EU approves € 1bn recapitalization plan for virus-stricken airline SAS

EU competition regulators on Monday (17 August) cleared a €1 billion plan by Denmark and Sweden to recapitalise virus-hit SAS, saying the measure would prevent the Scandinavian airline’s insolvency.

The plan is part of a larger recapitalisation package which will result in private investors holding a significant stake in SAS following the conversion of outstanding privately-held debt instruments into equity.

The European Commission said the measure will not exceed the minimum needed to ensure the airline’s viability and will not go beyond restoring its capital position before the coronavirus.

“Denmark and Sweden will receive an appropriate remuneration for the investment, and there are additional mechanisms to incentivise SAS to redeem the States’ equity participations and the new State hybrid notes obtained as a result of the recapitalisation,” the EU competition enforcer said in a statement.

The measures were approved as part of a temporary EU state aid regime adopted during the coronavirus outbreak, which aims to help virus-hit companies cope with liquidity and solvency issues.

Strings attached

“The support will come with strings attached to limit distortions of competition,” said Margrethe Vestager, the EU Commission vice president in charge of competition policy.

This includes a ban on dividends and share buybacks until at least 75% of the recapitalisation is redeemed, as well as “a strict limitation” on remuneration and bonuses for the company’s management.

There are no green conditions attached to the state aid but SAS will have to report on how the aid received is being used, including green and digital transformations aspects, the Commission said.

Airline crisis continues

Airlines were among the economic sectors that were hit hardest by the pandemic as countries imposed lockdowns ad travel restrictions to prevent the virus from spreading.

And the situation doesn’t show signs of improvement. On Monday (17 August), budget airline Ryanair said it will reduce its flight capacity by 20% during September and October after a reimposition of some coronavirus restrictions led to a notable weakness in forward bookings.

The cuts will be heavily focused on France, Ireland, Spain and Sweden and mostly involve frequency reductions rather than route closures.

“Over the past two weeks as a number of EU countries have raised travel restrictions, forward bookings especially for business travel into September and October have been negatively affected,” a Ryanair spokesman said in a statement, adding that impacted passengers will be advised of their options.

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