COMMISSION DECISION (EU) 2022/763

of 21 December 2021

on the State aid SA.60165- 2021/C (ex 2021/N) which Portugal is planning to implement for TAP SGPS

(notified under document C(2021) 9941)

(Only the English text is authentic)

(Text with EEA relevance)

THE EUROPEAN COMMISSION,

Having regard to the Treaty on the Functioning of the European Union, and in particular the first subparagraph of Article 108(2) thereof,

Having regard to the Agreement on the European Economic Area, and in particular Article 62(1)(a) thereof,

Having regard to the decision by which the Commission decided to initiate the procedure laid down in Article 108(2) of the Treaty on the Functioning of the European Union, in respect of the aid SA.60165 (2021/C) (1),

Having called on interested parties to submit their comments pursuant to the provision cited above (2) and having regard to their comments,

Whereas:

1. PROCEDURE

(1) On 10 June 2021, Portugal notified its plans to grant State aid in the amount of EUR 3,2 billion, as restructuring aid, under the Guidelines on State aid for rescuing and restructuring non-financial undertakings in difficulty (‘R&R Guidelines’) (3) to the economic unit, currently under the sole control of the Portuguese State, comprising Transportes Aéreos Portugueses SGPS S.A. (‘TAP SGPS’) and its current sister company Transportes Aéreos Portugueses, S.A. (‘TAP Air Portugal’), including all their controlled subsidiaries (recitals 8 to 14). The notification was preceded by a rescue loan to TAP SGPS in the amount of EUR 1,2 billion, to which the Commission raised no objections in a decision of 10 June 2020 (the ‘initial rescue aid decision’) (4). Portugal put into effect and disbursed the rescue aid to TAP SGPS in July 2020 and submitted a restructuring plan for TAP SGPS on 10 December 2020. An updated version of the restructuring plan and other supporting documents accompanied the notification.

(2) On 19 May 2021, the General Court annulled the initial rescue aid decision but suspended the effects of the annulment pending the adoption of a new decision by the Commission (5). On 16 July 2021, the Commission adopted a new decision raising no objections to the rescue aid (6) that attracted another action for annulment thereof (7).

(3) By letter dated 16 July 2021, the Commission informed Portugal that it had decided to initiate the procedure laid down in Article 108(2) of the Treaty on the Functioning of the European Union (‘TFEU’) in respect of the restructuring aid (the ‘opening decision’). Portugal provided comments on that decision by letters dated 19 August and 27 August 2021.

(4) The Commission decision to initiate the procedure was published in the Official Journal of the European Union (8). The Commission called on interested parties to submit their comments within one month of the publication.

(5) The Commission received 39 comments from interested parties within the time limit that expired on 6 September 2021. It forwarded them to Portugal, which was given the opportunity to respond. By letter dated 5 October 2021, Portugal submitted comments on the observations from interested parties.

(6) The Commission requested additional information on the restructuring plan and supporting restructuring aid and funding by letter of 29 October 2021, to which Portugal replied on 16 November 2021. The Commission and the Portuguese authorities held videoconferences relating to the competition measures envisaged in the notification and the Commission also requested additional information on the competitive structure of the market for passenger air transport services to and from Lisbon airport on 25 October 2021, including updated information about the slot holdings of the air carriers operating at the airport. Portugal replied on 2 and 8 November 2021 and submitted further information on 16, 25, 27, 30 November 2021 and, eventually, on 3 December 2021.

(7) Portugal agreed exceptionally to waive the rights deriving from Article 342 TFEU in conjunction with Article 3 of the EC Regulation 1/1958 (9) and to have this decision adopted and notified pursuant to Article 297 TFEU in English.

2. DESCRIPTION OF THE AID

2.1. Beneficiary: ownership structure and operating subsidiaries

(8) The beneficiary of the restructuring aid is the economic unit, currently under the sole control of the Portuguese State (recitals 11 and 12), comprising TAP SGPS and its current sister company TAP Air Portugal, including all their controlled subsidiaries. TAP SGPS is a holding company incorporated in 2003, whereas TAP Air Portugal was created in 1945 as the Portuguese flagship airline. By 2017, TAP SGPS was jointly controlled by Parpública – Participações Públicas, SGPS, S.A. (‘Parpública’), a public undertaking managing holdings of the Portuguese State, and by two companies, HPGB SGPS, S.A (10) (‘HPGB’) and DGN Corporation (‘DGN’), the latter two operating via a consortium Atlantic Gateways SGPS, Lda. (‘AGW’) (11). When the Commission adopted the initial rescue aid decision, Parpública held 50 % and AGW 45 % of TAP SGPS’ shares, while the remaining 5 % of shares were held by the employees of TAP SGPS. That ownership situation changed in the context of the implementation of the ongoing rescue and restructuring process of TAP SGPS.

(9) When the rescue and restructuring process of TAP SGPS started, TAP Air Portugal was fully owned by TAP SGPS and was its largest subsidiary, accounting for around 98 % of TAP SGPS’ turnover. The Portuguese authorities explain that until June 2020, no changes of the shareholder structure of TAP SGPS were contemplated, as all shareholders of the beneficiary agreed on the need for rescue aid to maintain the activity of TAP Air Portugal and the viability of TAP SGPS in the long run.

(10) The Portuguese authorities only considered issue of the control of TAP SGPS in early July 2020, in the context of a deadlock in negotiations with AGW concerning the implementation of the rescue loan agreement. […]. Faced with a near financial collapse of TAP SGPS, which was urging the implementation of the rescue aid, the Portuguese authorities decided to conclude a private agreement with the shareholders of AGW in order to buy out the shareholdings of DGN, […]. […], the Portuguese Ministry of the Treasury (Direcção-Geral do Tesouro e Finanças (‘DGTF’)) acquired directly TAP SGPS’ shares representing 22,5 % of the share capital of TAP SGPS previously held by AGW. As a consequence, the Portuguese State assumes today, directly and indirectly, a majority position corresponding to 72,5 % of the share capital and respective economic rights of TAP SGPS (50 % through Parpública and 22,5 % through DGTF). Previously HPGB held a stake in the AGW consortium, not directly in TAP SGPS, but having acquired AGW’s stake, HPGB currently directly holds a 22,5 % stake in TAP SGPS.

(11) The Portuguese authorities confirm that according to the shareholding agreement entered into by the Portuguese Republic via DGTF, […]. […] (12), […] (13). The control over 72,5 % of the share capital, […], confers sole control to the Portuguese State over TAP SGPS.

(12) Likewise, since the granting of the rescue aid, TAP SGPS’ shareholding in TAP Air Portugal changed when the Portuguese State via DGTF subscribed to TAP Air Portugal’s capital increase of EUR 462 million (14). As of 24 May 2021, the State, through DGTF, holds directly approximately 92 % of the share capital of TAP Air Portugal. TAP SGPS currently holds the remaining 8 %. TAP Air Portugal is the sole shareholder of TAP Logistics Solutions, S.A., a company incorporated on 30 December 2019 to operate cargo and mail activities.

(13) TAP SGPS owns stakes in the following companies that are active in the provision of air transport related services in Portugal and other countries: — 100 % in Portugália Airlines– Companhia Portuguesa de Transportes Aéreos, S.A. (‘Portugalia’); — 100 % in U.C.S.– Cuidados Integrados de Saúde, S.A., a company active in healthcare services, whose main client is also TAP Air Portugal; — 100 % in TAPGER Sociedade de Gestão e Serviços, S.A. and 99,83 % in Aeropar Participações Lda., both acting as holdings; — 78,72 % in TAP Manutenção e Engenharia Brasil, S.A (‘M&E Brasil’), active in aircraft maintenance for TAP Air Portugal and for third parties; — 49 % (43..9 % directly and 5,1 % via Portugalia) in SPdH–Serviços Portugueses de Handling, S.A. (also known as Groundforce Portugal), a company operating in the airport ground handling sector in Portugal; and — 51 % in CATERINGPOR– Catering de Portugal, S.A., active in the provision of catering for aviation, whose main client is TAP Air Portugal.

(14) The above described changes in the control during the rescue and restructuring process are notwithstanding that for the purposes of this Decision, any reference to the beneficiary undertaking that is favoured by the restructuring aid includes TAP SGPS and all its subsidiaries when its rescue and restructuring process started as of June 2020, including TAP Air Portugal, unless stated otherwise. Any reference to TAP Air Portugal includes all the air transport subsidiaries of TAP SGPS, including Portugalia, unless stated otherwise.

2.2. Beneficiary: main activities in the aviation sector

(15) Within the beneficiary economic unit, TAP Air Portugal is active in the air transport of passengers and cargo. In 2019, prior to its restructuring, TAP Air Portugal operated a fleet of 108 aircraft, including aircraft operated under wet-lease agreements, and served 92 destinations in 38 countries, carried over 17 million passengers and operated over 130 000 flights. Those flights were notably on regular routes from airports such as Lisbon, Porto, Faro and four islands in the Azores and Madeira and also to international destinations, including […] airports in Europe (outside Portugal), […] destinations in Brazil (15), […] in Africa (16) and […] in North America in 2019 (17). TAP Air Portugal has mainly structured its operations around Lisbon airport that serves as its main hub.

(16) Portugal submits that TAP Air Portugal is a major provider of connectivity for passengers and cargo to, from and within Portugal. In 2019, TAP Air Portugal was the only airline operating […] of its […] routes in summer season and […] out of […] routes in winter season. In particular, TAP Air Portugal plays a crucial role for the connectivity of Portugal and countries with the Portuguese-speaking diaspora. TAP Air Portugal is also considered a pillar of the Portuguese economy, in particular due to its contribution to the development of the tourism industry in Portugal.

(17) Other airlines, in particular European airlines, provide air passenger transport or cargo services to Portugal, such as Ryanair as the second-largest airline operating in Portugal, Wizzair and easyJet, Lufthansa Group’s airlines (including Brussels Airlines and Austrian Airlines), Air France-KLM, Finnair, and IAG’s airlines (in particular, Vueling and Iberia).

2.3. Origin of the difficulties of the beneficiary and financial situation

(18) The current situation of difficulty of the beneficiary has been caused by issues of both solvency and liquidity, which were highly aggravated by an acute liquidity crisis provoked by the COVID-19 pandemic.

(19) First, between 2006 and 2015, TAP SGPS accumulated EUR […] million […]. Considering the weight of the airline business on the revenues of TAP SGPS, […].

(20) TAP SGPS also incurred extraordinary operational disruption costs in recent years that hindered the growth of profitability and competitiveness. […] EUR […] million […] (18) […], […] EUR […] million […], driven by a high level of flight delays and cancellations, as well as very high foreign currency exchange exposure due to business in Brazil and Angola.

(21) Second, considering that TAP Air Portugal earned around […] % of the revenues of TAP SGPS, the air carrier’s performance had a major impact on the overall financial situation of its holding parent. After TAP SGPS’ privatisation in 2015 (19), TAP Air Portugal launched a transformation process and had been on a growth trajectory in operational terms presenting […] % revenue growth until 2019. The transformation process targeted to […].

(22) The actions pertaining to the transformation process mainly took place in 2018 and 2019, namely with the delivery of […] fuel efficient A339 aircraft followed by the transformation of product, sales and tools, improvement of procurement and systems. On the operational side, TAP Air Portugal increased its operations on high value markets, such as Brazil and North America. The transformation process, particularly new fleet phase-ins and phase-outs executed until 2019, contributed to reduce overall Cost of Available Seat Kilometre (CASK) (20) levels. However, it also entailed high one-off costs related […]. In addition, TAP Air Portugal continued to be less competitive than its peers in terms of labour costs and efficiency.

(23) On 2 December 2019, TAP Air Portugal closed an offering of EUR 375 million of senior unsecured bonds with a five-year maturity serving regular annual coupons of 5,625 % and effective interest of 5,75 % (21). The issuance aimed at meeting general corporate expenditure and at partly repaying debt and extending its average maturity. The issuance attracted preliminary ratings of BB- (Standard & Poor’s) and B2 (Moody’s), i.e., below ‘investment grade’ rating. Several months before, on 24 June 2019, TAP Air Portugal had issued EUR 200 million of bonds with four-year maturity serving regular annual coupons of 4,375 % (22). Whilst the amounts and conditions of the two issuances in June and December 2019 differ, the interest shown in those issuances indicate that the beneficiary could access finance on the market before the COVID-19 outbreak at reasonable conditions.

(24) The transformation process was interrupted as a result of the global pandemic of COVID-19 and the economic crisis that followed, at a time when TAP Air Portugal had not yet been able to considerably reduce its costs, in particular labour costs, compared to competitors, especially low cost airlines.

(25) As a consequence, in light of the unprecedented government travel restrictions and quarantine orders due to the COVID-19 outbreak, on 20 March 2020, the rating agency Standard & Poor’s lowered the rating of TAP Air Portugal to B- long-term rating and an outlook on short-term liquidity rating of CCC+. In the same announcement, Standard & Poor’s assigned recovery prospects of 45 % to the EUR 375 million bonds issue. On 19 March 2020, the rating agency Moody’s also downgraded the probability of default and corporate ratings of TAP Air Portugal to Caa1-PD and Caa1, respectively. On 28 May 2020, the annual yield to maturity (December 2024) of the EUR 375 million senior notes issued in December 2019 was 9,45 % on the secondary market. In other words, at that stage, buyers of those bonds issued by TAP Air Portugal required a discount on the nominal value of the security, so as to obtain a return of 9,45 %, to accept holding them to maturity. The information provided by the Portuguese authorities corroborates […] of the financial situation of TAP Air Portugal and the beneficiary […] (23), […].

(26) The difficulties of TAP SGPS and of TAP Air Portugal cumulated and led to a sharp deterioration of the equity position. At the end of 2019, TAP SGPS registered a negative equity of EUR […] million, which grew to EUR […] billion in 2020. TAP Air Portugal also had a negative equity position in 2020 (EUR […] billion).

2.4. Description of the restructuring plan and restructuring aid

(27) The restructuring aid supports the implementation of the restructuring plan that covers the period from 2020 until the end of 2025 (the ‘restructuring period’). The plan covers the economic unit, currently under the sole control of the Portuguese State (recitals 11 and 12), comprising TAP SGPS and its current sister company TAP Air Portugal, including all their controlled subsidiaries.

2.4.1. The restructuring of operations

(28) The restructuring plan aims to address the root causes of TAP SGPS’ difficulties and turn the company around by 2025. Due to the weight of TAP Air Portugal in the TAP SGPS’s balance sheet when it entered into difficulties for the activities covered by the restructuring plan, most operational restructuring measures reducing costs and strengthening revenue and projections provided in the restructuring plan refer to TAP Air Portugal. The restructuring plan includes measures that started being implemented as of June 2020 or that will be implemented and that relate to four pillars: (i) focus on core strategy (ii) adjustment of capacity; (iii) improvement of operating costs and (iv) enhancement of revenues. Subsections 2.4.1.1 to 2.4.1.4, describe each pillar of TAP’s restructuring plan as last updated.

2.4.1.1. Focus on core strategy

(29) The logic of the restructuring plan is to focus on the core activity, namely the aviation business carried out through TAP Air Portugal and Portugalia, while gradually shifting away from and divesting non-core businesses. Within that logic, the restructuring plan envisages that TAP SGPS will progressively abandon all other revenue-generating service activities which it has been supplying on the market by selling, divesting or discontinuing three lines of business, as follows. First, TAP SGPS plans to divest its stake in the Brazilian aircraft maintenance subsidiary, M&E Brasil, […]. The second divesture concerns the […] in the ground handling services provider Groundforce, […]. Third, TAP SGPS plans to divest its stake in the catering services provider, Cateringpor, […].

2.4.1.2. Adjustment of capacity

(30) Measures aimed at adjustment of TAP Air Portugal’s capacity mainly consist in right-sizing TAP Air Portugal’s fleet and optimizing TAP Air Portugal’s network. The fleet plan envisages […]. Overall, in 2025, TAP Air Portugal’s fleet plan will lead to a more homogeneous fleet composition and to a reduction in operating costs, due to the lower fuel consumption and maintenance requirements of the new aircraft.

(31) With regard to network optimisation, the restructuring plan increases the role of Lisbon as connectivity hub, which is crucial given the small size of TAP Air Portugal’s domestic market. Operating a connectivity hub will be beneficial to the strategy […]. […]. Finally, network optimisation measures include a more cost-efficient route-aircraft match, the reduction of loss-making routes and routes with low connectivity value. For example, in 2020 TAP Air Portugal operated […] fewer destinations than in 2019 (from […] to […]) and suspended indefinitely the opening of […] additional routes.

(32) With respect to TAP Air Portugal’s foothold at Lisbon airport, the decrease in TAP Air Portugal’s fleet reduces its ability to provide passenger air transport services without, however, calling into question the significant market position that it currently has and is expected to have at the end of the restructuring period at its Lisbon hub. (24) There are two main reasons for the preservation of TAP Air Portugal’s significant market position at Lisbon airport until 2025: (a) First, as part of the restructuring plan, TAP Air Portugal intends to further concentrate on its core hub-and-spoke operations at Lisbon airport. (25) As a result, the market positions and competitive structure at the airport are not expected to materially change, although TAP Air Portugal has reduced its slot holding by […]% ([…] daily slots) in Winter 2021/2022 IATA Season compared to Winter 2019/2020 IATA Season and both the next largest slot holders (Ryanair and easyJet) have preliminarily managed to increase their slot holding for Summer 2022 IATA Season compared to Summer 2019 IATA Season. (26) More specifically, information submitted by Portugal shows that the slot holding of TAP Air Portugal would represent [45-55] % of the total capacity of Lisbon airport in Summer 2022 IATA Season and for the following IATA Seasons, to be compared to [10-20]% and [5-10]% for respectively Ryanair and easyJet. In addition, TAP Air Portugal would deploy by far the largest fleet at Lisbon airport with [90-100] aircraft throughout the restructuring period. According to Portugal’s estimates, Ryanair would base seven aircraft at Lisbon airport and easyJet five aircraft. (27) (b) Second, due the relatively strong, although fragile, recovery in passenger demand, Lisbon airport is expected to return during the restructuring period to the high level of congestion [90-100]% that it had reached before the COVID-19 pandemic following a phase of fast-paced growth of TAP Air Portugal and of low-cost carriers. As a consequence, during the whole restructuring period, the severe capacity constraints at Lisbon airport, linked notably to its single runway, are expected to act as a barrier to entry or expansion for TAP Air Portugal’s competitors, with part of their demand for access to airport infrastructure services at Lisbon airport being unmet.

2.4.1.3. Reduction of costs

(33) TAP Air Portugal envisages reducing operating costs over the course of the restructuring plan through three levers.

(34) The first is the renegotiation of contracts with aircraft suppliers and lessors. With its suppliers, TAP Air Portugal agreed […] period […], as set in the initial contract, to […], leading to a deferral of EUR […] billion of capital expenditure until after the end of the restructuring plan. In addition, TAP Air Portugal obtained cash savings of EUR […] million through renegotiations with lessors and EUR […] million of cash proceeds from the sale and lease-out of aircrafts.

(35) The second lever for operating cost reduction is a set of measures to reduce third party costs. First, TAP Air Portugal expects EUR […] million of fuel costs savings over the business plan period (of which EUR […] million in […]) through the operation of newer, more energy-efficient aircraft, a better route-aircraft match and the implementation of a fuel optimisation software. Second, TAP plans to achieve EUR […] million cost savings per year by […]. […]. Third, the restructuring plan envisages EUR […] million of yearly cost savings through contract renegotiations with suppliers of certain services, […].

(36) The third lever driving the planned reduction of TAP Air Portugal’s operating costs is the downsizing of labour costs, which TAP Air Portugal expects to yield EUR […] million of savings per year, cumulated to approximately EUR […] billion over the duration of the restructuring plan. To achieve those costs savings, TAP Air Portugal has taken the following measures: (a) Reduction of the staff headcount (in full-time equivalent (FTE)) by 1 200 in 2020 and early 2021, mainly through the non-renewal of temporary labour contracts, with a further headcount decrease of 2 000 in 2021. (b) In addition, measures of salary reductions, suspension of automatic salary increases, suspension of the collective bargaining agreements’ clauses in order to increase productivity and reduce labour costs until 2024, which are applicable to all staff through the ‘Emergency Agreements’ with trade unions, as follows: i) a transversal reduction of 25 % for fixed salary above EUR 1 330 between 2021 and 2023 and 20 % in 2024 (that reduction is increased up to 50 % in 2021 and gradually reduced to 35 % in 2024 for pilots); cabin crews and a specific union M&E mechanics also accepted a 15 % reduction of their working hours in 2021, gradually decreasing to 5 % in 2023, so to allow 750 FTE to be financed and not reduced; ii) a suspension of the automatic salary increases and automatic progressions, as well as of several remunerations components; and iii) a reduction in the number of cabin crew members in each plane to minimal aircraft manufacture cabin crews’ composition. (c) TAP Air Portugal obtained the commitment of several unions in the Emergency Agreements towards the 2025 labour cost targets. Those targets will be achieved either by signing new collective bargaining agreements (CBAs) or, in case of failure of the negotiations, by triggering the termination of the current CBAs and directing work rules to general labour law, which is considerably less restrictive than the current CBAs. […].

2.4.1.4. Enhancement of revenues

(37) TAP Air Portugal expects that its revenues will increase in the range of EUR […] million per year in steady state, i.e. upon completion of the restructuring plan, but it only takes into account EUR […] million (per year, in steady state) in the restructuring plan. Increases in revenues will mainly come […].

2.4.2. Overview of restructuring costs and sources of financing

(38) According to the restructuring plan, the implementation of the restructuring measures will trigger net restructuring costs that are not covered by expected operating staff-related cost reductions or other revenues, estimated at EUR […] billion until 2025. In particular, the bulk of restructuring costs of EUR […] billion are ascribed to the shortfall of cost coverage for the period, which need to be covered for TAP SGPS’s operations not to risk a default or the inability to maintain its operating licence. The remaining restructuring costs are attributed to debt reimbursements up to the amount of EUR […] million, acquisition of new aircraft up to the amount of EUR […] million, and EUR […] million labour indemnities to staff. The restructuring costs are net of aid notified before the present decision as compensation for damage to TAP Air Portugal suffered from an exceptional occurrence resulting from public restrictions on air transport pursuant to Article 107(2)(b) TFEU, as set out in the relevant Commission Decisions (28).

(39) According to Portugal, due to the worsened financial situation and the severe impact of the COVID-19 outbreak in the sector and in the economy, TAP SGPS is currently unable to […] without support from the State. Nonetheless, TAP Air Portugal has secured EUR […] million […], guaranteed at […] % by the Portuguese Republic, while the remaining […] % is to be collateralised by TAP Air Portugal, […]. Portugal considers that the implementation of substantial equity-enhancing measures should allow TAP SGPS to have access to the capital markets as from […], in order to raise additional funds from private investors.

(40) Once the EUR […] million State-guaranteed financing and the capital increase are in place, as from […] TAP Air Portugal would obtain financing without public guarantee of at least EUR […] million […]. The access to private market finance obviates the need for an additional liquidity buffer in the form of loan funding under State guarantee up to EUR […] million that was included in the initial notification of restructuring aid as a contingency buffer.

(41) The total State funding as revised on 16 November 2021, includes equity or quasi equity measures, to be implemented as follows: (a) EUR 1,2 billion rescue loan to be converted into equity in the same nominal value plus accrued interest of around EUR […] million in 2021; (b) EUR […] million for the portion of […]% of EUR […] million loan, that is guaranteed by the State at […] %, to be granted by the end of […] and repaid in […] through an equity injection from the State. The loan will have an interest rate in line with the market terms applicable at the moment of granting ([…]), but will not exceed the reference rate set out pursuant to the Commission Reference Rate Communication (29). (c) EUR […] million direct equity injection to be executed by the State in […].

(42) Portugal informed that it would fund the measures directly from the State budget (30), which requires the necessary acts of implementation, including corporate approval of modifications to share capital and loan and guarantee agreements to be concluded.

(43) The own contribution of TAP SGPS and its various contributors to the restructuring costs will consist of around EUR […] billion, spread over the period from 2020 to 2025, and integrating the following measures: (a) payment of labour restructuring indemnities – […] – […] EUR […] million ([…] EUR […] million […]); (b) third-party contributions or cost efficiency totalling EUR […] million, of which EUR […] million already implemented in 2021 and EUR […] million stemming from ongoing contracts, comprising: i) EUR […] million related to airport services and catering and inflight due to contract renegotiations (i.e. new requests for proposal) for catering in outstations, supplier renegotiations for catering in LIS, renegotiation of Buy-on-Board, renegotiation of cleaning, ticketing and other airport services), ii) EUR […] million related to Fleet and monitoring and evaluation, i.e. renegotiation of buyer-furnished-equipment, materials and rebates), iii) EUR […] million related to corporate services and real estate (i.e. renegotiation of parking and media fees, advertising and legal support, etc.), iv) EUR […] million related to IT (i.e. renegotiation of licences, communication platforms, support being outsourced, etc.), and v) EUR […] million related to crew accommodation and fuel (i.e. renegotiation of transport and accommodation in the outstations); (c) leases of new aircraft of at least EUR […] million already committed, […]; (d) other contributions linked to asset phase-outs and renegotiations with original equipment manufacturers, totalling around EUR […] million, broken down as follows: i) EUR […] million, […] EUR […] million, ii) EUR […] million […] iii) EUR […] million […]; (e) new financing for EUR […] million raised with or arranged by a […], namely: i) EUR […] million loan non-guaranteed by the State and collateralised by TAP Air Portugal out of the EUR […] million loan, and ii) new debt for EUR […] million with an instrument rating […] EUR […] million […]; this new debt is contingent on liquidity needs that could arise and de facto replaces the initially notified contingent liquidity guaranteed by the State for the amount of EUR […] million that is no longer considered to be granted as restructuring aid (31); (f) payment of contingencies associated with the divestment of the subsidiary […] EUR […] million ([…]% […], […]% […]% […]), […] (32); (g) deferrals of reimbursement of EUR […] million outstanding nominal amount of two bonds issuances (recital 23) and syndicated loans resulting from waivers of covenants on the respective bonds and loans; existing creditors waived their right to due repayment by the beneficiary […] ([…] EUR […] million, […] EUR […] million […] EUR […] million); […].

(44) In its submissions of 10 June and 16 November 2021, Portugal notes that all these measures of own contribution are implemented or on the verge of implementation. They are based on binding commitments already agreed with the respective parties, which have been implemented with internal instructions to be executed. With regard to the labour restructuring measures, the costs savings are based on emergency agreements concluded between TAP Air Portugal, Portugalia and the employees’ unions, after the suspension of the collective bargaining agreements that were previously in force.

(45) With regard to the burden sharing, Portugal submits that TAP SGPS has a total share capital of EUR […] million, […]. In order to ensure due burden sharing by the shareholders of the beneficiary, the total amount of share capital will be reduced to […] in the accounts of TAP SGPS. Prior to that reduction, […] for the purposes of the loss absorption. It should be noted that […]. Following the capital reduction and loss absorption referred above, the Portuguese State, via DGTF, will subscribe a capital increase of approximately EUR […] million in TAP SGPS, becoming the sole shareholder of TAP SGPS. In addition, TAP Air Portugal will be a direct aid beneficiary through a capital reduction for the purposes of loss absorption followed by an equity injection. The first aid measure of conversion into equity of the existing rescue loan of EUR 1,2 billion will only be executed after loss absorption and capital reduction.

(46) In the notification of 10 June 2021, as updated on 16 November 2021, Portugal recognises that the amount of the own contribution is less than 50 % of the estimated restructuring costs. In that regard Portugal stresses that, in the current circumstances, with the uncertain outlook of the air transport industry, heavily affected by the direct and indirect effects of the COVID-19 outbreak, the beneficiary is […]. Portugal informs that […]. However, the debt funding markets were largely shut down for airlines following the onset of the COVID-19 pandemic with financial institutions in general drastically reducing their credit limits for the airline sector.

(47) Portugal underlines the scope of the cost-saving measures borne by stakeholders of the beneficiary and maintains that such measures amount to real and actual sources of own contribution to the restructuring plan, considering that they are effective and lasting. In conclusion, according to Portugal, the level of own contribution is significant, as it corresponds to the maximum level that the beneficiary is able to undertake in the particular circumstances related to the COVID-19 pandemic.

2.4.3. Solvency and liquidity needs: prospective return to viability

(48) Portugal provided financial projections in the baseline scenario of the restructuring plan, as notified on 10 June 2021 and modified on 16 November 2021, that refer to the core aviation activities of TAP Air Portugal (which will include Portugalia), as described in Section 2.4.1.1. Those projections envisage […]. At the end of the restructuring plan in 2025, TAP Air Portugal expects to attain a return on equity (ROE) of […]% and a return on capital employed (ROCE) of […]%.

(49) With regard to liquidity projections, TAP Air Portugal expects to […]. The financial projections also envisage the equity to assets and net debt to equity ratios […] and attaining a level of […]% and […], respectively, in 2025. Finally, the projections of the net debt to EBITDA ratio gradually decrease from […] in 2022 to […] in 2025. Table 1 Financial projections of the restructuring plan as notified on 10 June 2021 (baseline scenario) Restructuring period EUR million 2020 2021 2022 2023 2024 2025 Revenues 1 060 […] […] […] […] […] EBIT (965 ) […] […] […] […] […] Net income (1 230 ) […] […] […] […] […] Net debt 4 110 […] […] […] […] […] Operational cash flow (244 ) […] […] […] […] […] Equity […] […] […] […] […] […] Source: Company information. All data refers to TAP Air Portugal (including Portugalia)

(50) TAP Air Portugal’s return to viability hinges on cost reductions, as revenues projections follow the recovery of air traffic. Cost reductions stem from the restructuring measures described in sections 2.4.1.1 – 2.4.1.3, through which TAP Air Portugal expects to reduce CASK from EUR cent […] in 2019 to EUR cent […] in 2025. Such EUR cent […] of CASK originates mainly from the restructuring measures affecting TAP Air Portugal’s largest cost items in 2019, namely fuel (EUR cent […] in 2019) and labour (EUR cent […] in 2019). With regard to fuel, TAP Air Portugal expects savings of EUR cent […] per ASK, assuming an exchange rate and fuel price in line with the current market expectations retrieved from Bloomberg, from the acquisition of more fuel-efficient aircraft, a better route-aircraft match and the implementation of a fuel optimisation software (section 2.4.1.3 With regard to labour, TAP Air Portugal expects the FTE reduction measures and contract renegotiations with employees (section 2.4.1.3 to yield savings of EUR cent […] per ASK.

(51) With regard to revenue projections, most of them originate from passenger air traffic, with maintenance, cargo and mail revenues representing roughly […]% of the total revenues in 2025. To estimate revenues from passenger air traffic, TAP Air Portugal assumes a recovery trend in line with the IATA baseline forecasts (October 2020) (33), but lower levels of air traffic per year. For example, while IATA expects air traffic to increase from 49 % in 2021 to 109 % in 2025, relative to the number of passengers who flew in 2019, TAP assumes […]% in 2021 and […]% in 2025. Furthermore, TAP Air Portugal assumes a yield of EUR cent […] and a load factor of […]% in 2025, which are respectively lower (EUR cent […]) and higher ([…]%) than their value in 2019. Finally, TAP Air Portugal projects an increase in revenues stemming from the measures related to cargo and ancillary activities described in section 2.4.1.4. Overall, taking into account all sources of revenues, TAP Air Portugal expects revenues per CASK to decrease from EUR cent […] in 2019 to EUR cent […] in 2025.

(52) The restructuring plan as notified on 10 June 2021, provided for an adverse scenario based on a pessimistic evolution of three parameters: fuel cost, demand and yield. With negative variations of the parameters in the adverse scenario, TAP Air Portugal’s operational cash flow and EBIT […], the pessimistic assumption changing only the magnitude of the results. Only in the most adverse scenario, assuming a negative evolution of all three parameters concerned, […].

(53) Finally, Portugal provided an update of the financial projections of the notified restructuring plan on 9 November 2021. Such update takes into account the latest developments in the aviation market vis-à-vis the notified projections, notably the improvement in the traffic recovery prospects (34) and the increase of jet fuel prices, and assumes a […]% increase in traffic costs to reflect the recent inflation dynamics. Those revised assumptions lead to an increase of revenues as well as costs, compared to the notified projections. Overall, EBIT […], but reaches […], namely EUR […] million instead of EUR […] million in the notified projections. In the same vein, the net income turns positive […] ([…] EUR […] million), […] EUR […] million. In […], ROCE would be […], while ROE would […]% […]%.

2.5. Preliminary findings in the opening decision

(54) Based on the information provided by Portugal in the notification of 10 June 2021, in the opening decision, the Commission qualified the notified State support to TAP SGPS as a lawful State aid under of Articles 107(1) and 108(3) TFEU. It assessed the compatibility of that aid with the internal market under the R&R Guidelines and, having found that several conditions of compatibility laid down in these guidelines appeared, prima facie, not to be met, it decided to open a formal investigation procedure.

(55) In the opening decision, the Commission preliminarily concluded that TAP SGPS, designated as the beneficiary of the aid, was eligible for restructuring aid, in particular due to the accumulated negative equity that grew from EUR […] million at the end of 2019 to EUR […] billion in 2020. The Commission also found that the restructuring aid was necessary for the successful completion of the restructuring plan and that its form was appropriate to address the liquidity and solvency problems encountered.

(56) The Commission found that, based on prudent assumptions, the assessment of expected profits and returns on equity around […]% […], by the end of the restructuring period sustained the argument of Portugal that the restructuring plan would secure the long-term viability of the beneficiary and remained robust also in an adverse scenario. Without the State intervention, the beneficiary, and, as a consequence, TAP Air Portugal, would inevitably exit the market, causing social hardship, negative spill-over effects for the entire Portuguese economy – heavily dependent on the tourism sector – and a disruption of an important service that is difficult to replicate.

(57) The Commission then raised doubts, first as to the proportionality of the aid (35), noting that most sources of own contribution came from cost reductions, i.e. avoidance of costs only with no fresh funding from a market investor or lender, apart from new contracts for aircraft leases arriving in 2021. The Commission noted that the own contribution would correspond at best only to […]% of the restructuring costs, while it was unclear whether labour cost reductions, representing more than […]% of the own contribution, were admissible. As regards burden sharing requirements, the Commission noted that no justification had been provided as to why any partial reduction of debt borne by the holders of TAP SGPS’s bonds would, as a matter of principle, not be achievable.

(58) Second, the Commission raised doubts on the measures limiting distortions of competition (36). The Commission observed in particular that: (i) it was doubtful if the proposed divestitures of certain assets concerning loss-making activities could be considered as addressing the competition distortion created by the aid, and whether in any event the proposed divestitures were sufficient to address such distortion, (ii) the view of the Portuguese authorities that slots divestiture was premature and unnecessary was not substantiated by any quantitative analysis showing that such divestitures would indeed jeopardise the return to viability of TAP Air Portugal, given its strong position in terms of slots at the highly congested Lisbon airport, and (iii) while the overall fleet capacity forecasted for 2025 was lower than before the restructuring, nothing allowed to verify that the capacity created via the acquisition of new aircraft during the restructuring period would not be excessive and there was no commitment to maintain a lower capacity for the duration of the restructuring plan.

(59) Finally, the Commission noted that the plan was lasting longer than five years, whilst the projections carried uncertainties about the evolution of the demand by the end of 2025 in very stressed scenarios, that might require more aid (37).

3. OBSERVATIONS OF PORTUGAL

(60) Portugal submitted its observations on the opening decision on 19 August 2021.

(61) As an initial remark, Portugal recalls the unprecedented and generalised halt in air traffic caused by the COVID-19 pandemic and a devastating and asymmetric consequences it had for air carriers. Portugal points out that before the outbreak TAP Air Portugal was profit-making on a stand-alone basis and presented clear signs of financial stability. Finally, Portugal observes that the pandemic postponed the review of the R&R Guidelines, intended to be applied until 31 December 2020. While the R&R Guidelines are not designed for exceptional circumstances such as the COVID-19 pandemic, they leave room for a more flexible application of its rules, in particular when it comes to own contribution to be considered sufficiently high and adequate. According to Portugal, the unique circumstances and challenges associated with COVID-19 and of its impact on TAP business model justify a more flexible approach compared with conventional rescue and restructuring precedents in the industry. The unprecedented context of the COVID-19 pandemic calls for such flexible enforcement of the rescue and restructuring rules and principles.

3.1. Financial projections and return to viability

(62) Portugal stresses that the projections in the restructuring plan are based on reliable and conservative assumptions. Portugal underlines that, whereas the forecasts of IATA surpass 2019 levels already by 2024, the demand projections in the baseline scenario of the plan do not recover 2019 levels until […]. Similarly, TAP Air Portugal’s revenue path starts from a lower point in 2021 vs passengers forecast, e.g. passenger’s revenue in 2021 is […]% of 2019 levels vs […]% for the number of passengers.

(63) Portugal underlines TAP Air Portugal’s agile capacity deployment. The company was able to redeploy its capacity to target demand pockets, compensating on travel to/from Brazil with a stronger recovery in African flows. It had also been actively replacing bigger aircraft with smaller gauge when facing low load factors and had reconfigured passenger aircraft to transport cargo etc. That agile capacity deployment and flexible operations coupled with tight cost control policies resulted in a lower cash burn than expected in the restructuring plan, despite the worse demand scenario (e.g. TAP Air Portugal’s EBIT in first half of 2021 was EUR […] million better that forecasted in the plan).

(64) Portugal observes that TAP Air Portugal assumed a path of revenue per available seat per kilometre (RASK) below historical levels (EUR cent […] by 2025 vs up to EUR cent […] in 2018) and what it has currently been able to achieve (compensating for lower volume of passengers compared to the restructuring passenger numbers vs. plan). Portugal also notes that the restructuring plan did not take into account up to EUR […] million in additional revenues coming from improvements in processes/methodologies, upgrades of key systems/tools and additional cost reduction initiatives (e.g. in fleet leases, deferrals and future negotiation rounds after approval) that were identified after the notification.

(65) With regard to the duration of the restructuring period, Portugal claims that many of the measures contained in the restructuring plan have already been implemented as of 2020, although the restructuring aid will only be granted in the last quarter of 2021. The duration of the State intervention, which is key to TAP Air Portugal’s return to viability […], will be therefore lower than five years.

3.2. Proportionality and limitation of State aid to minimum

(66) In its submission of 16 November 2021, Portugal notes new sources of own contribution, no longer insists on the qualification of labour cost reductions as a source of own contribution, presents a new breakdown of the restructuring costs and comments on burden sharing measures.

3.2.1. New sources of own contribution

(67) Portugal identified the following new additional sources of own contribution: (a) Support from existing debt providers: Portugal notes that TAP Air Portugal managed to receive the support of existing debt providers. Due to the COVID-19 pandemic and the consequent deterioration of EBITDAR, TAP Air Portugal has […]. However, the company managed to obtain waivers, which avoided the triggering of put and early repayments options. According to Portugal, such waivers amount to a form of burden sharing and own contribution, since […] (recital 43(g)). (b) New investor and market funding: Portugal notes that TAP Air Portugal has been approached by potential new investors with an interest in a future stake acquisition and has negotiated new funding (recital 43(e)); (c) Additional aircraft funding: Portugal presents evidence demonstrating new commitments for funding of aircraft leases, raising the level of such funding from EUR […] million to a total of EUR […] million (recital 43(c)).

3.2.2. Labour cost reductions

(68) With regard to the labour cost reductions on which the Commission raised doubts, Portugal submitted in essence that they contribute to minimising aid and constitute effective, lasting and non-reversible contributions from creditors of the beneficiary. Portugal insists that, under Portuguese law, workers constitute privileged creditors in relation to employers, as workers claims are liquidated in first place over any other guaranteed or privileged claims. Hence, the labour cost reductions proposed as own contribution, in the total amount of EUR […] million, include such credits. Finally, Portugal observes that TAP Air Portugal achieved such cost reductions through negotiations and required workers to forego part of their future claims. They are thus equivalent to a debt write-off or other reductions of contractual costs from partners (e.g. aircraft suppliers/lessors) both in terms of participation in the effort, as well as a sign of confidence in the long-term viability of the beneficiary.

(69) Whilst Portugal acknowledged that the own contribution should normally be comparable to the aid granted in terms of effects on the solvency or liquidity position of the beneficiary and that cost reductions do not constitute equity enhancing measures, an own contribution not having a comparable effect to the aid granted can still be accepted, in view of exceptional circumstances. Eventually, in its submission of 16 November 2021, Portugal no longer included labour cost reductions among the sources of own contribution of the beneficiary to the restructuring costs.

3.2.3. Breakdown and sources of finance of the restructuring costs

(70) On 16 November 2021, Portugal submitted a breakdown of restructuring costs and respective own contribution calculation and ratio, taking into account the new sources of own contribution, which is portrayed as follows. Table 2 Breakdown and sources of finance of restructuring costs (million EUR rounded) Restructuring costs Sources of finance MEUR % Own contribution Acquisition new aircraft […] Labour indemnities […] […]% Debt reimbursement […] Renegotiated contracts third parties […] […]% […] […] Lease new aircraft […] […]% Labour (Indemnities) […] Other contributions […] […]% Operating losses […] Bond and bank debt covenant (market value) […] […]% Temporary liquidity ([…]% non-guaranteed) […] […]% New bank debt […] […]% Contingencies M&E Brazil […] […]% State aid Equity injection […] […]% Temporary liquidity ([…]% guarantee) […] […]% Amount own contribution […] […]% Amount restructuring aid […] […]% TOTAL FUNDING […]

(71) Portugal observes that contributions below 50 % of the restructuring costs have already been accepted in other restructuring aid cases in the aviation sector (38) and that the COVID-19 pandemic qualifies as an exceptional circumstance, as recognised be the Commission in the COVID-19 Temporary Framework (39) (‘Temporary Framework’). In consequence, Portugal submits that the revised level of own contribution is significant in the particular context of the uncertainties faced by the aviation sector due to the COVID-19 pandemic.

3.2.4. Burden sharing

(72) Portugal reiterates that burden sharing will be ensured at the level of shareholders of TAP SGPS. The losses of TAP SGPS have been fully accounted for in the consolidated accounts of 2020 and correspond to a total amount of negative equity of EUR […] million. Following the approval of the restructuring plan, the total amount of EUR […] million […] will be reduced to […] in the accounts of TAP SGPS. Before that, […] for the purposes of loss absorption.

(73) Portugal further explains that, as envisaged in the restructuring plan, TAP SGPS will have to return to the lending markets as soon as possible. The impact of an imposition of losses on creditors will affect negatively any future attempt of TAP SGPS to raise funds from the private sector even on a secured basis. It will be seen by credit market participants as a de facto default situation, which will trigger immediate rating downgrades to the worst credit category by rating agencies. This, in turn, would lead banks to refrain from future dealings with the company. Finally, Portugal notes that the waivers of certain right of debts providers under the relevant loan agreements/debt emissions (recital 43(g)) should be deemed as a form of burden sharing under the R&R Guidelines.

3.3. Measures limiting the distortions of competition

(74) In terms of divestments of assets, reduction of capacity or market presence, in the restructuring plan, as notified on 10 June 2021, Portugal put forward the sale of the stakes held by TAP SGPS in non-core business, i.e., Groundforce, M&E Brasil and Cateringpor. As regards, however, a potential transfer of slots, Portugal initially expressed the view that in the case of TAP Air Portugal, a commitment to give up slots at Lisbon airport would be premature and most probably unnecessary to ensure effective competition, involving a risk of compromising connectivity and the hub model of that company and potentially jeopardizing its return to viability. Portugal further argued, clarified or expanded during the formal investigation procedure the measures aimed at limiting the distortions of competition, so that the measures as proposed in their final form stand as follows.

3.3.1. Divestment of holdings in activities vertically integrated with air transport

(75) Portugal submits that Groundforce has been historically profitable, with a EUR […] million net income and EUR […] million revenues in 2019, but it was severely hit by the COVID-19 crisis. Groundforce lost EUR […] million of revenues in 2020 compared to 2019 and, […]. Due to those difficulties, Groundforce entered a controlled insolvency procedure, which will ultimately lead to the restructuring or liquidation of the company. In that context, Groundforce has already attracted interest of several leading ground handling providers in Europe.

(76) Cateringpor is a catering company created in 1994. It is the main catering provider of TAP SGPS, which is also its majority shareholder (51 % stake) and main source of revenues ([…]% of 2019 revenues). The company has been historically profitable, with a EUR […] million net income and EUR […] million net revenues in 2019. However, like Groundforce, Cateringpor suffered because of the COVID-19 crisis, which led to a […]% reduction of meals provided and a net income decrease of EUR […] million compared to 2019. To deal with such difficulties, Cateringpor started a restructuring process that is underway […], at the end of which TAP SGPS plans to […]% […]. According to the projections, the […] EUR […] million.

(77) M&E Brasil is a maintenance, repair and overhaul (MRO) service provider incorporated in Brazil, whose majority shareholder is TAP SGPS. M&E Brasil provides wide-body aircraft maintenance services to TAP SGPS, which accounted for […]% of its revenues in 2019. […] has been […], in spite of a […]. The COVID-19 crisis exacerbated the company’s difficulties, with revenues in 2020 (around EUR […] million) shrinking to half of those in 2019 (EUR […] million) […] ([…] EUR […] million […], EUR […] million […]). […] EUR […] million […].

(78) As the abovementioned divestitures will significantly reduce vertically integrated activities of TAP Air Portugal, ancillary to air transport, Portugal believes that they constitute an admissible measure to limit distortions of competition under the R&R Guidelines.

3.3.2. Reduction and freeze of aircraft fleet

(79) The restructuring plan contemplates also a reduction in capacity, as a result of fleet resizing, network streamlining and adjustment to demand reduction. TAP Air Portugal has already implemented a fleet reduction from 108 to [90-100] aircraft by February 2021. Portugal commits that over the course of the restructuring plan and until 2025 inclusive, TAP Air Portugal’s fleet will not exceed [90-100] aircraft.

3.3.3. Slot release

(80) In light of, notably, TAP Air Portugal’s high slot holding at its heavily congested Lisbon base (recital 32) (40), the Commission considers that, for the purposes of this Decision, TAP Air Portugal will have a significant market position for the supply of passenger air transport services at Lisbon airport after restructuring.

(81) In that respect, Portugal submitted on 3 December 2021 an additional structural commitment to further limit the distortive effects of the aid on competition for the provision of passenger air transport services on routes to or from Lisbon airport, where TAP Air Portugal is expected to keep a significant market position after restructuring.

(82) Namely, Portugal committed that TAP Air Portugal would transfer a slot package of up to 18 daily slots (winter and summer) to another air carrier (an actual or potential competitor) to allow it to establish a new base (41) or to expand its existing base at Lisbon airport (the ‘remedy taker’). (42)

(83) The slots made available by TAP Air Portugal to the remedy taker at the time of signing the slot transfer agreement, would correspond to the slot times requested by the remedy taker within +/- 20 minutes for short-haul flights and within +/- 60 minutes for long-haul flights. In the event that TAP Air Portugal does not have slots within the relevant time window, TAP Air Portugal would offer to transfer the slots closest in time to the remedy taker’s request.

(84) By exception, TAP Air Portugal would not be obliged to transfer: (a) more than one slot before 08:00 (local time) per aircraft based by the remedy taker at Lisbon airport using the remedy slots; (b) more than half of the total remedy slots before 12:00 (local time); and (c) more slots before 20:00 (local time) than the total remedy slots minus one slot per aircraft based by the remedy taker at Lisbon airport using the remedy slots for the operation of short-haul flights.

(85) In the event that a request is made for more than one slot before 08:00 (local time) per based aircraft, more than half of the total remedy slots before 12:00 (local time) or more slots before 20:00 (local time) than the total remedy slots minus one slot per aircraft based by the remedy taker at Lisbon airport using the remedy slots for the operation of short-haul flights, TAP Air Portugal would offer the remedy taker the next closest slot after 8:00 (local time), after 12:00 (local time) and after 20:00 (local time) respectively.

(86) The arrival and departure slot times should be such as to allow for reasonable aircraft rotation by the remedy taker to the extent possible, taking into account the eligible potential remedy taker’s business model and aircraft utilisation constraints.

(87) Portugal committed that TAP Air Portugal would not re-acquire the divested slots from the remedy taker.

(88) To be eligible, a potential remedy taker must: (a) be an air carrier holding an operating licence issued by an EU/EEA Member State; (b) be independent of and unconnected with TAP Air Portugal; (c) not be subject to competition remedies having received a COVID-19 recapitalisation instrument of more than EUR 250 million; (d) commit to operate the number of aircraft based at Lisbon airport using the remedy slots until the end of the restructuring plan. Potential remedy takers indicate in their proposals the number of aircraft to be based at Lisbon airport using the remedy slots; (43) For the purpose of committing to base aircraft using the remedy slots, a potential remedy taker must commit to comply with the applicable EU and national labour laws, as interpreted as relevant by the EU Courts (44).

(89) The remedy taker would be approved by the Commission following a transparent and non-discriminatory selection procedure (call for proposals).

(90) The Commission would be assisted by a monitoring trustee, which would be appointed directly following the adoption of this Decision.

(91) The call for proposals would be published by the monitoring trustee sufficiently in advance of the beginning of the general slot allocation procedure for each IATA Season until the Commission approves a remedy taker, and would be granted adequate publicity.

(92) The Commission, assisted by the monitoring trustee, would assess the proposals received. It may reject the proposals if they are not credible from an economic or operational point of view, or in respect of EU competition law.

(93) In case of competing proposals, the Commission would give preference, in decreasing order, to potential remedy takers that in particular: (i) will provide the largest seat capacity in respect of the based aircraft using the remedy slots from the start of the operations until the end of the restructuring plan; and (ii) serve the greatest number of destinations by direct flights operated by the based aircraft using the remedy slots from the start of the operations until the end of the restructuring plan (direct connectivity, without taking account of the frequencies).

(94) If the Commission gives the same or similar evaluation to several proposals (tied bids) upon assessment of the two criteria, it would give preference to the proposal best ranked by TAP Air Portugal (which may use any criteria of its choice, provided that they are transparent).

(95) Shortly after the Commission’s evaluation decision, TAP Air Portugal would enter into a slot transfer agreement, to be reviewed by the monitoring trustee and approved by the Commission, with the highest ranked potential remedy taker that has confirmed that it intends to establish a base or expand its base at Lisbon airport using the remedy slots.

(96) The slots would be transferred by TAP Air Portugal to the remedy taker free of charge pursuant to Article 8b of Council Regulation (EEC) No 95/93 (45) (the ‘Slot Regulation’).

(97) The slots would be offered for transfer until the end of the restructuring period (end of 2025, see recital 27). Whatever the circumstances, no call for proposals would be organised after the end of the restructuring period.

3.3.4. Acquisition and advertising ban

(98) In addition to those divestment of assets and measures to reduce market capacity and presence, Portugal put forward the commitments that the beneficiary would refrain from (i) acquiring shares in any company during the restructuring period, except where indispensable to ensure its long-term viability and subject to Commission approval, and (ii) publicising State support as a competitive advantage when marketing its products and services.

4. COMMENTS FROM THIRD PARTIES

(99) Third parties filed 39 replies to the invitation to submit comments within the deadline by 6 September 2021. Four further submissions came after the deadline. The observations submitted on time included substantive submissions from two direct competitors – Ryanair and euroAtlantic Airways (EAA) – and from business partners, such as travel agencies, tour operators or associations of those (13), major hotel groups (1), ticketing agencies (2), suppliers (1), airport managers/traffic control agencies (2). Other submissions came from governmental bodies, such as representations of several states of Brazil, as well as the Brazilian Ministry of Tourism (8), and from bodies promoting tourism and commercial or cultural exchanges (10).

(100) All third parties except the two direct competitors and another party generally support the restructuring aid and confirm the important role played by TAP Air Portugal in connectivity of Portugal with the Union and other regions of the world, and for the economy of Portugal.

4.1. Comments from competitors

4.1.1. Ryanair

Contribution to a well-defined objective of common interest

(101) Ryanair disagrees with the Commission’s interim finding that the restructuring aid contributes to an objective of common interest. In Ryanair’s view there is no evidence of a risk of disruption to an important service which is hard to replicate since TAP Air Portugal’s service is being replicated by competitors that are stepping in. In particular, Ryanair also provides connections to destinations outside the EU, such as Israel, Turkey or Ukraine. Ryanair also indicated that it operates flights to Morocco and the United Kingdom from Portuguese airports.

(102) Furthermore, Ryanair disagrees with the statement that other major EU air carriers, which would be offering intercontinental connections via Lisbon, operate in hub-and spoke model and accordingly they would transfer passengers from Portugal to their hubs in other Member States instead of establishing another hub in Portugal. To that end, Ryanair submits that the key long haul destinations (e.g., New York, São Paulo, Toronto, Montreal, Philadelphia, Boston, Washington DC, Dubai) are also served by large international carriers such as American Airlines, Air Canada, Delta Airlines, LATAM, United Airways, and Emirates directly from Lisbon, while TAAG Angola Airlines would offer direct flights between Lisbon and Luanda. In Ryanair’s view, it would remain possible to fly to these destinations from Portugal without transfer or transit through another airline’s hub, even if TAP Air Portugal discontinues some long haul routes.

(103) According to Ryanair, several competitors operate the same routes as TAP Air Portugal domestically, to the Autonomous Regions of Madeira and Azores, other Portuguese-speaking countries and the diaspora, as well as other countries in and outside Europe. Next to TAP Air Portugal, several other airlines would provide routes from Portugal to the Autonomous Regions of Madeira and Azores, such as Ryanair, easyJet, Transavia, SATA Air Açores and Azores Airlines.

(104) In this context, Ryanair suggest that TAP Air Portugal would also face competition on its domestic routes from the high-speed railway system or intercity bus companies, such as Flixbus, which can continue ensuring connectivity throughout Portugal and its regions.

(105) Ryanair puts forward that it competes head-to-head with TAP Air Portugal in a large number of point of origin/point of destination (‘O&D’) city pair routes. To support its findings, Ryanair submitted annexes with data on ‘Portuguese city pair routes on which Ryanair and TAP competed in 2020’ and ‘TAP European Routes & Competitors in March 2021’. Ryanair alleges that Ryanair Group competed on 17 TAP Air Portugal city pairs in 2019, 29 city pairs in 2020 and 24 city pairs in 2021, which would be far more than any other airline. Ryanair also submitted a study (46) prepared on the request of Ryanair. The study analyses the size and operating licence origin of the largest airlines in a number of major European markets. It covers the total intra-European capacity offered in 2014 and 2019 and current forecasts for 2021. In addition to identifying the key airlines shares in these years, the study looked at the five-year rate of growth of the major markets between 2014 and 2019, the contribution to this growth by the leading airlines and the overall growth in routes served by the airlines over this same period. It then repeats this exercise for the two years ending 2021, as currently forecast. With specific regard to Portugal, the study finds that low cost carriers have provided 44,3 % of the growth in seat capacity between 2014 and 2019, with other airlines that are not the lead domicile airlines accounting for a further 29,3 % of growth. According to the study, the two lead domiciled Portuguese airlines provided only 26,4 % of the growth seen over this five-year period. The study finds that in terms of connectivity, the low cost carriers have delivered more again over this same five-year period, the low cost carriers have added 199 new routes to their combined networks. In comparison, the two lead Portuguese carriers have cut their number of routes by a combined 12. With regard to intra-European, non-domestic routes, this would stand at +199 vs. -10 respectively. This discrepancy would allegedly be disappointing for Portugal’s lead carriers given that they control 30 % of the total market and 65 % of the domestic market in terms of seat capacity. The study also offers a table showing low cost carriers’ forecast to increase their share of the Portuguese market during the pandemic. Following seven findings, the study concludes that the history of supporting the traditional ‘flag carriers’ at a national level has delivered neither superior growth nor greater connectivity and continues that it is the pan-European low cost carriers that have delivered this for more open markets.

(106) Finally, Ryanair informs that Portugal is one of Ryanair Group’s expansion targets. In that context, according to Ryanair, the routes where the Ryanair Group and TAP Air Portugal compete head-to-head are economically important. In particular, Ryanair Group and TAP Air Portugal would compete head-to-head on international routes to important cities, including London, Berlin, Dublin, Paris, Rome, Milan, and Vienna, which are economically relevant because they connect Portugal to the largest and most prosperous cities in Europe. Ryanair and TAP Air Portugal would also compete on domestic routes linking Lisbon and Ponta Delgada and Terceira for instance.

(107) In the same context of the contribution to a well-defined objective of common interest, Ryanair asserts that the opening decision did not explain why TAP Air Portugal would be a systemic undertaking and does not even use the adjective ‘systemic’. According to Ryanair, as the European airlines now emerge from the crisis, one airline’s lost capacity would quickly be replaced by other airlines keen to deploy their surplus capacity and operate more efficiently.

(108) Ryanair is of the view that even if some of TAP Air Portugal’s activities had a truly systemic character, the Commission has failed to determine whether such systemic activities could not be preserved by downsizing the group and reducing or suppressing non-systemic or loss-making activities. Namely, according to Ryanair, other airlines and transport providers already play an important role in the connectivity of Portugal and its regions and can provide the same service as TAP Air Portugal and could take over TAP Air Portugal’s service should it exit the market.

(109) In conclusion, Ryanair postulates TAP Air Portugal would be in the process of being replaced by more efficient airlines which already serve the common interest. Therefore, its restructuring would not serve the common interest because it would endanger this process.

Long-term viability of TAP Air Portugal

(110) First, Ryanair complains that recital 73 and Section 2.3.3 of the opening decision, which refer to long term viability, are heavily edited and all the financial data and the chronological milestones of the restructuring plan were deleted. Therefore, it would not be possible for Ryanair to make any detailed comments due to insufficient information. Nevertheless, Ryanair makes a general comment that TAP Air Portugal’s problems would stem from breakneck growth that TAP was unable to exploit to generate revenue and cover its costs, in the absence of sufficient competitiveness. In this context, TAP Air Portugal’s plan to resume capacity growth as soon as market conditions become normal again would appear to repeat the failed strategy that led to TAP Air Portugal’s difficulties in the first place.

Appropriateness of aid

(111) Ryanair is of the view that verifying the satisfaction of this condition would require comparing the various options available in order to identify the least distortive option. However, the opening decision did not present or compare the aid with other options involving or not involving State aid and therefore failed to verify that the aid is appropriate.

Proportionality of aid

(112) With regard to proportionality of the restructuring aid, Ryanair claims that the opening decision does not present any evidence of TAP SGPS’s attempts to raise private funds. In Ryanair’s view, given that TAP SGPS’s lack of access to financial markets before the grant of the aid would not be established, its lack of access after the aid is granted appears doubly doubtful. In addition, Ryanair asserts that TAP SGPS should be able to raise private funds after the implementation of the equity measures, hence the EUR […] million ‘buffer’ would be excessive. Ryanair also complains about the absence of sufficient financial data in the opening decision to allow interested parties to assess the proportionality of the quantum of aid in detail.

(113) Ryanair critically observes that the opening decision does not provide a justification for Portugal’s presumption that a Standard & Poor’s B- financial rating would make borrowing on the financial markets impossible. According to Ryanair, Portugal has not described any concrete failed attempt by TAP to obtain financing nor does it explain why collateralisation was not available to secure debt. In Ryanair’s view, TAP Air Portugal’s portfolio of airport slots and other assets would represent a significant collateral.

(114) With regard to the burden sharing, Ryanair raises concern that the remaining private shareholder (HPGB) will receive a favourable treatment. According to Ryanair, the opening decision did not provide any factual details that would allow Ryanair to make comments on the satisfaction of the burden sharing condition by HPGB and a fortiori other stakeholders in TAP SGPS.

Measures to limit distortions of competition

(115) Ryanair agrees with the Commission’s finding that the measures to limit distortions of competition are not justified and appear insufficient, even based on the insufficient information provided in the opening decision.

(116) With regard to the slot release Ryanair claims that the massive size of aid provided and insufficient levels of own contribution militate in favour of slot divestments going far beyond the level of divestments of Lufthansa (47).

(117) In Ryanair’s view, slot divestments at Lisbon airport of the same extent as the slot divestments in the Lufthansa decision (24 slots per day) would not harm the connectivity of Portugal (including to Brazil) or TAP Air Portugal’s hub operations (e.g., by making its routes unprofitable). Ryanair believes that allowing TAP Air Portugal to hold on to slots that it would be unable to use due for instance to loss of traffic or fleet reduction would amount to hoarding of a rare resource and therefore, slot divestments should at least be equal in proportion to the reduction in TAP Air Portugal’s fleet. Moreover, the demand for slots by viable airlines at Lisbon and Porto airports would be high.

(118) To that end, Ryanair suggests the Commission should consider the right size for TAP Air Portugal that would allow Portugal to have adequate connectivity and should not exclude the hypothesis that the right size for TAP Air Portugal may amount to market exit. In Ryanair’s view, the Commission should not exclude a priori a scenario in which TAP Air Portugal would provide only long-haul services and other (including low fares) airlines would act as codeshare or even de facto operators of the current collector routes to Lisbon.

(119) Finally, with regard to the freeze of capacities and reduction of activities, Ryanair claims that the opening decision does not explore sufficiently a downsizing scenario.

4.1.2. EAA

(120) At the outset, EAA puts forward that by approving the Public State Budget Law for 2021 in November 2020 in which the Portuguese Government earmarked EUR 500 million of financial support for TAP SGPS, the Portuguese State committed to make State resources available, which EAA considers to be State aid not notified to the Commission.

(121) EAA complains about the discriminatory treatment in favour of TAP SGPS when the State provided financial support to assist TAP SGPS with its restructuring. As background information, EAA informs that it has repeatedly requested proportionate support from Portugal. Despite EAA’s best efforts and presentation of the advantages to the economy, Portugal has refused to look upon the facts and has failed to provide any meaningful assistance.

(122) EAA also informs that it transported a total of more than 1,4 million passengers on its 8 500 flights, of which 430 000 (equal to 30 % of the total passengers flown during this period) were from/to Portugal. It was the first Portuguese airline to start charter operations to northern Brazil and when TAP Air Portugal started scheduled flights to that region and gave very low rates to the tour operators, EAA found new opportunities. In 2020, due to the COVID-19 pandemic, EAA’s main activity shifted to charter operations.

Appropriateness of aid instrument

(123) In EAA’s view, the aim of the restructuring aid is to provide liquidity support for the implementation of the restructuring plan and to balance the negative equity of TAP SGPS. However, the aid in question is structured mainly as equity and partly as a guarantee, which will also be converted into equity in the most adverse scenario if the access to capital markets is not achieved. This aid instrument does not seem appropriate as it goes beyond what is necessary. A less distortive measure in the form of a financial guarantee without an equity nature would be sufficient to facilitate the access to capital markets and in this way restore the liquidity and solvency of TAP SGPS. By doing so TAP SGPS would be required to find its own financing methods and thus also achieve the objectives of own contribution.

Proportionality of aid

(124) EAA shares the concerns raised by the Commission in its preliminary findings regarding the proportionality of the aid, in particular, whether TAP SGPS would have a sufficient level of own contributions. In addition, EAA expresses its concern that Portugal already anticipates granting damage compensation under Article 107(2)(b) TFEU.

(125) As Ryanair, EAA also complains about excessive redaction of the opening decision, which would make it impossible to make meaningful comments on proportionality.

Competition measures justified for TAP Air Portugal

(126) EAA supports the Commission’s concerns that the closure of loss-making activities is not sufficient to address competition distortions created by the restructuring aid and puts forward that the measures proposed by the Portuguese Government in the restructuring plan are not sufficient to address the distortions of competitions created by the aid. In EAA’s view, more comprehensive measures are needed to limit distortions of competition taking account the size of the aid to TAP Air Portugal. To that end, EAA has identified a range of measures that should be considered cumulatively as necessary to limit the competition distortions created by an aid of this size, type and characteristics.

(127) EAA also provides concrete proposals as to competition measures. In particular, it suggests that TAP Air Portugal should reduce its share on routes on which EAA is also present and open code share agreements with EAA on flights from Portugal to São Tomé e Principe and to Guinea Bissau. EAA informs that it has been the only Portuguese operator able to consistently operate direct flights do São Tomé since 2008. Moreover, from Christmas 2013 and for the next 3 years TAP Air Portugal suspended flights to Guinea Bissau due to security reasons and during this period EAA was the only Portuguese operator able to assure connection between those countries and ultimately to the Portuguese-speaking world. In addition, EAA puts forward that the Commission should ask for a commitment that TAP Air Portugal will not engage in predatory pricing practices on routes to São Tomé e Príncipe and Guinea Bissau in which TAP Air Portugal and EAA would directly compete.

(128) EAA requires that TAP Air Portugal does not use State aid to open new routes compared to those operated before the pandemic and that it gives up frequencies on flights to profitable destinations. Moreover, EAA proposes that TAP Air Portugal should reduce its slots by 1/3 on defined profitable destinations in order to open the way for other airlines, including EAA. In addition, EAA is of the view that TAP Air Portugal must cancel all the routes it started during the pandemic.

(129) Furthermore, EAA invites the Commission to consider two further commitments, a commitment that TAP Air Portugal will not expand into new activities, such as cargo and passengers, including with Portugalia, and as a second commitment that TAP Air Portugal will exit charter operations, and will not offer charter flights to tour operators or other clients (e.g. for sports teams).

(130) EAA sees positively TAP Air Portugal’s plans to reduce capacity in terms of aircraft numbers and proposes an additional commitment that TAP Air Portugal would not acquire any new aircraft for a period of at least five years to expand its fleet.

(131) More generally, EAA also offers its views on competition in the airline sector in Portugal. According to EAA, Portugal should favour the entry of new competitors and the expansion of existing small competitors by granting an approval to smaller operators to operate in the main cargo routes currently operated by TAP Air Portugal, so that other (Portuguese) companies can compete on those routes.

4.2. Comments from other third parties

(132) With the exception of the Chamber of Commerce of Porto, the other third parties expressed support for the State intervention in favour of TAP SGPS. The evidence brought by other third parties demonstrates that TAP Air Portugal does secure improved connectivity and competition. Business partners and governmental bodies highlight in particular: — the volume and the importance of passenger air traffic between Portugal and Portuguese-speaking countries served by TAP Air Portugal, as well as a steadily growing business travel sector based on cultural and/or historical connections (48); — the importance of services provided by TAP Air Portugal for the development of tourism, and more generally, the economy not only of Portugal but also of other regions of the world, like Cape Verde or Brazil (49); — the specificity and uniqueness of TAP Air Portugal’s network that takes into account the political, economic, cultural and historical ties of Portugal and the EU with several third countries, diversity of connections provided (10 different points in Brazil, including poorly served regions of Nordeste; connections to several islands of the Cape Verde archipelago; unique connections to the Portuguese-speaking African countries, as well as the convenient geographical (peripheral) position of Lisbon hub, which allows to shorten the long haul flights and to attract overseas tourist/clients to Portugal (50); — the importance for Portugal of an airline with enough dimension to create and maintain (51) a hub in Lisbon, which is considered as crucial for the development of connectivity with Portuguese-speaking countries (Brazil, the Portuguese-speaking African Countries); — the importance of longstanding and well-established relationship with TAP Air Portugal for their activity/activity of their members/clients, for the development of the tourism industry and the strengthening of commercial and cultural connections between Portugal and other countries; — finally, the importance of stability of connections ensured by a national carrier.

(133) The Porto Chamber of Commerce refers to the statement made by Portugal that TAP Air Portugal is a pillar of the Portuguese economy, in particular because of its contribution to the development of the tourist industry in Portugal. However, in the view of the Porto Chamber of Commerce, the population, the economic activity and the tourist industry are not only concentrated in Lisbon but in addition on the islands of the Azores and Madeira, as well as in the north and south of the country. In that context, the Porto Chamber of Commerce expresses criticism that the territorial cohesion and service to the tourism sector of the whole country appear to be absent from the restructuring plan when, at least, they were raised at the time of the rescue aid.

(134) In its letter, the Porto Chamber of Commerce recognises the importance of the Lisbon hub. In its view, the air connectivity and the protection of economic activities, including that of the tourism sector, are best achieved by two means. First, TAP Air Portugal’s slots should be allocated to a company clean of liabilities and interests in other companies. This would ensure that long-haul flights on which the country’s geographical location gives it a competitive advantage and without which there are losses for residents of Portugal, can be operated from Portugal. Second, by providing support for the attraction of routes on a competitive market (by tender open to interested operators) on national and European flights.

(135) Furthermore, the Porto Chamber of Commerce shares the doubts raised by the Commission. In particular, it points that the salary reductions of the beneficiary’s employees appear to be temporary because the collective bargaining agreement has not been repealed but merely suspended. Also, it claims that the historical record of TAP SGPS (and TAP Air Portugal) in terms of results and equity developments over the past 11 years is not such as to reasonably assume that their contribution to the restructuring plan will be higher.

(136) As to the relation between the national airports, the Porto Chamber of Commerce states that contrary to the situation at Porto and Faro airports where TAP Air Portugal’s presence is low, TAP Air Portugal is dominant at Lisbon airport, to the detriment of the other two national airports and the populations and economic activities that serve and depend on them.

5. COMMENTS FROM PORTUGAL ON THE OBSERVATIONS OF THE THIRD PARTIES

5.1. Need to ensure connectivity

(137) The Portuguese authorities emphasize that, out of 40 interested parties replying to the opening decision, only three have submitted negative observations raising concerns as to the granting of restructuring aid to TAP SGPS. The large majority of observations received reinforced the importance of TAP SGPS and the need to ensure its long-term viability. The Portuguese authorities accordingly highlight that the restructuring aid to TAP SGPS clearly contributes to a well-defined objective of common interest, considering that, as well established in the opening decision, TAP Air Portugal undoubtedly plays a key role in the connectivity of Portugal and to the Portuguese economy. TAP Air Portugal’s close association with the tourism sector in Portugal, which has been of great importance for the country’s economy and recovery after the 2008 crisis, will be paramount in the aftermath of the COVID-19 pandemic. The services provided by TAP Air Portugal ensure connectivity with Portuguese-speaking countries and with countries having important Portuguese communities, which are not easily substitutable by other air carriers, namely low-cost carriers.

(138) Contrary to what is suggested by Ryanair, other airlines offer some long-haul connections from Lisbon, but with limited frequency and few destinations. Boston was operated only briefly in 2019 by Delta as a peak season service only, whereas TAP Air Portugal provides year-round service and has continued to do so through the crisis. Likewise, United operated Washington, DC only in summer seasons and has not maintained the service, whilst TAP Air Portugal has continued to fly there. As regards New York, Delta operated a daily year-round service but has cut it back to three flights a week during the crisis, whilst TAP Air Portugal has sustained a double daily service, continuing to provide essential connectivity for Portugal. United has a daily service, which has been maintained, but United and TAP Air Portugal are both in the Star Alliance and United therefore benefits from connectivity onto TAP Air Portugal’s short-haul services, which helps to sustain their operation. The same is true of Air Canada’s flights from Toronto and Montreal. The elimination of TAP Air Portugal’s hub operations at Lisbon would also threaten these Star Alliance services.

(139) In addition, Ryanair’s observations contain several inaccuracies, which can be misleading for the Commission’s assessment. For instance, SATA Air Açores does not operate flights between the Azores and mainland Portugal (this is only the case of Azores Airlines) and there are no ferry connections with the Autonomous Regions of Azores and Madeira. Except and to a limited extent for domestic flights in mainland Portugal, the bulk of services provided by TAP Air Portugal cannot be substituted with high-speed railway system, intercity bus companies or inexistent ferry connections mainly because these transport means have not been available for the destinations that TAP Air Portugal flies to.

(140) The Portuguese authorities note that no other airline operating to and from Portugal has an equivalent role, which cannot be assured by alternative airlines in the foreseeable future. This is an aspect that both Ryanair and EAA fail to consider, when comparing TAP Air Portugal’s operation with that of a low-cost airline operating only highly profitable connections or that of a mostly charter air carrier and a provider of wet leasing (ACMI: aircraft, crew, maintenance, insurance) with limited public interest. Contrary to what its observations imply, Ryanair does not constitute an alternative to TAP Air Portugal. As previously stated, in summer 2019, […] of the […] destinations offered by TAP Air Portugal from Lisbon were not served by any other airlines, the majority of which constituted long-haul connections with North and South America, as well as Africa.

(141) While it is correct to state that Ryanair and TAP Air Portugal compete head-to-head on certain international routes to several large European cities, it is worth recalling that Ryanair only competes with TAP Air Portugal on the more profitable routes and does not provide any long-haul connections. TAP Air Portugal’s exit from the market would leave profitable short-haul routes to Ryanair and removing one competitor from intercontinental connections to Lisbon. In essence, the result would therefore be less competition on both attractive and less attractive routes.

(142) In the case of EAA, it should be noted that the airline does not have a relevant positioning in the Portuguese market, being a small air carrier with 7 aircraft focussing on the provision of services (so called ‘wet lease’ with aircraft, maintenance, crew and insurance provided) to other airlines and charter flights, which are not markets where TAP Air Portugal holds a relevant position. EAA does not have the presence, the resources, nor the organisation required to replace an airline such as TAP Air Portugal (for instance, EAA does not have adequate sales and distribution capabilities or resources).

(143) While the observations of EAA point towards a certain projected fleet growth (which has not been disclosed to the Portuguese authorities as this constitutes confidential information of EAA), it is unlikely that EAA would reach a fleet size comparable to TAP Air Portugal’s. Being a small-sized air carrier, without significant presence at Lisbon airport, the investments required for EAA to be in a position to replace TAP Air Portugal are substantial and extremely improbable to obtain in the near future. Considering EAA’s focus on providing ACMI services to other carriers, including TAP Air Portugal, the Portuguese authorities note that a successful restructuring of TAP Air Portugal could potentially translate into additional service agreements between these two companies.

5.2. Appropriateness of aid

(144) The Portuguese authorities have reiterated their conclusion that, in view of the previous situation of difficulty of TAP SGPS and the impact of the COVID-19 pandemic, State support in the form of equity provides a better financial structure for TAP SGPS to strengthen its balance sheet.

(145) In relation to the observations of Ryanair and EAA, the Portuguese authorities emphasise that, according to point 58 of the R&R Guidelines, Member States are free to choose the form of the restructuring aid. In doing so, they are not required to conduct an exhaustive comparison of all available options. They should assess the nature of the beneficiary’ difficulties and select appropriate instruments to deal with them. Such an exercise was extensively conducted by the Portuguese authorities and submitted to the Commission for its assessment\. The State aid measures notified by Portugal were construed to provide liquidity support to the implementation of the measures of the restructuring plan and address the negative equity position of TAP SGPS.

(146) In particular, TAP SGPS accumulated a negative shareholders’ equity of EUR […] million between 2006 and 2015, mainly due to […]. Considering the weight of the airline business on the revenues of TAP SGPS, […]. With regards to TAP Air Portugal, even though the airline had been on a growth trajectory in operational terms, due to the launch of a transformation process, TAP Air Portugal had not yet been able to considerably reduce its costs when comparing with competitors, and it consistently presented lower profitability driven by lower efficiency and extraordinary costs.

(147) Furthermore, TAP Air Portugal’s transformation process was interrupted as a result of the global pandemic of COVID-19 and the economic crisis that followed, which resulted in an acute liquidity crisis leading to the granting of rescue aid by the Portuguese authorities, in 2020. Already in late 2020, the liquidity analysis Air Portugal clearly indicated that without further State support, TAP Air Portugal would reach a substantial negative net cash position in 2021 and 2022 in the absence of a market recovery.

(148) As capital markets have not been available for airline borrowers like TAP SGPS, resorting to State funding was the only available option in 2020. TAP SGPS‘s management has […]. However, debt funding markets were largely shut down for airlines following the onset of the COVID-19 pandemic with financial institutions in general drastically reducing theirs credit limits for the sector. In order to maximize liquidity, TAP Air Portugal has made an effort to sell those aircraft that were owned by the company ([…]). Other assets […].

(149) Currently, prior to incremental State support and despite TAP SGPS’s efforts and discussions with financial institutions and other stakeholders, raising additional funds from private markets for TAP SGPS will not be possible under present conditions and definitely not before the approval of the restructuring plan. This leaves the Portuguese State, who is also the main shareholder, as the only viable source of funding (or provider of a guarantee of funding) for the company.

(150) In this context, considering the unavailability of capital markets at this stage for TAP SGPS and the company’s equity and liquidity position, it is the Portuguese authorities’ conclusion that State support in the form of equity provides a better financial structure for TAP SGPS to strengthen its balance sheet. Moreover, combined with the implementation of the measures set forth in the restructuring plan (namely those regarding fleet, network and cost restructuring), the State aid is expected to facilitate TAP SGPS or TAP Air Portugal’s ‘s access to the capital markets during the period from […].

5.3. Return to long-term viability

(151) Despite the current uncertainty of the demand recovery path associated with the pandemic situation, the Portuguese authorities reiterate that the financial projections contained in the restructuring plan are based on solid assumptions, which could even be considered conservative. The restructuring plan assumes a demand recovery outlook, in terms of number of passengers transported, which is generally lower than the IATA forecasts. Similarly, the revenue path in the restructuring plan starts from a lower point in 2021 in comparison to passenger forecasts. The restructuring plan also incorporates some flexibility to adapt the beneficiary’s capacity and operations according to foreseeable demand, while respecting the maximum fleet commitment.

(152) The financial assessment and projections demonstrate that the planned restructuring measures supported with the aid would allow TAP SGPS to attain […]. The projections evidence a return on equity of around […]% in 2024 and 2025, by the end of the restructuring period. The expected returns sustain the argument that the restructuring plan would secure the long-term viability of the beneficiary. In fact, those returns compare favourably with the (opportunity) cost of equity across economic sectors in Portugal (10,9 %) and for the aviation sector (8,5 %) the beneficiary’s. Other key indicators such as ROCE and Equity to Assets ratio […] and remain robust even in an adverse scenario.

(153) Moreover, the divestment of loss-making and non-core businesses set out in the restructuring plan, namely M&E Brasil, will ensure that no further losses resulting from those activities damage recovery. In view of the above, the Portuguese Republic reiterates that the restructuring plan has been elaborated in order to specifically address the past difficulties of TAP SGPS and ensure its long-term viability.

5.4. Proportionality

(154) As regards the proportionality of the aid, the Portuguese authorities submit that beneficiary sought to secure from its stakeholders additional sources of own contribution, namely those relating to additional bidding commitments for aircraft leases, as well significant waivers from bondholders, which should be considered as burden sharing from existing creditors of the beneficiary. Even only considering the additional aircraft leases, the level of own contribution to the restructuring costs is increased up to […]%. This level of own contribution should be deemed sufficient in the particular case of TAP SGPS and the context of the COVID-19 pandemic, given the R&R Guidelines allow for a more flexible and adjusted application of the State aid rules, specifically in exceptional circumstances.

(155) The suggestions of Ryanair with regard to potential for the usage of collateralisation are not feasible in the case of TAP SGPS. As to Ryanair’s allegations that lack of access to capital markets is used to inflate the aid through a buffer of EUR […] million, such buffer was initially only intended as a precautionary measure set forth in the initial restructuring plan and is no longer considered.

(156) The Portuguese authorities described TAP SGPS’s recent endeavours to enhance its own contribution ratio, which include: (i) seeking additional sources of fresh funding despite the current exogenous challenges and market conditions; (ii) obtaining support of existing debt providers; and (iii) considering the entry of new investors. Since the adoption of the opening decision, TAP Air Portugal has been able to achieve additional commitments for funding of EUR […] million in new contracts of aircraft leases arriving in 2021 and 2022, further to the EUR […] million financial lease commitments already included in the restructuring plan. Accordingly, the total amount of own contribution resulting from aircraft leasing based on binding legal commitments entered into with the lessors has been eventually increased to EUR […] million. Furthermore, TAP SGPS has succeeded in obtaining the support of existing debt providers, by obtaining significant waivers, which would avoid the triggering of put and early repayment options with serious consequences for the beneficiary’s liquidity.

(157) When it comes to burden sharing, it is important to take into consideration the context in which the Portuguese State has acquired, from AGW, shares representing 22,5 % of the share capital of TAP SGPS and entered, directly, into the share capital of TAP SGPS. Such transaction was agreed in order to overcome the deadlock in the negotiations regarding the granting of the rescue loan to TAP SGPS and to enable its urgent implementation.

(158) At such time, the parties could not anticipate the final amount of the restructuring aid, which has required adjustments due to the protracted nature of the pandemic, and therefore the actual sacrifice that would have to be endured by the shareholders for the purposes of burden sharing. In this context, […] ([…]% […])

(159) In addition, and to prevent such a scenario, HPGB […]%. […]. According to Portugal, this would constitute burden sharing by HPGB, as it will not b