activities can be considered free of aid if they are made on terms that a private player operating under market conditions would have accepted, known as the 'market economy investor principle'.

The Commission's investigation concluded that Malev, given its consistently difficult financial situation, would have been unable to secure such financing on the market on the terms conceded by Hungary nor possibly any financing at all.

A company in difficulty may receive state aid under the strict conditions set in the 2004 EU Rescue and Restructuring Guidelines. However, the measures in favour of Malev did not meet these criteria, because Malev could not demonstrate how it would become viable again under its current business model. The Commission found that Malev's business plan contained no evidence that a private source would be contributing to the cost of restructuring and the plan contained no compensatory measures to minimize the competition distortions brought about by the significant state support. Moreover, Malev had already repeatedly received state support over the last few years.

Following press reports and information by a complainant about Hungary's intention to re-nationalise Malév, the Commission opened an in-depth investigation in December 2010. Alleged state aid measures scrutinized by the Commission included a HUF13.8bn (USD56.6m) tax and social debt deferral.

In order to remedy the distortion of competition brought about by the economic advantages that Malev received from the state, the Commission has ruled that Hungary must recover the aid in question from Malev. This, the Commission said, will re-establish the situation that existed on the market prior to the granting of the aid, thereby cancelling out or at least alleviating the distortion of competition brought about by the aid.

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