European regulators have cleared the Polish government’s request to provide national carrier LOT Polish Airlines with around PLN2.9 billion ($787 million) in financial support under the temporary easing of state aid rules.

The aid comprises a PLN1.8 billion subsidised loan and a capital injection of PLN1.1 billion.


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787s belonging to LOT Polish Airlines parked at Warsaw Chopin airport

European competition commissioner Margrethe Vestager says: ”With these measures, Poland will contribute approximately €650 million to help the airline weather the current coronavirus crisis. The decision ensures that the state is sufficiently remunerated for the risk taxpayers assume, and that the support comes with strings attached, including a dividend ban as well as further measures to limit distortions of competition”

The Commission notes that LOT suffered substantial losses due to the coronavirus outbreak and the related travel restrictions imposed to limit its spread, conditions which continue to deteriorate the airline’s financial health.

”As a result, LOT is currently facing a risk of default and insolvency,” the Commission says. “The aid measures intend to restore LOT’s equity and liquidity position, in order to ensure the continuation of the air transport services in Poland that LOT provides.”

The subsidised loan will be granted before 30 June 2021 and will last for up to six years. The Commission notes the loan does not exceed 25% of LOT’s turnover in 2019, and will cover investment and working capital needs of the company. 

For the recapitalisation aid, the Commission says Poland will receive an ”appropriate remuneration” for the investment, and there are additional mechanisms to incentivise LOT to redeem the state’s equity participation.

”Poland submitted a business plan prepared by LOT to redeem the recapitalisation instruments,” the Commission states. “Poland also committed to prepare an exit strategy within 12 months after the granting of the aid, unless the state’s intervention is reduced below the level of 25% of equity by then.

”If seven years after receiving the recapitalisation aid the state’s intervention is not reduced below 15% of LOT’s overall equity, a restructuring plan for LOT will be notified to the Commission.”

Further conditions block LOT and its subsidiaries from dividends and share buybacks until the state has exited its stake in the company, while the airline will be prevented from acquiring more than 10% in competitors or operators in the same line of business until at least 75% of the recapitalisation is redeemed.

In January 2020 LOT owner PGL struck a deal to acquire German charter carrier Condor, under a plan to merge it with LOT. The planned acquisition was shelved shortly after the pandemic took hold.