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State aid recovery rates ordered against Irish airlines


20 April 2015

​ Case T-473/12 Aer Lingus Ltd v Commission, and Case T-500/12 Ryanair Ltd v Commission

In an appeal against an European Commission decision that Irish air travel tax constituted incompatible state aid that must be recovered from the beneficiaries of the aid (namely Ryanair, Air Lingus and Aer Arann), the General Court upheld the state aid finding but annulled the decision in so far as it ordered recovery at an amount which had been erroneously set by the Commission. The importance of this decision is not confined to the airline industry. It is relevant for any recipient of relief from any tax or duty which would otherwise be payable, in the event that such relief is determined to be incompatible state aid and is to be recovered from the beneficiary.

State aid

By way of overview of the relevant provisions of EU law, any aid from a Member State to business undertakings which distorts or threatens to distort competition by favouring certain undertakings are incompatible with the common market (Article 107(1) of the Treaty on the Functioning of the European Union) save for certain exceptions set out in the Treaty. If the Commission or its supervisory courts find that there is incompatible state aid, they can impose a range of sanctions, including that the state recovers the aid in question from the beneficiaries (except from beneficiaries who are individuals) with interest. The Commission or the relevant national court can determine the amount of aid to be recovered.


Since 30 March 2009, an “air travel tax” (ATT) has been payable by airlines for every passenger departing from an Irish airport with more than 10,000 passengers a year, save for transit and transferring passengers. This excise duty was intended to be passed on to passengers through the ticket price but the airlines operators are accountable for it and liable to pay it.

In the period 30 March 2009 to 28 February 2011, the amount of ATT payable per passenger depended on the distance between the airport of departure and the airport of arrival – the ATT was EUR 2 for flights of no more than 300km from Dublin airport and EUR 10 in all other cases. Following an investigation by the European Commission (triggered by Ryanair Ltd (Ryanair)), in 2011 the Irish government amended the relevant legislation to remove the discriminatory differentiation between the length of flight in the original rules. A uniform ATT of EUR 3 was thereafter applicable to all passengers, again save for transit and transferring passengers.

In July 2009, Ryanair filed a complaint with the European Commission regarding the ATT in force prior to March 2011 on three grounds: (1) not applying the ATT to transit and transferring passengers was illegal state aid to Aer Lingus Ltd (Aer Lingus) and Aer Arann because they had a high proportion of such passengers; (2) levying the ATT at a flat rate made the tax proportionality higher for low-cost airlines such as Ryanair; and (3) the lower rate of ATT for shorter flights favoured Aer Arann as 50% of its flights were no more than 300km from Dublin airport.

The present proceedings concern issue (3) above.1 In its July 2011 preliminary decision, the Commission found that the different ATT rates in place between 2009 and 2011 appeared to constitute incompatible state aid. Following a subsequent formal investigation, on 15 July 2012 the Commission found that the measure did favour short-distance flights and ordered recovery of the aid from the airlines that had benefitted from it ie Ryanair, Aer Lingus and Aer Arann (the Contested Decision).2 The Commission further decided that the amount of state aid recoverable was the difference between the lower rate of ATT (EUR 2) and the standard rate (EUR 10) levied on each passenger ie EUR 8 per passenger.

Aer Lingus and Ryanair separately appealed the Contested Decision to the General Court of the European Union. Ireland intervened in support of the Commission in both cases and Aer Lingus intervened in support of Ryanair in its appeal.


The main points raised by the parties in their separate appeals, and the main substantive grounds of the two judgments, are similar. Ryanair and Aer Lingus essentially claimed that the Commission erred in finding that the EUR10 rate of the ATT was the ‘normal’ rate in order to establish the existence of a selective advantage in favour of the airlines subject to the lower rate of EUR 2 and made various errors of law in the recovery decision. They also claimed that the Commission failed to give sufficient reasons for aspects of its decision and Ryanair claimed that it had been deprived of an opportunity to comment on the order for recovery of the aid.

In both judgments, the General Court annulled the Contested Decision in so far as it ordered the recovery of the aid from the beneficiaries for an amount of EUR 8 per passenger. The court found that the Commission erred in setting the aid to be recovered as the difference between the lower and the higher rates of ATT because the Commission was not entitled to assume that the advantage enjoyed by the beneficiaries of the aid automatically amounted to EUR 8 per passenger in all cases. In particular, the economic advantage received by the beneficiaries of the aid could have been fully or partially passed on the airlines’ passengers (from whom the aid was not recoverable). Had the airlines paying ATT at EUR 2 per passenger systemically increased the price of their tickets (and therefore its potential profit) by EUR 8 per passenger, then that rate might be appropriate rate of recovery. However, the Commission had not explained whether this would in fact be the case for all or any of the airlines.

The General Court found that the Commission should have determined the extent to which the airlines had actually passed on the economic benefit of the lower ATT to their passengers. Following such an assessment, it should have ordered the recovery of the advantage actually realised by the airlines. If the assessment proved impossible then the Commission could have conferred that task to the national authorities.

Further, the General Court decided that the Commission should have set a rate of recovery which would ensure the restoration of the competitive situation that would have prevailed in the absence of the state aid. If the airlines automatically had to repay EUR 8 per passenger, this could create additional distortions of competition since it could lead to the recovery of more from the airlines than the advantage they actually enjoyed.

The remainder of the airlines’ actions were dismissed and the General Court upheld the finding in the Contested Decision that the application of different ATT rates based on flight distance conferred a selective advantage on the beneficiaries of the lower ATT and so constituted state aid. The court also found that the Commission did not err in using the EUR 10 ATT as the reference rate for these purposes.


This decision is relevant for any commercial recipient of relief from any tax or duty which would otherwise be payable.

The judgments offer high-level guidance in setting rates of recovery where incompatible state aid is found. The clear message from the General Court is that a prescriptive or theoretical approach is inappropriate and that the rates of recovery should reflect the amounts actually required to ensure the restoration of the competitive situation that would have prevailed in the absence of the aid. The determination of such a rate may be complex in practice, but such an approach is consistent with ensuring the level playing field of the common market.


[1]       Issue (1) above was the subject of separate proceedings before the General Court which are not considered in this article. In its July 2011 decision the Commission decided that the exclusion of transit and transferring passengers from ATT did not constitute state aid and no further investigation was to be carried out on this issue. This decision was successfully challenged by Ryanair in Case T-512/11 – Ryanair Ltd v Commission and the General Court annulled the Commission’s July 2011 decision in so far as it found that the non-application of ATT to transit and transferring passengers does not constitute State aid.

2       Commission Decision 2013/199/EU of 25 July 2012 on State aid Case SA.29064.

Further information This case summary is part of the Allen & Overy Litigation Review, a monthly update on interesting new cases and legislation in commercial dispute resolution.  For more information please contact Sarah Garvey, or tel +44 20 3088 3710.


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