Estonian Air files for bankruptcy after EU Commission decision

Estonia: The European Commission concludes that State aid by Estonia to Estonian Air breaches EU state aid rules.

On 7 November 2015 Estonian Air announced that it is filing for bankruptcy because it does not have the necessary funds to repay funding from the Estonian government.

The European Commission started investigating the case of Estonian Air in 2013 and opened a second investigation in 2014. Now it has concluded that measures by Estonia in favour of national flag carrier Estonian Air breached EU state aid rules by giving the company an undue advantage over its competitors. To compensate for distorting competition, Estonian Air has to repay aid received up to EUR 84.9 million plus interest to ensure even competition in the internal market. State aid to companies in difficulty must comply with conditions set out in the Commission Rescue and Restructuring Aid Guidelines. According to the Guidelines, aid can “only be granted once in a ten-year period”. In addition the receiving company must have a credible restructuring plan and sufficient measures must be aimed at limiting distortions of competition created by State support.

Estonian Air has been unprofitable since 2006. Aid did not enable the company to regain viability, which is why continuous aid was needed in 2010-2014. The original restructuring plan did not lead to the hoped-for success, while personnel changes carried out led to a rapid change of course: the former CEO Tero Taskila, who managed the company between 2011 and 2013 trying to revive the company, was set aside in the autumn of 2012. New CEO Jan Palmér radically reduced the number of aircraft as well as destinations.

Today, Jan Palmér estimates that the company can repay EUR 5-10 million to the government. According to Palmér, the restructuring programme as planned was reasonable and was also discussed in Brussels, where the European competition authority recognised it. Hence, Estonia is considering appealing the decision by the European Commission. Estonian Air no longer has the opportunity to do so.


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