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Italian Government loan to Alitalia was illegal state aid, according to Eu Commission

Pursuant to a European Commission’s conclusion of September 2021, two Italian Government loans for a global amount of Euro 900 million, granted to Alitalia after its insolvency occurred in May 2017, are illegal under EU State aid rules, consequently Italy must recover such State aid, plus interest, from Alitalia, currently undergoing a special administration procedure.

The European Commissioner Margrethe Vestager, who is in charge of EU competition policy, said: “Following our in-depth investigation, we reached the conclusion that two public loans worth €900 million granted by Italy to Alitalia gave the company an unfair advantage over its competitors, in breach of EU State aid rules. They must now be recovered by Italy from Alitalia to help restore a level playing field in the European aviation industry.”

When it underwent serious financial troubles at the beginning of 2017, Alitalia was in urgent need of liquidity, but it had lost access to credit markets due to its deteriorated financial situation. For the purpose of keeping Alitalia operating, in May and October 2017, the Italian Government granted the airline two loans, one for the amount of Euro 600 million and the other of Euro 300 million, respectively. At the same time, Alitalia was placed into special administration proceedings under Italian bankruptcy law, which are still pending before the Court of Civitavecchia (Italy).

On 23 April 2018, the Commission started an investigation aimed at establishing whether the two loans were complying with EU State aid rules, following various complaints which it had received in 2017 from rival airlines, alleging that Italy had granted illegal and incompatible State aid to Alitalia. The Italian Government in fact notified only in January 2018 the State loans, qualifying them as rescue aid under the EU Commission’s “Guidelines on State aid for rescuing and restructuring non-financial undertakings in difficulty”, released in 2014.

EU State aid rules hold public interventions in favour of companies free of State aid, subject to the relevant State acting not as a public authority, but on commercial terms that a private operator would have accepted under market conditions (pursuant to the market economy operator principle): according to the EU Commission’s findings, in this specific case the Italian Government, when granting the two loans to Alitalia, did not act like a private investor would have done, because it did not make any proper advance assessment on any probability of repayment of the loans plus interest. In fact, the EU Commission’s assessment of Alitalia’s financial statements at the time found that Alitalia was not able to generate enough cash to repay the State loans by their maturity dates, nor could any sale of its assets raise enough money for the repayment of such debt.

Having the foregoing in mind, the EU Commission concluded that no private investor would have granted such loans to Alitalia at the time, and that such loans consequently constituted State aid within the meaning of EU State aid rules.

Furthermore, the EU Commission also concluded that such State aid could not be approved as rescue aid under the Guidelines on Rescue and Restructuring aid, as notified by the Italian Government, because neither were the loans reimbursed within six months, nor the Government submitted any restructuring plan for the return of Alitalia to normal viability, nor was finally the company liquidated, in line with the conditions set out in the Guidelines.

According to the EU Commission, the loans therefore gave Alitalia an unfair economic advantage vis-à-vis its competitors on national, European and world routes, which resulted into incompatible State aid. The Italian Government must consequently recover the illegal State aid amounting to €900 million plus interest from Alitalia.

Separately from the above decision, the EU Commission at the same time has found compliant with EU rules the proposed capital injections of public funds into the new air Italian carrier ITA, also holding that ITA is not the economic successor of Alitalia, hence ITA shall not be involved in the recovery of the State aid illegally granted to Alitalia.

Alitalia will finally cease its operation on 15 October 2021, with ITA starting to fly on that same date.

Prof. Avv. Salvatore Vitale

The content of this article does not constitute legal advice, but has an informative function. For personalized legal advice, contact the firm by e-mail or by phone +39 06 916505710. © Dong & Partners International Law Firm, All rights reserved

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