Adria avoids Malév scenario

European Commission approves €79.6 million in state aid for Adria

Following a two-year in-depth investigation, the European Commission has found that state aid provided to Adria Airways between 2007 and 2011 to the tune of 79.6 million euros is in line with European Union regulations. As a result of the ruling, the Slovenian national carrier does not have to repay the finances it received, which could have seen the airline go bankrupt. Furthermore, the Commission established that Adria did not break state aid rules when it sold its maintenance division, Adria Airways Tehnika, to holding PDP and Ljubljana Airport, both of which are state owned. “Adria Airways benefitted from three public capital injections in 2007, 2009 and 2010, amounting to around 15.2 million euros in total, carried out through the state owned holding PDP and its predecessor KAD, respectively. The in-depth investigation has shown that these capital injections were based on reliable valuations and that Adria Airways paid the market price for the capital. The measures therefore provided no undue advantage to Adria Airways and do not constitute state aid”, the Commission ruled.

On the other hand, the executive body found that the additional fifty million euro cash injection carried out in 2011 by Slovenia and PDP does constitute state aid as it provided the company with an advantage. However, the carrier’s subsequent actions have limited unfair benefits produced by the cash injection. These measures include Adria's restructuring plan which is based on realistic assumptions and should enable the company to return to long term viability within a reasonable timeframe. Furthermore, the cancellation of scheduled routes, the surrender of slots and reduction of its fleet over the past few years has led to a capacity reduction that will limit the distortions of competition brought about by the aid and Adria will sell several assets in order to bear part of the restructuring costs.

Adria Airways will now continue implementing its strategy of becoming a hybrid full fare-low cost airline, while at the same time cutting frequencies but adding capacity. In addition, it will continue with its fleet renewal, commenced earlier this year. The Commission’s ruling clears Adria of any access baggage, making it more appealing to potential investors once the Slovenian government decides to resume the airline’s privatisation process. Furthermore, the ruling gives a boost to Ljubljana Airport’s privatisation prospects. The airport’s future operator no longer has to fear whether its busiest customer will cease operations. As a result, Adria has avoided a similar fate to that of Hungary’s former national carrier Malév. In 2012, both Malév and the Barcelona based Spanair declared bankruptcy and ceased operations after the Commission ordered the airlines to pay back state aid received by the Hungarian and regional Catalan governments respectively.

The European Commission concluded its investigation into the alleged state aid provided to Adria Airways by stating, “The granting of the aid therefore complies with the conditions set out in the guidelines: the aid is accompanied by a restructuring plan that should enable the company to become viable again, appropriate measures are foreseen to compensate for the distortions of competition created by the aid, and the company contributes to the costs of restructuring at the required level. The debt-to-equity conversion carried out by the banks in 2011 is a sign that the markets believe that Adria Airways may become viable”.