Cyprus Airways has been ordered to repay more than €65 million ($80 million) in state aid, a decision which puts the survival of the flag-carrier in serious doubt.
The European Commission says that the funding, the result of a series of aid packages amounting to more than €100 million, gave the loss-making airline an “undue advantage” over competitors.
Cyprus Airways “needs to pay back all incompatible aid”, plus interest, the ruling says, adding that the airline has “no realistic” chance of becoming viable without continued government support.
European competition commissioner Margrethe Vestager says that continuing to inject public funds into the carrier would “only have prolonged the struggle, without achieving a turnaround”.
“Companies need to be profitable based on their own merits,” adds Vestager. The Commission’s investigation into the funding found that the airline’s restructuring plans were based on unrealistic assumptions.
The ruling casts great uncertainty over the survival prospects for the airline, the history of which dates back to 1947.
Hungarian flag-carrier Malev collapsed three years ago after the European Commission ruled that it must pay back huge quantities of state financial aid.
Cyprus Airways Group had been turning in profits until around 2003 when its finances began to suffer under the mounting effects of a changing airline environment.
Entry into the European Union had a strong negative impact on the company’s duty-free business and an attempt to establish a new airline operation, Hellas Jet, in the Greek market proved unsuccessful.
The group sold its charter operation Eurocypria in 2006, as part of a restructuring effort, and its duty-free division ceased the same year after the government privatised Cyprus’s two main airports at Larnaca and Paphos.
Cyprus Airways also suffered from the encroachment of budget airlines, notably EasyJet and Ryanair, into its market.
While the European Commission had approved a restructuring aid package in 2007, the airline subsequently received additional funding which spurred further investigation into whether the support conformed with state aid rules.
The inquiry initially focused on the granting of €73 million in rescue aid during 2012, about half of which was paid out despite an obligation for the Cypriot government to wait until the Commission had assessed the aid package.
The government had also granted a capital injection of €31.3 million in the same year, part of a broader package of restructuring aid which amounted to nearly €103 million.
Cyprus Airways has about half-a-dozen Airbus A320s, a modest fleet for a flag-carrier which used to operate long-haul routes with Airbus A330s.