Estonian Air's rescue loan to be investigated

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Baltic carrier Estonian Air is to be scrutinised by the European Commission after regulators expressed concerns that government support to the troubled airline did not comply with state-aid rules.

The Commission has opened an in-depth investigation to examine the measures, which include a rescue loan of €8.3 million ($11 million) granted in December last year.

Estonian Air has posted heavy losses since 2006, the Commission points out. It says it "has doubts" that the loan meets guidelines on state-backed restructuring support.

Struggling companies are allowed to receive rescue aid just once in a 10-year period. But the Commission says the airline had three capital injections - totalling more than €57 million - over the course of 2009-12.

"These measures were not notified to the Commission," it adds. It acknowledges that private shareholders participated in the first two injections, in 2009 and 2010, but says the third, amounting to €30 million, was "carried out exclusively by the state".

Estonian Air's sale of its ground-handling operation to state-owned Tallinn airport, in 2009, might also have involved state aid to the carrier, says the Commission.

"At this stage, the Commission has doubts that these four previous measures were carried out on terms that a private player operating under market conditions would have accepted," it adds. "The Commission will now investigate to either confirm or infirm these doubts."

Estonian Air is more than 97%-owned by the government, after ownership changes that followed SAS Group's divestment in 2010 of a large shareholding in the airline.