European Commission probes state aid for Romania's troubled Blue Air

European Commission probes state aid for Romania's troubled Blue Air
Romanian lowcoster Blue Air suspended flights in September 2022. / Blue Air
By bne IntelliNews April 18, 2023

The European Commission (EC) has opened a detailed investigation to assess whether certain support measures taken by Romania in favour of Blue Air Aviation, specifically the guarantees for a €34mn rescue loan extended in August 2020 and its renewal, comply with EU state aid rules.

Blue Air suspended flights at the beginning of September 2022, when its accounts were blocked by the environment ministry, and failed to resume operations since then. The state filed for the insolvency of the company in March 2023. 

Previously, the Romanian state accepted a 75% stake in Blue Air in exchange for repaying the €62mn bank loans previously guaranteed under the state-aid schemes. But instead of assets, the state ended up with more liabilities (around €200mn). 

It is uncertain whether the recovery plan notified by Romania to the EC included such dramatic developments, but most likely not.

A statement from the Commission said it: "has concerns that the restructuring plan and the aid measures implemented to support this plan are not line with EU State aid rules, in particular with the Guidelines on rescue and restructuring aid." 

The detailed investigation will now assess whether the troubled company is likely to become viable after the restructuring plan notified to the Commission is carried out.

The investigation also evaluates the support the target company receives from the free market (banks, other investors) as part of the restructuring plan and whether the support measures provided by the state distort the competition in the market. Both elements are far from the classic state aid model.

In August 2020, the EC cleared two public support measures for Blue Air, namely guarantees for a €28mn loan to compensate for the effects generated by the COVID-19 crisis and a €34mn rescue loan.

After six months, the state should have either reported the termination of the guarantees or drafted a liquidation/comprehensive restructuring plan.

In April 2021, Romania communicated a plan to restructure Blue Air for the period August 2020-September 2025 to the Commission for the first time. The plan, updated several times, included an extension of the rescue loan guarantee to six years, thus allowing for the repayment of the aid until 2026, provides for restructuring measures and envisages private financing.