Probe focused on second German government aid package for bankrupt manufacturer

The European Commission has launched an official investigation into the second rescue package given by German state and federal governments to bankrupt aircraft manufacturer Fairchild Dornier. The Commission is understood to consider the granting of loan guarantees as unacceptable under state- aid rules, and could theoretically fine any potential future buyer.

Last June, the EC approved a joint proposal by the German federal government and the Bavaria state government to guarantee 50% of a $90 million loan made by three banks to the company to enable it to continue operations for three months, until a buyer was found.

In August, the German government applied for a three-month extension to the loan guarantee while simultaneously authorising the country's labour agency to pay around €20 million ($22 million) to fund 65% of the company's redundancy package. The EC says the second loan guarantee and the support package for the redundancies constitute state aid, as European Union rules permit only "one-off" payments and not those designed to ensure continuous operation in the absence of either a restructuring or a liquidation plan, which the EC says it has not received. "The Commission doubts that the aid measures could be approved as restructuring aid because there is neither a plan nor a financial partner that would ensure a return to long-term profitability of the company," the EC's competition directorate general says.

After opening the formal investigation earlier this month, the Commission will consult Germany and third parties until the end of April, before deciding whether to approve the aid, which it says could take up to 18 months.

Source: Flight International