HTML PUBLIC "-//W3C//DTD HTML 4.01 Transitional//EN"L 92/16
EN
Official Journal of the European Union
3.4.2013
COMMISSION DECISION
of 19 September 2012
on the State aid SA.30908 (11/C, ex N 176/10) implemented by the Czech Republic for eské
aerolinie, a.s. (SA — Czech Airlines — Restructuring plan)
(notified under document C(2012) 6352)
(Only the Czech text is authentic)
(Text with EEA relevance)
(2013/151/EU)
THE EUROPEAN COMMISSION,
(2) By
letter
dated
23
February
2011,
the
Commission
informed the Czech Republic that it had decided to
initiate the procedure laid down in Article 108(2) of
the TFEU in respect of the aid (hereinafter referred to
Having regard to the Treaty on the Functioning of the European
as "the opening decision"). The Czech Republic
Union, and in particular the first subparagraph of Article 108(2)
provided comments on that decision by letter dated
thereof,
28 April 2011. The Commission asked further
questions by letters dated 26 July 2011, 15 March
2012, 7 May 2012 and 11 July 2012, to which the
Czech Republic replied on 22 August 2011,
Having regard to the Agreement on the European Economic
15 September 2011, 7 October 2011, 16 November
Area, and in particular Article 62(1)(a) thereof,
2011, 23 November 2011, 12 December 2011,
3 January 2012, 16 April 2012, 22 May 2012,
14 June 2012, 5 July 2012, 10 July 2012, 20 July
2012 and 10 August 2012.
Having regard to the decision by which the Commission
decided to initiate the procedure laid down in Article 108(2)
of the TFEU ( 1 ) in respect of the aid SA.30908 (C 11/C, ex N
176/10) ( 2 ),
(3) The
opening
decision
was
published
in
the Official Journal
of the European Union on 23 June 2011. The Commission
called on interested parties to submit their comments.
Having called on interested parties to submit their comments
pursuant to the provisions cited above, and having regard to
their comments,
(4) The
Commission
received
comments
from
two
interested
parties on 30 June 2011, 19 July 2011, 15 August
2011, 25 November 2011 and 13 December 2011. It
Whereas:
forwarded them to the Czech Republic, which was given
the opportunity to react; its comments were received by
letters dated 31 August 2011 and 3 February 2012.
1. PROCEDURE
(1) By
letter
dated
12
May
2010,
the
Czech
Republic
notified the Commission of the restructuring aid to
2. DESCRIPTION OF THE MEASURE AND THE
eské aerolinie, a.s. (hereinafter referred to as "SA").
RESTRUCTURING PLAN
The Commission requested additional information by
letters dated 6 June 2010 and 25 November 2010, to
2.1. RESTRUCTURING AID
which the Czech authorities replied by letters dated 15
and 24 September 2010, 15 December 2010 and
(5) The
total
notified
restructuring
aid
measures
were
(i)
a
28 February 2011.
CZK 2 500 million loan by the State-owned company
Osinek, a.s. (in case it were to be considered state aid);
(ii) the de-collateralisation and a debt-for-equity swap of
( 1 ) With effect from 1 December 2009, Articles 87 and 88 of the EC
the Osinek loan; and (iii) a guaranteed bank credit in
Treaty have become Articles 107 and 108, respectively, of the Treaty
on the Functioning of the European Union ("TFEU"). The two sets of
the amount of EUR
20,8 million to finance the
provisions are, in substance, identical. For the purposes of this
acquisition of an aeroplane. The total notified envisaged
Decision, references to Articles 107 and 108 of the TFEU should
restructuring costs amount to CZK
[8,9-10,5]
(*)
be understood as references to Articles 87 and 88, respectively, of
billion ( 3 ) (EUR [360–410] million).
the EC Treaty where appropriate. The TFEU also introduced certain
changes in terminology, such as the replacement of "Community" by
"Union" and "common market" by "internal market". The
(*) Business secret
terminology of the TFEU will be used throughout this Decision.
( 3 ) The amount of the restructuring costs following a revision of the
( 2 ) Commission Decision C(2011) 994 final of 23 February 2011
restructuring plan (from 3 January 2012). In the notification the
(OJ C 182, 23.6.2011, p. 13).
restructuring costs amounted to CZK [7,60-9,20] billion.

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EN
3.4.2013 Official
Journal
of
the
European
Union L
92/17
(6) On
21
March
2012,
the
Commission
adopted
a
decision
Industry and Trade ( 2 ) to implement the release of
in case SA.29864 – Possible State aid implications of a
pledges over some of the collaterals before the increase
loan provided by Osinek, a.s.. The conclusion of the
of SA's registered capital. The debt-for-equity swap was
investigation was that the Osinek loan did not constitute
legally based on that Resolution and implemented on
State aid and even if it did, such aid would be compatible
30 June 2010.
with the Community Temporary Framework for State aid
measures to support access to finance in the current
financial and economic crisis ( 1 ) (hereinafter referred to
2.2. BENEFICIARY
as "the Temporary Framework"). Therefore, the present
restructuring case no longer deals with that measure. The
(8)
SA has been the national air carrier of the Czech
guaranteed bank credit in the amount of EUR 20,8
Republic since 1923. In 2009, it carried 37 % of
million was abandoned because SA was able to secure
passengers who started or finished their journey in
a financial lease provided by […]. Hence the only restruc
Prague. SA is a State-owned company, with 95,69 %
turing aid measure that remains to be assessed is the
of its shares owned by the Czech Republic through its
debt-for-equity swap of the Osinek loan preceded by
Ministry of Finance. Minority shareholders are eská
the loan's de-collateralisation.
pojiovna a. s. (2,26 %), the Capital City of Prague
(1,53 %) and the Capital City of Bratislava (0,51 %). It
is a member of the Sky Team Alliance and offers
scheduled air transport services (104 destinations in 44
countries). In 2009 SA carried 4,7 million passengers
De-collateralisation and debt-for-equity swap
and generated CZK 14,9 billion (EUR 96 million) in
revenues.
(7) On
3
May
2010,
the
Czech
Government
adopted
Resolution No 333 on the restructuring plan of SA
(hereinafter referred to as "Resolution No 333") by
(9) Table
1
shows
the
development
of
SA's financial data
which the Czech Government instructed the Ministry of
from 2006 to the first half of 2011.
Table 1
Czech Airlines financial data (according to Czech Accounting Standards)
'000 CZK 2006 2007 2008 2009 2010 06/2011
Profit/loss –
396
951 206
600 470
057 –
3
756
125 76
159 [– 710 000 – (– 630 000)]
Turnover 23
375
950 23
399
853 22
581
692 19
789
620 16
547
753 [6 250 000 – 7 250 000]
Cash flow from operating activities –
533
192 –
275
234 –
1
762
376 –
3
066
694 –
1
205
542 N/A
Debt 6
476
911 4
391
070 6
494
752 6
581
325 2
819
915 [2 550 000 – 2 900 000]
Net interest –
94
374 –
55
254 –
14
263 N/A N/A N/A
Net asset value 11
679
439 10
161
647 10
418
871 7
948
571 6
632
836 [5 450 000 – 6 225 000]
Table 2
Development of key criteria in 2009 (according to Czech Accounting Standards)
'000 CZK 31.3.2009 30.6.2009 30.9.2009
Losses
[– 1 320 000 – (– 1 190 000)]
[– 1 840 000 – (– 1 660 000)]
[– 2 625 000 – (– 2 365 000)]
Turnover [4
385
000
–
4
820
000]
[9 265 000 – 10 235 000] [14
300
000
–
15
830
000]
Debt [5
685
000
–
6
285
000] [5
550
000
–
6
065
000] [6
290
000
–
6
960
000]
Net asset values [8
340
000
–
9
255
000] [8
990
000
–
9
920
000] [8
470
000
–
9
390
000]
( 2 ) Accounts receivable from SA arising from the Osinek loan
agreement were assigned to the Ministry of Industry and Trade in
September 2009. This arrangement allowed for the liquidation of
( 1 ) OJ C 16, 22.1.2009, p. 1.
Osinek.

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L 92/18
EN
Official Journal of the European Union
3.4.2013
(10) The numbers demonstrate that, despite certain negative
Czech Aeroholding
developments, SA still made a profit in 2007 and
2008. However, the business result deteriorated signifi
(15) Upon completion of the restructuring process, the Czech
cantly in 2009 due to the impact of the economic crisis.
Republic aims at finding a strategic partner for SA. The
The turnover diminished slightly over the observed
current time frame for the entry of a strategic investor in
period whereas cash flow was declining considerably.
SA is November 2013 at the latest. In preparation for
The level of debt, calculated as the sum of long-term
the planned privatisation, the Czech Government decided
and short-term liabilities and bank loans, was more or
to create a new corporate structure under the umbrella of
less stable. The value of assets decreased significantly,
esk Aeroholding, a.s. (hereinafter referred to as
notably in 2009.
"AH").
(11) Table
2
shows
the
quarterly
development
in
2009.
It
shows that the losses of the company increased
(16) AH currently includes the following companies: SA,
considerably, especially between June and September –
Prague Airport, a.s. (hereinafter referred as "Prague
by CZK
[705–785] million as opposed to
Airport") and SA's former subsidiaries, i.e. Czech
CZK [470–520] million between March and June. The
Airlines Handling, a.s., HOLIDAYS Czech Airlines, a.s.
change in turnover equalled CZK [4,88–5,42] billion
(hereinafter referred to as "HCA"), Czech Airlines
between March and June and CZK [5,04–5,59] billion
Technics, a.s. and SA Services, s.r.o. (see Figure 1).
in the June-September period. The change does not
AH's purpose is to restructure the companies grouped
vary significantly, therefore it cannot imply that the
within the holding company, to facilitate their access to
situation of the company worsened particularly in the
commercial financing, and to prepare them for the
first half of the year. The debt of the company
upcoming privatisation.
decreased in the period March-June and increased by
CZK [0,89–1,05] billion in June-September. Finally, the
total value of SA 's assets increased in the first observed
period (March–June) and decreased by CZK [75–85]
million in June-September.
(17) Czech
Airlines
Handling,
a.s.
provides
passenger
and
aircraft handling services, cleaning of aircraft and
buildings as well as a ground transport service both for
(12) The
Czech
authorities
claim
that,
while
SA's financial
SA and other airlines operating scheduled flights to and
situation deteriorated as a consequence of the global
from Prague. Czech Airlines Handling, a.s. is the only
economic recession as early as late 2008, it had reason
operator in the aircraft cleaning market at Prague-
to believe that significantly better results should be
Ruzyně Airport. In ground handling, Czech Airlines
achieved in the 2009 summer season, when revenues
Handling competes at Prague-Ruzyně Airport with
in the airline industry commonly peak. Based on this
Prague Airport and other ground handling companies
prognosis, supported by its experience from previous
such as Menzies Aviation.
years, SA expected that it would create sufficient
reserves to enable it to stabilise cash flow and prevent
further losses.
(18) HCA
operates
charter
flights.
In
this
market
it
competes
with Travel Service, a.s. and a number of other smaller
(13) None
the
less,
the
1st
half
2009
results,
reported
to
the
charter airlines operating from Prague-Ruzyně Airport,
management in mid-August 2009, showed a significant
e.g. Grossman Jet, ABS Jet, Silesia Air and several
decline in average revenue in June. It became clear that
others, which have only a small market share at
the company was no longer able to run its business
Prague-Ruzyně Airport.
without immediate cost-cutting measures and financial
assistance from external sources. The company’s Board
of Directors thus established a working group, instructed
to prepare the company’s restructuring plan. Therefore,
in August 2009 SA's management adopted measures
(19) Czech
Airlines
Technics,
a.s.
carries
out
light
and
heavy
for the initiation of the restructuring process and the
aircraft maintenance on all Boeing B737 and Airbus
focus of SA moved from day-to-day operational
A320 family aircraft. It also performs extensive checks
measures to the overall restructuring of the company’s
on ATR 42/72 aircraft and has certificates to perform
business.
checks on Airbus A310 aircraft. This subsidiary mainly
serves SA. However, [17,5–19,5]% of its revenue comes
from services provided to third parties, e.g. Lufthansa
Technik, SAS Norway, Air Berlin, Air France-KLM,
(14) The
Czech
authorities
therefore
submit
that,
in
the
light
of the developments described above, SA can be
Transavia Airlines, Travel Service, Ural Airlines and
considered a firm in difficulties within the meaning of
Aerosvit.
the Community Guidelines on State aid for rescuing and
restructuring firms in difficulty ( 1 ) of 2004 (hereinafter
"the R&R Guidelines") starting from August 2009.
(20) Czech
Airlines
Services,
s.r.o.
operates
a
call
centre
and
a
( 1 ) OJ C 244, 1.10.2004, p. 2. The validity of the Guidelines was
recruitment centre, [88-98]% of its services being
prolonged in 2009 (OJ C 156, 9.7.2009, p. 3).
provided to SA.

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EN
3.4.2013 Official
Journal
of
the
European
Union L
92/19
(21) At the beginning of the restructuring period, SA also held a majority stake in a number of other
companies, specifically:
— Amadeus Marketing SA, s.r.o. (65 % ownership), which supplies the Amadeus global distribution
system for the Czech and Slovak Republics;
— Slovak Air Service, s.r.o. (100 %); and
— ClickforSky (100 %).
Figure 1
Structure of esk Aeroholding, a.s.
(22) The creation of AH was approved by the Czech
allocation at Prague-Ruzyně Airport, the sale of Prague
competition authority on 25 October 2011 with a
Airport's ground handling activities to an independent
number of conditions which focus on potential threats
acquirer and transparent and equal access to services
to competition arising due to the merger of SA and
provided by entities within AH to all market
Prague Airport from both vertical overlaps and hori
operators interested in providing ground handling
zontal overlaps (in particular in the ground handling
services and/or repair and maintenance at Prague-
area) of the activities of the merging parties.
Ruzyně Airport ( 1 ).
(23) The conditions are of both a behavioural and a structural
nature and oblige AH to maintain transparent, non-
2.3. RESTRUCTURING PLAN
discriminatory and equal access to airport infrastructure
at Prague-Ruzyně Airport on commercially reasonable
(24) In May 2010, the Czech authorities notified to
terms to all interested parties. In particular, the
the Commission the restructuring plan (hereinafter
commitments deal with unbundling of the Prague-
"RP") which was then updated in subsequent submissions
Ruzyně Airport operator from other activities run
within AH, the exchange of commercially sensitive
( 1 ) Decision of the Czech competition authority No S178/2011/KS-
information between the entities involved in AH, slot
16953/2011/840/RP.

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L 92/20
EN
Official Journal of the European Union
3.4.2013
of information. The RP concentrates on measures
— FX rates: USD 17,0 CZK/USD, EUR 24,5 CZK/EUR;
concerning SA 's core business, scheduled air
passenger transport. Other business sectors are either
scheduled to be sold or to be outsourced within the
— yield [2–2,2], Seat Load Factor [66–73]%.
structure of the holding company.
(25) The
origins
of
SA's difficulties lie in an inflated network
(31) Internal
factors
include:
expansion in 2004-2006 and the entry of low-cost
carriers at Prague-Ruzyně Airport. Furthermore, the
company suffered from the historic operating ineffic
— restructuring of aircraft ownership and maintenance
iencies of an old incumbent company as it entered into
costs;
the global economic recession which brought lower
passenger demand and high fuel costs.
— additional improvement of passenger costs (reduction
(26) The updated version of the RP dated 3 January 2012
of global distribution system and catering costs);
aims to restore SA's long-term viability by 2014. The
restructuring period spans the period from August 2009
to June 2014 (5 years in total).
— further improvement in crew productivity on the
Airbus fleet;
(27) In line with recent developments in the airline industry,
the Czech authorities updated their assumptions for
— optimizing of crew costs for the regional (ATR) fleet,
SA's projected path to viability and presented new
higher fleet utilisation;
scenarios for the base, best and worst case. SA
considers the below estimates as a conservative basis
for its future development. The estimates do not take
into account the planned entry of a private investor
— partial densification of the A320 and B 737 fleets
which would probably have a positive effect on SA's
(increased number of seats);
performance and further strengthen its long-term
viability.
— reduced average fuel consumption – follow-up in the
renewal of the fleet;
(28) The most important external factors affecting the
performance of SA are the following: (i) increasing
fuel price (increased by nearly 40 % compared with the
scenarios included in the opening decision), (ii) signifi
— revenue management system optimisation –
cantly lower demand, (iii) intensified competition, and
[0,95–1]% increase in yield;
(iv) a drop in revenues from ticket sales.
— negative impact of emissions allowance purchase
(29) The
base-case
scenario
is
built
upon
the
assumption
that
offset in average passenger revenue;
the market will evolve according to the macroeconomic
forecasts of the Czech National Bank and the Inter
national Monetary Fund. The entry of low-cost carriers
— as of summer 2012, operations will continue
is considered to be the main factor that will affect SA’s
with a fleet consisting of ATR (7 aircraft), Airbus
market share performance.
(15 aircraft), and Boeing (5 aircraft).
(30) External
factors
include:
(32) As
a
consequence
of
the
restructuring,
SA expects the
following development of its return on capital employed
— a fuel market price of 1 000 USD/mT;
(ROCE):
Table 3
Expected return on capital employed
ROCE 2011 2012 2013 2014 2015
Base-case scenario –
23,6
%
[– 2,5 – (– 3)]% [0,9–1,1]% [1,7–1,85]% [2,1–2,4]%
Best-case scenario –
23,6
% [–
0,95–(–
1,1)]% [3,6–3,9]% [4,8–5,2]% [4,8–5,2]%
Worst-case scenario –
23,6
%
[– 13,5–(– 12,1)]%
[– 9,5 – – 8,9]% [0,7–0,75]% [0,98–1,1]%

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EN
3.4.2013 Official
Journal
of
the
European
Union L
92/21
(33) The
Czech
authorities
take
the
base-case
scenario
as
a
2012–2013) compared with the base–case scenario; it
realistic prediction and argue that the ROCE achieved
further factors in delays in implementation of the
at the end of 2014 of [1,7–1,85]% is to be considered
planned restructuring measures and lower benefits from
acceptable.
revenue management initiatives (fully implemented only
in 2014).
(34) The
best–case
scenario
considers
that
the
fuel
price
will
be reduced by 1–2 % (in 2012–2013) and 3 % in
(35) The
plan
assumes
that
it
will
be
possible
to
return
to
(2014–2015); it is further based on faster–than–predicted
profitability by financial year (FY) 2013. According to the
implementation of restructuring measures and a faster
base-case scenario, SA will make a net profit after tax of
demand growth as compared with the base-case
CZK [95–112] million ([3,8–4,3] million) in 2014 and
scenario. On the other hand, the worst-case scenario is
achieve a return on capital employed (ROCE) of
based on an increased fuel price (3–5 % higher in
[1,7–1,85]% by 2014 and [2,1–2,4]% by 2015.
Table 4
Profit and loss 2008-2014 (in CZK million) (according to Czech Accounting Standards)
Financial year 2007 2008 2009 2010 2011(f) 2012(f) 2013(f) 2014(f)
Revenues 23
400 22
582 19
790 16
548 13
585 [12
900–13
100] [12
900–13
100] [12
900–13
100]
Profit/Loss before tax 206 470 –
3
756 76 –
244
[– 220 – 180] [68–75] [85–110]
To achieve these results, SA proposes the following key
the reduction of costs of fleet operation, including
actions:
savings resulting from fleet unification and optimisation
of transportation capacity.
(39) Revenue initiatives: SA introduced a new revenue
(36) Optimised network model and fleet rightsizing: At the
beginning of its restructuring process, SA was flying
management system to optimise fare-setting and avail
to 67 destinations. This network will be reduced by
ability, aiming at an increase in revenue per ASK by
[18–20]% and SA now focuses solely on markets
[3–3,5]% in 2011. A further revenue increase is
within the range of its short–haul/medium–haul fleet.
predicted in connection with the expected rise of sales
Flights to New York and Canada were discontinued
through the website of SA – [20–22]% of tickets are to
be sold online by 2012 against [7–8]% in 2009. This
back in 2009. The expected reduction in passenger
should be accompanied by revenues from sales of
traffic measured in revenues per passenger-kilometre as
associated own products, such as second baggage fees,
compared with 2009 is [22,5–25,5]%, while the revenue
premium seat assignment fees and on-board sales, as well
per available seat-kilometre ("ASK") is expected to
as products from third parties, such as hotels, car rentals
increase by [3,8–4,4]%. Both profitable and loss-making
routes were discontinued.
and travel insurances. Revenue management is expected

to contribute to profits in the amount of CZK [500–560]
million by the end of 2012.
(37) The aircraft fleet should be reduced by more than 50 %,
(40) Cost
reduction
initiatives: In 2009, SA generated 3 200
resulting in 20 to 23 aircraft as opposed to 49 aircraft
jobs directly and more than 1 600 jobs through its
before restructuring. The overall number of flights will be
subsidiaries. Under the restructuring, SA generates
reduced by [36–40]% and ASK by [21–24]%.
1 730 jobs directly and 1 974 jobs in its subsidiaries,
Consequently the seat-load factor should improve and
which amounts to a reduction of more than 1 000
reach [66–73]% under the base-case scenario.
jobs achieved by mid-2012. SA reduced the number
of pilots and cabin crew to the regulated minimum. It
further reduced catering costs in economy class, in-flight
entertainment, the cost of irregularities and fuel
consumption. Moreover, rental, IT and telecommuni
(38) The
fleet
structure
should
be
simplified
and
modernised
cation costs should be reduced. Finally, the representation
by way of a gradual replacement of older aircraft types
offices abroad and in the Czech Republic should be
(Boeing B737-400 and B737-500) by Airbus planes only.
downsized. Cost reduction initiatives are expected to
The modernisation of SA's fleet will increase the
save CZK [275–310] million and contribute to revenues
competitiveness of SA, which will obtain more
in the amount of CZK [650–725] million by the end of
advanced and more reliable aircraft offering greater
2012. Costs of sales per passenger were already reduced
passenger comfort. Other benefits of this measure are
by [14,5–16,5]% in 2010.

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L 92/22
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Official Journal of the European Union
3.4.2013
(41) Organisational
changes: The Czech Republic has twice
particular the cost of fleet rightsizing and severance
attempted to privatise SA in the past ( 1 ); however,
payments, the Czech Republic recapitalised the bene
both of these attempts failed. The Czech authorities
ficiary with CZK 2 500 million of State aid in the form
believe that the creation of AH constitutes an efficient
of a debt-for-equity swap (i.e. [23–26]% of the restruc
way to sell SA and its subsidiaries to a new private
turing costs), according to Resolution No 333, on
investor. Firstly, non-core activities that were previously
30 June 2010.
carried on by SA were transferred to its subsidiaries in
2010. This enabled SA to focus on its core business.
Secondly, these subsidiaries were sold to AH on market
terms. Finally, both SA and Prague Airport will be
(45) SA proposes the remaining amount, i.e. the own
incorporated into AH.
contribution of [74–77]%, to be financed by the sale
of assets set out in Table 5.
(42) This
structure
should
not
only
make
the
companies
more
attractive to potential investors but also ensure a
(46) SA sold its duty-free business for CZK [760–840]
competitive pricing of intra-group services and
million to Aelia Czech Republic, s.r.o. in February
stimulate the profit-making of all subsidiaries as well as
2010. The business was sold following a two-round
their orientation towards external customers.
tender procedure organised by UniCredit Czech
Republic, a.s.
(43) Sale of non-core assets: In addition to the sale of
subsidiaries to AH, SA has sold a considerable
(47) SA swapped two slots at London-Heathrow Airport
number of other assets in the course of its restructuring,
with British Airways Plc. ("BA") for a financial
as shown in Table 5. All of these assets were sold either
consideration in July 2010. The slot exchange
through an open, transparent and non-discriminatory
agreement provides that SA and BA are to transfer to
tender or on the basis of independent appraisal reports.
each other by way of exchange their respective slots ( 2 )
for a financial consideration of GBP [17–19] million
(around CZK [450–530] million). The exchange of slots
was carried out in 2010 and BA paid the consideration
Table 5
to SA in two instalments in November and December
2010.
Sale of SA's assets in the course of restructuring
Amount in CZK
million
(48) SA sold 15 aircraft under the following conditions: In
2010, SA sold five Boeing B737-400s to BLF Limited,
Sale of Duty-Free business to Aelia Czech
[760–840]
which is a special-purpose vehicle of the Russian carrier
Republic, s.r.o.
UTair, for the price of USD [54–60] million and two
Boeing B737-500s to Mauritanian Airlines International
Sale of slots at London-Heathrow to British
[450–530]
Airways
for the price of USD [12,5–15] million. In 2011, SA
sold three Boeing B737-500s to Mika Limited for the
Sale of aircraft to various airlines [1
950–2
200]
total price of USD [21–25] million. In 2011 SA sold
two ATR72-202s to Helitt Lineas Aéreas S.A. for the
Sale of Slovak Air Services, s.r.o. to Skyport,
[17,5–19,5]
price of USD [7,9–8,9] million, two ATR72-200s to
a.s.
EUROLOT S.A. for the price of USD [7,9–8,9] million
and one ATR42-320 to Regourd Aviation for the price
Sale of land and buildings to Prague Airport [1
620–1
850]
of USD [1,6–1,9] million. The total revenue from the
sales of aircraft amounts to approximately USD
Sale of subsidiaries to esk Aeroholding,
[2 350–2 600]
[105–120] million, or CZK [1,950–2,2] billion (
a.s.

3 ).
Total [7
150–8
025]
(49) On
30
September
2010,
SA sold Slovak Air Services,
s.r.o., a provider of air services in the Slovak Republic, to
2.4. STATE AID AND FINANCING OF THE RESTRUCTURING
the company Skyport, a.s. for the purchase price of
COSTS
CZK [17,5–19,5] million. The bidder offered the highest
price in an open tender procedure.
(44) Given
the
total
restructuring
costs
of
CZK
[8,9–10,5]
billion (EUR [360–410] million) which include in
( 2 ) i.e., the slots allocated to them for the summer 2011 scheduling
period (27 March 2011–29 October 2011) and the winter
( 1 ) In 1992, Air France acquired 19 % of the shares in SA but
2010/2011 scheduling period (31 October 2010–26 March 2011).
disposed of them again in 1994. In April 2009, a tender for the
( 3 ) At the exchange rate of 18,5 CZK per USD as calculated by the
sale of the State’s equity stake in SA was organised, but as no
Czech Republic. (According to the Czech National Bank, the
adequate bid was submitted to the Czech Government, the Czech
quarterly exchange rate average of USD-CZK varied between 18,3
Government eventually instructed the Minister for Finance to cancel
and 20,2 CZK per USD in 2010 and between 16,9 and 18,78 CZK
the tender in October 2009.
per USD in 2011.)

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EN
3.4.2013 Official
Journal
of
the
European
Union L
92/23
(50) SA generated CZK [1,62–1,85] billion from the sale of
investor. The value of this property is based on an inde
land and buildings to the State-owned Prague Airport. A
pendent external valuation by court-registered experts
summary of the sales is described in Table 6 below.
which uses recognised standards.
Table 6
(53) The most important part of the company's own
Sale of land and property of SA to Prague Airport
contribution comes from the sale of subsidiaries of
SA to AH. These sales took place at the end of
2011/beginning of 2012 and consisted of the sale of
Plot/Asset
Purchase
agreement
Price ('000 CZK) Expert appraisal
Czech Airlines Handling, a.s. (CZK [700-800] million),
the sale of SA Services, s.r.o. (CZK [25–28] million),
2570/4 2.2.2010 [48
000–
Proscon, s.r.o.,
and the sale of HCA (CZK [500–580] million) and
58 000]
dated
Czech Airlines Technics, a.s. (CZK [1-1,15] billion). The
8.12.2009
sales were not carried out by way of an open, transparent
2570/13 2.2.2010 [15
500–
17 000]
and non-discriminatory tender; however, the value of the
subsidiaries was established by independent appraisal
Parking on
2.2.2010 [65
500–
reports provided by Deloitte Advisory, s.r.o. and Price
plots 2570/4
74 500]
waterhouseCoopers eska republika, s.r.o.
and 2570/13
2570/14 9.12.2009 [16
000–
19 000]
2.5. THE OPENING DECISION
APC office
9.12.2009 [554
000–
(54) On
23 February
2011,
the
Commission
opened
the
building
625 000]
formal investigation procedure. In its opening decision,
the Commission expressed doubts relating to several
2586/1 13.5.2010 [15
000–
YBN Consult
17 500]
dated
conditions of the R&R Guidelines. In particular, the
10.5.2010
Commission did not exclude that SA had been in
2587 13.5.2010 [69
500–
difficulties according to the R&R Guidelines already
80 000]
before the second half of 2009, i.e. before the start of
the restructuring process as claimed by the Czech auth
2588/3 13.5.2010 [14
250–
orities.
16 000]
2589/1 13.5.2010 [2
600–
3 000]
(55) The
Commission also
expressed
doubt
regarding
the
2590/25 13.5.2010 [87
250–
point whether the difficulties of SA were too serious
95 000]
to be dealt with by AH. The Commission also
wondered whether it would be possible under Czech
Hangar F 13.5.2010 [700
000–
law for Prague Airport to contribute financially to the
800 000]
restructuring process of SA and its subsidiaries. Also,
the Czech authorities were invited to comment on
Total: [1
620
000–
whether the business transactions between SA and
1 850 000]
Prague Airport, as of the date of implementation of the
merger, had taken place on market terms which excluded
the transfer of possible State aid from a beneficiary of
rescue or restructuring aid to another entity within AH.
(51) The
Government
of
the
Czech
Republic
has
expressed
its
strategic interest in acquiring SA's airside properties.
The Czech authorities justify these transactions with the
use they will make of the properties. According to the
(56) Regarding the return to long-term viability, the
Czech authorities, the property is strategically important
Commission invited third parties to comment on the
for Prague Airport with a view to the new runway to be
underlying assumptions concerning the external factors.
built at the airport. The Czech Republic also noted that
The Commission also invited the Czech Republic to
Prague Airport is renting another hangar (Hangar E) to
clarify whether all of the structurally loss-making
Travel Service, a.s. which shows the potential of
activities would be abandoned after restructuring.
obtaining revenues from marketing real estate no
Furthermore, the Commission questioned whether long-
longer needed by SA.
term viability could be achieved by the end of 2012,
which was the notified end of the restructuring period,
and whether the envisaged most likely scenario (which
(52) The
sale
of
the
property
described
in
Table
6
was
not
was also the "best-case scenario") was indeed the most
carried out by way of an open, transparent and non-
realistic one to be achieved. Also, the Commission
discriminatory tender. However, in line with its general
doubted whether SA would be able to secure (from
policy and the legal national requirements, all property
its own financial means or from external resources)
acquisitions by a State-owned company have to be done
commercial loans and possible commercial guarantees
at a fair open-market value which reflects the price that
for the planned purchase of 7 aircraft contracted for
would be paid on an arm's-length basis by a private
the years 2013 and 2014.

---

L 92/24
EN
Official Journal of the European Union
3.4.2013
(57) Regarding compensatory measures, the Commission
all of the companies within AH were controlled by the
expressed doubts as to whether the proposed measures
State and therefore any assistance would be subject to
were not merely closure of loss-making activities which
State aid rules. Moreover, any financial assistance would
would in any case be necessary in order to achieve
also have to meet the requirements of the Czech
viability. Such measures would then not qualify as
Commercial Code and tax laws. Also, the problems
genuine compensatory measures. The Commission also
SA faced arose before the creation of the AH
noted that only compensatory measures taking place
structure and thus could not be the result of "arbitrary
within the restructuring period could be accepted.
distribution of costs within the current SA group" and
Therefore, the discontinuation of the Toronto and New
were hence intrinsic in nature to SA.
York JFK flights would fall outside the proposed restruc
turing period, which was from the second half of 2009
until 2012.
(63) As
regards
any
possible
contribution
to
the
restructuring
of SA by Prague Airport, the Czech Republic asserted
that the airport was not contributing to SA's restruc
(58) Regarding
the
level
of
own
contribution
of
SA, the
turing in any way, and that the Czech Republic, as sole
Commission invited the Czech Republic to clarify the
shareholder in Prague Airport, did not envisage any such
proposed AH structure. It also questioned whether the
contribution in the future either. Transactions between
totality of the proposed own contribution could be
SA and Prague Airport were carried out on the
considered real (in relation to the transactions that had
standard terms offered by Prague Airport to its
not yet taken place at the time of adoption of the
business partners. Rents and other pecuniary consider
opening decision).
ations were based on its applicable price lists.
3. COMMENTS FROM THE CZECH REPUBLIC
(64) Apart
from
compliance
with
legal
statutory
requirements,
(59) In
its
reply
to
the
Commission's
opening
decision,
the
the companies within AH would enjoy substantial
Czech Republic submitted comments and clarifications
business autonomy in so far as the parent company,
regarding all of the points raised in the Commission's
AH, would not interfere with the business management
opening decision, indicating that the notified RP
of its subsidiaries. Since all relations between the
complied with all the conditions imposed by the R&R
companies within AH would be conducted on an
Guidelines. Moreover, the Czech Republic also provided
arm's length basis, in compliance with legal requirements,
an update regarding the restructuring process, demon
as stated above, the Czech Republic asserted that any
strating that a number of restructuring measures had
transfer of the restructuring aid granted to SA by any
already been implemented and that significant progress
company within AH was impossible.
had already been made.
(65) Regarding the doubts about the return to long-term
(60) As
regards
the
point
of
time
when
SA entered into
difficulties, the Czech Republic asserted that SA was
viability, the Czech Republic presented amended
in difficulties as of August 2009 because this was
forecasts regarding the future scenario of viability of
when management realised that even the usually
SA, presenting an amended base-case scenario. The
profitable performance of the company in the summer
new base-case scenario anticipated a slower growth rate
season had been negatively impacted. The Czech
following a revisited demand development as well as
Republic also provided quarterly results and additional
more conservative estimates of future oil prices. As
information demonstrating why it considered that SA
regards the discontinuation of unprofitable activities,
had entered into difficulty only in August 2009.
the Czech Republic confirmed that all subsidiaries with

the exception of Czech Airlines Technics generated a
profit, and as such could be sold as well-functioning
and viable businesses. Czech Airlines Technics would
(61) As
regards
the
AH holding structure, the Czech auth
also be sold to AH at the price of its assets, as
orities clarified that the purpose of AH was to
evaluated by an independent external expert. As regards
"unbundle" the companies and to improve their access
the financing of the aircraft to be delivered after the
to commercial financing and prepare them for the
restructuring period, the Czech Republic believed that,
planned privatisation. Relations between the companies
upon implementation of the RP and the expected entry
within the holding company would be regulated by
of a private investor, the company would be able to
contract, on an arm's length basis, and in accordance
secure private financing for the contracted planes.
with the applicable provisions of the Czech Commercial
Code and the Income Tax Act governing relations
between related parties.
(66) As
regards
compensatory
measures,
the
Czech
Republic
asserted that the sale of assets (including its subsidiaries),
the reduction of ASK and the reduction of SA's
(62) As
regards
the
impossibility
of
resolving
SA's difficulties
presence at Prague Airport constituted a sufficient
within the AH group, the Czech Republic clarified that
compensatory measure in view of the fact that SA

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EN
3.4.2013 Official
Journal
of
the
European
Union L
92/25
was a regional carrier with a small fleet and a limited
TS also criticises the compensatory measures offered on
number of destinations. It was exposed to competitive
the ground that they constitute mere abandonment of
pressure from large companies and low-cost carriers and
activities necessary to the survival of the company. TS
hence any further compensation could jeopardise SA's
also claims that the sales of assets claimed as an own
ability to become viable within a reasonable timescale.
contribution were carried out and the funds spent before
The Czech Republic asserted that the Toronto and New
any restructuring process began and cannot thus be
York JFK flights had been discontinued in November
considered a real contribution to the costs of restruc
2009, hence within the notified restructuring period.
turing.
(71) Also,
TS
claims
that
the
State
aid
received
by
SA has
(67) The
Czech
Republic
provided
information
about
a
private
enabled the expansion of its business and its subsidiaries.
loan amounting to CZK [125–140] million granted by
Allegedly, SA was able to (i) expand its charter business,
Komerní banka which was proposed as an own
although SA was going to abandon it because it was
contribution of SA. The loan consisted of a credit line
previously loss-making, and (ii) renew its fleet, which
based on a framework agreement. The framework
provides SA with a competitive advantage hardly to
agreement providing for a credit line of CZK [480-540]
be gained by any comparable competitor at a time of
million had already been concluded on 31 March 2009
financial crisis.
and amended in June and December 2009.
(72) Indeed,
TS
claims
that
SA has used the State aid it
(68) Regarding
the
own
contribution
of
SA to its restruc
received to expand its charter-business subsidiary HCA,
turing, the Czech Republic presented proofs of sale of
which can offer flights at a price 20 % lower than the
already divested assets. Furthermore, the Czech Republic
standard prices on the market ( 4 ). TS also claims that
confirmed that the notified State aid in the form of a
SA raised the registered capital of HCA by CZK 162
guarantee would not be needed as SA was able to
million in May 2010.
obtain private financing of the aircraft which was
procured in the form of a financial lease that was
provided by […]. The aircraft was delivered to SA in
May 2011.
(73) Further
advantages
allegedly
granted
to
SA consist of
the possibility of operating the Prague-Tel Aviv route. TS
argues that this possibility was apparently negotiated by
the authorities of the Czech Republic exclusively for SA
in a way circumventing legal regulations and providing
4. COMMENTS FROM INTERESTED PARTIES
SA with an advantage over its competitors.
(69) During the investigation procedure the Commission
received only one substantiated comment from a
competitor ( 1 ) and one comment from a local civic
(74) TS
argues
as
well
that,
even
before
the
creation
of
AH,
association ( 2 ). The competitor is Travel Service, a.s. and
a de facto concentration of Prague Airport and SA took
Icelandair Group hf (hereinafter referred to as "TS"), a
place because joint management of the two companies
company that competes with SA mainly in the
was established. Indeed, TS claims that the chief executive
charter travel market. TS argues that the aid to SA
officer (CEO) of SA has been remunerated by Prague
cannot be considered compatible because it does not
Airport and that cross-subsidisation of IT services
fulfil the conditions of the R&R Guidelines.
provided to SA takes place.
(70) Regarding
the
return
to
long-term
viability
of
SA, TS
(75) Furthermore, Prague Airport then bought assets
criticizes the RP, stating that it lacks a clear business
(buildings and land) from the airline which it allegedly
model (
did not need and leased them back to the airline. Such a

3 ) for the company and that several of the key
assumptions of the best-case scenario are overly opti
privileged relationship between Prague Airport and SA
mistic (fuel price, exchange rates, capacity utilisation).
resulted in preferential treatment such as price discrimi
nation regarding airport services and access to commer
cially sensitive information. Moreover, TS argues that the
( 1 ) The comment was supplemented by two additional submissions and
creation of AH has a negative impact on competition
a complaint.
due to the vertical integration between the airport and
( 2 ) The civic association "Pro Hanspaulku" alleges that the aid granted
to Czech Airlines serves to maintain artificially the airline as a
the main carrier. According to TS, the main reason for
customer of Prague Airport, which is planning to build another
the creation of AH is to enable the granting of State aid
runway. The civic association is mainly concerned about the envi
to SA through the acquisition of its subsidiaries by
ronmental as well as the social impact of this project.
AH.
( 3 ) In particular, TS argues that SA takes wrong business decisions
such as the opening of loss-making routes such as the new
Prague–Abu Dhabi route in September 2011.
( 4 ) For assessment, see recitals 171-174.

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L 92/26
EN
Official Journal of the European Union
3.4.2013
5. COMMENTS FROM THE CZECH REPUBLIC ON THE
operated by SA on its own but as a code-share flight ( 4 )
OBSERVATIONS OF INTERESTED PARTIES
operated in cooperation with Etihad Airways. The route
focused on transfer passengers who could use many
(76) The Czech Republic addressed in detail all of the
different connecting long-distance flights from Abu
arguments raised by third parties in their comments. In
Dhabi operated by Etihad Airways. This cooperation
particular, as to the return to long-term viability, the
thus improved SA's sales options and contributed to
Czech Republic stressed that it had updated the RP ( 1 )
the restoration of its long-term viability at very low
and thus addressed a number of comments in the
additional costs.
updated assumptions. Furthermore, it noted that the
State aid amount had decreased significantly in the
course of the proceedings in view of the abandoned
project for the State-aid-guaranteed purchase of an
aircraft.
(80) The
sale
and
lease-back
of
the
APC
office
building
was,
according to the Czech Republic, a standard market
practice which enabled the seller to obtain liquid funds,
while the purchaser obtained a stable source of future
rental income. Moreover, the land sold was of strategic
(77) As regards the possible use of State aid funds for anti
importance in view of the construction of a new runway
competitive conduct of the charter division of SA, the
that was to be built at Prague Airport. For this reason
Czech Republic stated that the charter business was
Prague Airport was interested in purchasing the property.
already independent and separate from scheduled
Also, according to the Act on the Ownership of Prague-
transport at the time when the State aid was granted.
Ruzyně Airport
( 5 ), Prague Airport, including any
SA never made any monetary contribution to
adjacent or related land, could only be owned by the
HCA's ( 2 ) registered capital. HCA's registered capital was
Czech Republic or a legal entity domiciled in the
increased by an in-kind contribution of a part of SA's
Czech Republic and wholly owned by the State. This
business involved in the operation of charter transport.
requirement limited the number of suitable purchasers
This part of the business was evaluated by an inde
to fully State-owned companies only. The operator of
pendent expert.
Prague Airport was such an entity and had, moreover,
a strategic interest in acquiring the land.
(78) As
regards
the
alleged
advantage
received
by
SA for
operating the Tel Aviv route, the Czech Republic
(81) The Czech Republic repeatedly stated that the
explained that, although TS was chosen (pursuant to an
commercial relations between SA and Prague Airport
open tender; starting from the winter flight schedule for
were and always had been in accordance with national
2011/2012) as the sole air carrier with transportation
and Union law (see recitals 61-64). As regards AH, the
rights for ten years for the provision of agreed services
Czech Republic explained that, pursuant to Government
on the Prague–Tel Aviv route in accordance with
resolution No 848 of 24 November 2010, AH did not
applicable law ( 3 ), TS received no guarantee to the
represent permanent vertical integration of infrastructure
effect that no other carrier would be authorised to
and air carriers but merely a merger (between SA and
operate the route for the duration of that term. The
Prague Airport) of limited duration and function, the
Czech authorities stated that it was a general policy of
objective of which was to sell SA and its subsidiaries
the Ministry of Transport of the Czech Republic not to
on the best terms possible.
maintain existing restrictions but, on the contrary, to
expand the opportunities for air carriers in terms of
market access in order to liberalise the markets for air
transport services.
(82) Finally,
as
regards
the
comments
presented
by
the
civic
association Pro Hanspaulku, the Czech Republic
commented that the civic association had not proved
the existence of legitimate interest nor could such an
(79) As regards the opening of the Prague–Abu Dhabi route,
interest be inferred from the objection submitted which
the Czech Republic explained that this route was not
related to completion of a new runway at Prague Airport
which was allegedly to be used primarily by the
restructured SA. To this, the Czech Republic answered
( 1 ) Following the opening of the formal investigation procedure, the
Czech Republic submitted two updated versions of the RP (dated
that, in compliance with the RP, the presence of SA at
15 September 2011 and 3 January 2012) to the Commission.
Prague Airport would actually be reduced and thus the
( 2 ) Pre-restructuring HCA was only providing travel agency services
comments submitted by the civic association were not
which SA planned to close down in its first version of the RP.
founded.
However, in the revised RP, the HCA travel agency was maintained
and SA's charter business division was included.
( 3 ) Act No 49/1997 on Civilian Aviation and amending Act
( 4 ) Code-sharing is a common form of cooperation between air carriers
No 455/1991 on Trade Licensing (the Trade Licensing Act), as
whereby a flight operated by a particular carrier is offered by other
amended, and the Treaty between the Government of the Czech
carriers to improve their sales options. This form of cooperation
and Slovak Federal Republic and the Government of the State of
enables carriers to expand their networks of destinations on offer.
Israel on Air Transport, signed in Jerusalem on 24 April 1991.
( 5 ) Act No 69/2010 on the ownership of Prague–Ruzyně Airport.

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EN
3.4.2013 Official
Journal
of
the
European
Union L
92/27
6. ASSESSMENT OF THE AID
(88) Therefore, the notified capital injection in the form of the
debt-for-equity swap constitutes State aid within the
6.1. EXISTENCE OF STATE AID
meaning of Article 107(1) of the TFEU. This conclusion
is not disputed by the Czech authorities.
(83) By virtue of Article 107(1) of the TFEU, any aid granted
by a Member State or through State resources in any
form whatsoever, which distorts or threaten to distort
competition by favouring certain undertakings or the
6.2.
production of certain goods, shall, in so far as it affects
LEGALITY OF THE AID
trade between the Member States, be incompatible with
(89) Article
108(3)
of
the
TFEU
provides
that
a
Member
State
the internal market.
shall not put an aid measure into effect before the
Commission has adopted a decision authorising the
measure. The Commission observes that the Czech auth
orities implemented the aid, i.e. the debt-for-equity swap
(84) The
concept
of
State
aid
applies
to
any
advantage
granted
of the Osinek loan, as of 30 June 2010. The Commission
directly or indirectly, financed out of State resources,
thus regrets that the Czech Republic did not comply with
granted by the State itself or by any intermediary body
the stand-still obligation and has therefore violated its
acting by virtue of powers conferred on it ( 1 ).
obligation under Article 108(3) of the TFEU.
(85) In this context, the notified capital injection in the form
6.3. COMPATIBILITY OF THE AID WITH THE INTERNAL
of the debt-for-equity swap of the Osinek loan has to be
MARKET UNDER THE R&R GUIDELINES
seen as State aid. The capital injection involves State
resources and constitutes a selective advantage to SA,
(90) Article
107(3)(c)
of
the
TFEU
lays
down
that
aid
can
be
since it improves its financial situation.
authorised where it is granted to promote the devel
opment of certain economic sectors and where this aid
does not adversely affect trading conditions to an extent
contrary to the common interest.
(86) According to the case law of the Court of Justice, aid to
an undertaking is deemed to affect trade between
Member States where that undertaking operates in a
market open to trade at Union level ( 2 ). The mere fact
(91) The
Commission considers
that the
present
measure
that the competitive position of an undertaking is
constitutes restructuring aid which must be assessed in
strengthened compared with other competing under
the light of the criteria under the R&R Guidelines in
takings, by giving it an economic benefit which it
order to establish whether it is compatible with the
would not otherwise have received in its normal course
internal market pursuant to Article 107(3) of the TFEU.
of business, points to a possible distortion of competi
tion ( 3 ). Therefore, aid granted by a Member State to an
undertaking may help to maintain or increase domestic
activity, with the result that undertakings established in
6.3.1. Eligibility
other Member States have less chance of penetrating the
market of the Member State concerned (
(92) Regarding
eligibility,
point
33
of
the
R&R
Guidelines

4 ).
states that the firm must qualify as a firm in difficulty
within the meaning of points 9 to 13 of those Guide
lines.
(87) The
measure
at
hand
affects
trade
between Member
States and competition as SA is in competition with
other European Union airlines, in particular since the
entry into force of the third stage of liberalisation of
Firm in difficulty
air transport ("third package") on 1 January 1993. The
measure in question enables SA to continue operating
(93) According to point 9 of the R&R Guidelines the
so that it does not have to face the consequences usually
Commission regards a firm as being in difficulty when
deriving from its poor financial results and therefore it
it is unable, whether through its own resources or with
distorts competition.
the funds it is able to obtain from its owners/share

holders or creditors, to stem losses which, without
outside intervention by the public authorities, will
( 1 ) See judgment of the Court of 16 May 2002, Case C-482/99 France v
almost certainly condemn it to going out of business
Commission ("Stardust Marine") [2002] ECR I-4397.
in the short or medium term.
( 2 ) See in particular judgment of the Court of 13 July 1988, Case
102/87 French Republic v Commission of the European Communities
[1988] ECR 4067.
( 3 ) Judgment of the Court of 17 September 1980, Case 730/79 Philip
Morris Holland BV v Commission of the European Communities [1980]
(94) Subsequently,
point
10(a)
of
the
R&R
Guidelines
clarifies
ECR 2671.
that a limited liability company is regarded as being in
( 4 ) See in particular judgments of the Court of 15 December 2005,
difficulty where more than a half of its registered capital
Case C-66/02 Italy v Commission [2005] ECR I-10968, para. 117
and of 15 June 2006, Joined Cases C-393/04 and C-41/05 Air
has disappeared and more than one quarter of that
Liquide Industries Belgium [2006] ECR I-5332, para. 35.
capital has been lost over the preceding 12 months.

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L 92/28
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Official Journal of the European Union
3.4.2013
(95) The
Czech authorities
claim that SA, a joint-stock
of the group show that the airline, despite being part of a
company under Czech law and therefore a limited
larger group of companies, in fact accounts for the
liability company in terms of point 10(a) of the R&R
predominant part of the turnover (94 %) and therefore
Guidelines, entered into serious difficulties as of August
there is no possibility for any other part of the group to
2009 when the financial crisis severely impacted even the
finance the restructuring of the airline. Furthermore, the
high season – the summer flight schedule. At the time,
accounts demonstrate that the airline’s losses are intrinsic
operating cash flow sunk to CZK [– 2,4 – – 2,1] billion,
to the airline itself and are therefore not attributable to
which had a dramatic impact on the company’s assets.
any part of the group.
(96) Indeed, in August 2009 the company fulfilled the
conditions of point 10(a) of the R&R Guidelines. The
(101) The Commission thus considers that the difficulties of
total registered capital of SA amounted to CZK 2 735
SA are not the result of an arbitrary allocation of
million. According to the Czech accountancy standard,
costs within the group but are mostly due to weak
SA's equity was negative by August 2009 (amounting
revenues in its core business. The difficulties are too
to CZK [– 1 000–(– 900)] million at the end of July
serious to be dealt with by the group itself especially
2009) and more than one quarter of its registered
because the positive contribution by profitable
capital had been lost over the preceding 12 months
subsidiaries is far too small to compensate for the
since the equity amounted to CZK [900–1 000] million
losses in SA's core business.
in July 2008. Therefore, from August 2009 SA started
its restructuring process. Hence, the company was indeed
a firm in difficulty within the meaning of the R&R
(102) The Commission notes that the creation of AH (end
Guidelines at the time of granting of the restructuring
2011/beginning 2012), which in principle constitutes a
aid in June 2010.
business group in terms of point 13 of the R&R Guide
lines, was carried out after the granting of the restruc
turing aid and can therefore be regarded as a part of the
Newly created firm
restructuring which has no impact on the eligibility for
restructuring aid. Furthermore, the Commission notes
(97) Point
12
of
the
R&R
Guidelines
states
that
a
newly
that all business relations between the member
created firm is not eligible for rescue or restructuring
companies of AH will be carried out on an arm's
aid even if its initial financial position is unsecure. A
length basis in compliance with the relevant provisions
firm is in principle considered to be newly created for
of Czech law ( 2 ), hence no contribution to the restruc
the first three years following the start of operations in
turing process of SA by other members of the group is
the relevant field of activity.
possible.
(98) SA was created in 1923 and cannot therefore be
considered a newly created firm.
6.3.2. Restoration of long-term viability
(103) First, according to point 35 of the R&R Guidelines, the
restructuring plan, the duration of which must be as
Business group
short as possible, must restore the long-term viability
of the firm within a reasonable timescale and on the
(99) Point
13 of the R&R Guidelines
states that a firm
basis of realistic assumptions as to future operating
belonging to or being taken over by a larger business
conditions.
group is not usually eligible for rescue or restructuring
aid, except where it can be demonstrated that the firm's
difficulties are intrinsic and not the result of an arbitrary
allocation of costs within the group, and that the
(104) Pursuant to point 36 of the R&R Guidelines the plan
difficulties are too serious to be dealt with by the
must describe the circumstances that led to the
group itself. Where a firm in difficulty creates a
company's difficulties and take account of the present
subsidiary, the subsidiary, together with the firm in
state and future market prospects with best-case, worst-
difficulty controlling it, will be regarded as a group and
case and base-case scenarios.
may receive aid under the conditions laid down in point
13 of the R&R Guidelines.
(105) The plan must provide for a turnaround that will enable
the company, after completing its restructuring, to cover
(100) At the time of granting of the restructuring aid in 2010,
SA formed a group with a number of companies that
all its costs including depreciation and financial charges.
are active in air-transport-related fields (
The expected return on capital must be high enough to

1 ). The accounts
enable the restructured firm to compete in the
marketplace on its own merits (point 37 of the R&R
( 1 ) These were: Amadeus Marketing SA, s.r.o. (65 % ownership), SA
Guidelines).
Services, s.r.o. (100 % ownership), Holidays Czech Airlines, a.s.
(100 % ownership), Slovak Air Service, s.r.o. (100 % ownership),
Czech Airlines Handling, s.r.o. and Czech Airlines Technics, a.s.
( 2 ) Articles 66a and 196a of Act No 513/1991 (Commercial Code) and
(100 % ownership).
Section 23 (7) of Act No 586/1992 (Income Tax Act).

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EN
3.4.2013 Official
Journal
of
the
European
Union L
92/29
(106) The Commission notes that the RP, as summarised in
revenue per ASK by [3,9–4,3]%. Consequently the seat-
section 2.3 above, describes the circumstances that led
load factor is to improve to [66–73]% under the base-
to the company's difficulties. It takes into account present
case scenario. The renewal of the fleet as well as the
and future prospects on the main market of the SA,
replacement of Boeings by Airbuses will lead to lower
namely scheduled passenger air transport, and it presents
operating and maintenance costs which will bring more
scenarios based on best-, worst- and base-case assump
efficient business management of the fleet. The network
tions, as well as SA' strengths and weaknesses. The
and fleet downsizing is expected to generate net proceeds
Commission thus notes that the RP deals with all
of CZK [195–215] million by the end of 2012.
formal aspects required by point 36 of the R&R Guide
lines.
(111) The Commission also notes that SA introduced a new
revenue-management system aiming at an increase in
(107) The current RP assumes that a return to long-time
revenue per ASK by [3–3,5]% in 2011. Coupled with
viability will be achieved by June 2014. The revised
revenues from sales of associated own products as well
restructuring period of five years is relatively long.
as products from third parties, the revenue management
However, according to the base-case scenario SA will
is expected to contribute to profits by CZK [500-560]
generate profit already in 2013. Also, most of the
million by the end of 2012.
restructuring measures have already been implemented,
including the downsizing of the company and generating
the own contribution. The Czech authorities have
demonstrated that the strategy in the RP is set out
(112) The Commission, on the basis of its knowledge of the
over five years after a careful assessment of the shortest
sector in other airline restructuring cases, considers these
time required to restore the long-term viability of SA,
initiatives to be capable of enabling SA to reduce its
keeping in mind possible future operating conditions.
costs and generate additional revenues in order to
Furthermore, the Commission notes that, especially in
achieve a return to long-time viability by June 2014.
the air transport sector in the current economic circum
stances, the stabilisation of operational and services
performance has to be achieved in order to ensure a
long-term viability as a solid base for future growth and
(113) The forecast results are based on realistic assumptions,
not only a short-term turnaround. This takes by its very
especially growth rates, inflation, fuel prices and
nature several years. The Commission further notes that
USD/CZK exchange rates. In its comments on the
in previous cases a restructuring period of five years or
opening decision, the Czech Republic addressed the
more has been accepted (
Commission's doubts on the underlying assumptions by

1 ). Therefore, on balance, the
Commission considers the five-year restructuring period
providing further clarifications, especially:
to be acceptable.
— Apart from prolonging the initial restructuring
period, the Czech Republic has revisited its
(108) To enable a turnaround for SA, the RP envisages
predictions for the development of a return to
significant cost reductions, (especially through the
viability, basing itself on a revisited base-case
reduction of capacity and staff and the downsizing of
scenario rather than the best-case scenario which
the company's fleet and the operated network) as well
was the original plan. SA now aims at achieving a
as a number of revenue initiatives.
ROCE of [1,7–1,85]% by 2014 instead of [3–3,5]%
in the original version of the RP.
(109) The Commission notes that SA has significantly
reduced the number of pilots and cabin crew – more
— SA has rescheduled the delivery of 7 aircraft from
than 1 000 jobs have already been cut. The cost
years 2013 and 2014 to 2014 to 2016. It confirms
reduction initiatives are expected to generate net
that it will fund the purchase of all of these aircraft
proceeds of CZK [390–425] million by the end of
through commercial financing, without any State
2012. The costs of sales per passenger were already
assistance.
reduced by [15,5–17]% in 2010.
— The Czech Republic has confirmed that SA is aban
(110) The Commission further notes that the downsizing of
doning all activities which are loss-making.
both the fleet (by 30
%) and the network (by
[18–20]%) is expected to result in an increase of the
(114) The Commission notes positively that, following the
( 1 ) See Commission decisions in cases Austrian Airlines (C 6/09),
opening decision, the underlying assumptions for the
OJ L 59, 9.3.2010, p. 1, recital 296 (six-year restructuring period),
internal and external factors have been revised, such as
Royal Mail Group (SA.31479), C(2012) 1834 final, recital 217 (five-
year restructuring period) and Air Malta (SA.33015), C(2012) 4198
anticipating a slower growth rate in demand between
final, recital 93 (five-year restructuring period).
2010 and 2013 and higher fuel costs. The revision and

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L 92/30
EN
Official Journal of the European Union
3.4.2013
the adaptation of a number of key assumptions has led
on revenues per available seat kilometre (RASK), which
to revised financial projections resulting in a drop in the
increased by [12,5–14]%. In 2011, SA also managed to
predicted profit for 2013 from CZK [123–135] million
reduce its catering costs by CZK [115–130] million and
to CZK [68–75] million. The adapted assumptions now
the unit cost per passenger by [14,5–16]%. Due to the
give a more realistic and sound picture of SA's future
implementation of cost-saving measures, the costs related
development.
to the utilisation of the Global Distribution System
dropped by CZK
[68–75] million in 2010 and
CZK [89–96] million in 2011 on a year-on-year basis.
(115) In addition, SA has provided a scenario analysis
including, besides the above-mentioned most realistic
assumptions (base-case scenario), a best-case and a
(121) SA has already implemented the envisaged reduction of
worst-case scenario with modified assumptions on
staff and the sale of assets, as well as the spin-off of its
several key drivers.
non-core services into subsidiaries that were then sold to
AH.
(116) Under the base-case scenario, SA forecasts achieving a
positive operating margin from 2013. Even in the worst-
(122) In view of the significant restructuring measures
case scenario SA would achieve profitability by 2014.
undertaken and the progress already made to date, the
Commission considers that the revised RP will enable
SA to restore its long-term viability within a reasonable
timescale.
(117) However, the company's ROCE should return only to
modest levels (around [1,9-2,2]%) by 2015. Such
returns are quite low but seem to be realistic in view
of the fact that SA's peer group (AF-KLM, AA, Finnair,
6.3.3. Avoidance of undue distortion of competition
SAS, BA, Croatia Airlines, LH) reached a ROCE between
(compensatory measures)
[– 1,2 – 1]%–[5,4–6,3]% in the years 2003 to 2009. A
positive ROCE in this group was achieved only by
(123) Secondly, according to point 38 of the R&R Guidelines,
Lufthansa ([5,3–6]%), British Airways ([4,9–5,7]%) and
compensatory measures must be taken in order to ensure
AF-KLM ([2–2,3]%). On the other hand, the low-cost
that the adverse effects on trading conditions are
carriers achieved a ROCE of [5,5 – 6,5]–[15,5–17]% in
minimised as much as possible. These measures may
the years 2004-2007 (
comprise divestment of assets, reductions in capacity or

1 ).
market presence and reduction of entry barriers on the
markets concerned (point 39 of the R&R Guidelines).
(118) SA's targeted ROCE will thus stay below the most
efficient low-cost carriers or large major carriers
mentioned above that benefit from economies of scale.
(124) In this regard, closure of loss-making activities which
SA with its restructured fleet (20-23 aircraft) remains a
would in any case be necessary to restore viability will
small regional player whose long-term development can
not be considered a reduction of capacity or market
best be secured with the entry of a private investor.
presence for the purposes of the assessment of the
compensatory measures (point 40 of the R&R Guide
lines).
(119) In view of the fact that the Czech Republic as the owner
of the company is well aware of the situation and in
favour of timely privatisation, this modest return to
(125) SA proposes the following compensatory measures:
viability appears to be acceptable. Moreover, the fact
that SA has managed to obtain a privately funded
lease for the new aircraft, instead of a State-guaranteed
— capacity reduction;
bank credit as originally envisaged, is a sign that the
markets believe in the feasibility of the return to
viability of the company.
— surrender of landing slots at coordinated European
airports, including sale of slots at London-Heathrow;
(120) Furthermore, the Commission notes positively that SA
has made significant progress in its restructuring process
up to now and that the implementation of the envisaged
— sale of assets.
initiatives has already had a positive impact on SA in
2011: while [15,5–17]% of flights had been discontinued
on a year-on-year basis, the year-on-year drop in traffic
(126) In the opening decision the Commission expressed
revenue was only [8–9]%. In the first quarter of 2012
doubts concerning certain compensatory measures
there was a [7,9–8,4]% growth in the volume of point-
offered by SA in the sense that these seemed to be
to-point passengers which had in turn a positive impact
mere viability measures. The Czech Republic has
clarified this point and provided a justification demon
( 1 ) Market study prepared by the Boston Consulting Group.
strating the relevance of the measures listed above.

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EN
3.4.2013 Official
Journal
of
the
European
Union L
92/31
Capacity reduction
the Prague-Abu Dhabi route, the Commission notes that,
following the clarification provided by the Czech auth
(127) SA has planned to reduce its fleet by 50 %, which will
orities, this route is a code-share flight operated in
in turn have an impact on the route network. The total
cooperation with Etihad Airways. In any event,
capacity of the company in 2009 was [8–9] billion ASK.
although new routes might be opened, SA has
At the end of the restructuring process, SA plans to
committed itself to decreasing its total network by
offer [6,2–7] billion ASK, i.e. the network will be reduced
[20-25]% (in ASK) and to maintaining this reduced
by [2–2,2] billion ASK (representing [20–25]%).
network until the end of the restructuring period.
Moreover, SA has offered to eliminate or reduce its
capacity on 16 profitable routes in order to compensate
(128) SA has also agreed that other measures should be
its competitors.
considered mere viability measures such as the decision
to cancel the routes to New York and Toronto. This
decision was taken by the management board of SA
in July 2009 (i.e. before the beginning of the restruc
Surrender of landing slots at coordinated European airports
turing period). The flights were discontinued as of
(133) The Commission notes that, as a result of the changes in
November 2009. However, the fact that SA took the
the network, a number of SA slots at coordinated
decision to discontinue the routes before the start of the
airports (
restructuring period indicates that this business decision

5 ) will be surrendered. The surrender of
landing slots will enable other competing airlines to
was taken in order to improve the viability of the airline
increase their capacity at those coordinated airports
rather than with the aim of minimising any distortive
(regardless of the actual route that has been withdrawn)
effects of the State aid on trading conditions.
and thus represents a reduction of entry barriers on the
market to the benefit of SA's competitors.
(129) In its revised RP, SA proposes to eliminate six profitable
routes ( 1 ) and to reduce the ASK capacity of an additional
10 profitable routes ( 2 ) as compensatory measures. The
Sale of assets
discontinuation and proposed capacity reduction will
lead to a reduction of offered capacity by [900–1 000]
(134) Moreover, SA claims that the sale of its non-loss-
million ASK, which corresponds to a [10–11]% (
making assets such as the sale of slots at London-

3 )
capacity reduction of scheduled transport compared
Heathrow (see recital 47) and of 15 aircraft (see recital
with 2009. SA has confirmed that it will maintain
48) as well as the sale of its duty-free business (see recital
the reduced capacity offered as compensatory measures
46) and the sale of subsidiaries to AH (see recital 53)
until the end of the restructuring period.
should be also considered a compensatory measure.
However, in view of the fact that the compensatory
measures should take place in particular in the market
where the firm will have a significant market position
(130) Routes are considered profitable if they had a positive C1
after restructuring, only the measures related to the
contribution margin in 2009. The C1 contribution takes
passenger air transport market are relevant.
account of flight, passenger and distribution costs (i.e.
variable costs) attributable to each individual route. It is
calculated as (route revenues-route variable costs)/route
revenues. Therefore, all routes which have a positive C1
(135) Hence, besides the [10–11]% capacity reduction on
contribution generate sufficient revenues to not only
profitable routes and the surrender of slots at coor
cover the variable costs of a route but also to contribute
dinated airports, only the sale of slots at London-
to the fixed costs of the company.
Heathrow and of 15 aircraft can be taken into account
as appropriate compensatory measures, whereas the sale
of the duty-free business and the sale of subsidiaries of
SA to AH cannot because they do not affect the
(131) From the Commission's point of view, the C1
contribution margin appears to be the appropriate
position of SA in its core market.
figure since it takes into account all costs which are
directly linked to the route in question. The Commission
notes that a similar margin has been accepted in a
Appropriateness of the proposed compensatory measures
comparable case ( 4 ).
(136) When assessing whether the compensatory measures are
appropriate, the Commission will take account of the
(132) As regards the argument of the third party (TS) which
market structure and the conditions of competition to
alleges that SA opened new loss-making routes such as
ensure that any such measure does not lead to deterio
ration in the structure of the market (point 39 of the
R&R Guidelines).
( 1 ) […].
( 2 ) […].
( 3 ) Net reduction without the withdrawal of loss-making routes which
( 5 ) The majority of these slots is at coordinated airports (airports where
are necessary to restore viability, also considering the envisaged
the slots are allocated by a coordinator under Council Regulation
capacity expansion between FY2010 and FY2013.
(EEC) No 95/93 of 18 January 1993 on common rules for the
( 4 ) See Commission decision in the case Air Malta (SA.33015), C(2012)
allocation of slots at Community airports flight (OJ L 14, 22.1.1993,
4198 final, recital 111.
p. 1)).

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L 92/32
EN
Official Journal of the European Union
3.4.2013
(137) The compensatory measures must be in proportion to
(144) In view of total restructuring costs of
the distortive effects of the aid and, in particular, to the
CZK [8 900–10 500] million, the proposed own
size and the relative importance of the firm on its market
contribution of SA is composed of
or markets. The degree of reduction must be established
on a case-by-case basis (point 40 of the R&R Guidelines).
— a private bank loan granted by Komerní banka
(138) The Commission notes that, although SA still has a
(CZK [125–140] million) and
leading position in the Czech aviation market, SA's
share of the entire European airline industry’s productive
capacity and output (in terms of passengers) is only
1-2 %. For a relatively small carrier like SA, a further
— sale of assets (land, property, aircraft and subsidi
reduction of its fleet size might have a negative effect on
aries) ( 2 ).
its viability, without providing any meaningful market
opportunities for competitors.
(145) The own contribution of SA proposed by the Czech
(139) As to the most important part of the own contribution,
authorities would represent [70-80]% of the total restruc
the capacity reduction, the Commission considers a
turing costs. Furthermore, the Commission notes that
reduction of [10–11]% to be sufficient, in particular
SA obtained a private lease agreement for an aircraft
when compared with other airline restructuring cases ( 1 ).
(USD [25–30] million) which can also be regarded as an
own contribution.
(140) Against this background, the Commission considers the
above-mentioned compensatory measures to be sufficient
under the R&R Guidelines in order to ensure that the
Aircraft lease
adverse effects on trading conditions are minimised as
much as possible.
(146) SA was able to obtain a privately financed lease
agreement for the acquisition of an Airbus A319
aircraft and two engines in May 2011. The lease is
granted under market conditions by […]. The lease
6.3.4. Aid limited to the minimum (own contri
agreement corresponds to a loan which amounts to
bution)
USD [25–30] million (approximately CZK [520–600]
million, or [5,3–5,9]% of the restructuring costs).
(141) Thirdly, according to point 43 of the R&R Guidelines, in
order to limit the amount of aid to the strict minimum
of the restructuring costs necessary, a significant
contribution to the restructuring from the beneficiary's
own resources is necessary. This can include the sale of
(147) The lease company will provide the aircraft supplied to
assets that are not essential to the firm's survival, or
SA to be used under a financial lease for a period of 10
external financing on market conditions.
years; upon payment of all the instalments in full, SA
will become the owner of the aircraft. In addition to the
down-payment of [29-33]% of the price of the aircraft,
SA will make quarterly lease payments to the lessor,
(142) For large firms, the Commission usually considers a
such payments being calculated from the aircraft price
contribution of at least 50 % of the restructuring costs
plus the equivalent of the interest on the loan provided
to be appropriate. However, in exceptional circumstances
by the bank to the lease company (3 months London
and in cases of particular hardship, the Commission may
Interbank Offered Rate (LIBOR) plus margin). The
accept a lower contribution (point 44 of the R&R Guide
payment of the lease payments, (or rather repayment of
lines).
the loan granted by […] to the lease company) will be
secured in particular by a pledge on the aircraft in favour
of the bank, subsisting for the duration of the lease.
(143) The own contribution must be real, i.e. actual, excluding
all future profits such as cash flow (point 43 of the R&R
Guidelines). Inherently, the own contribution must not
include any further State aid.
(148) The Commission notes that that lease agreement demon
strates that SA was already able to obtain external
financing on market conditions without any assistance
( 1 ) In the Air Malta case (Commission decision SA.33015, C(2012)
from the Czech authorities. Such financing shows that
4198 final) the reduction in the capacity of profitable routes
amounted to 5 %. In previous airline restructuring decisions the
the market believes in the feasibility of the envisaged
compensatory measures accepted referred to an overall reduction
return to viability. The Commission hence considers
in capacity - Austrian Airlines: 15
% (Commission decision
the CZK [520-600] million lease to be part of the own
C 6/2009, OJ L 59, 9.3.2010, p. 1, recital 323) LTU: 28 % (Com
contribution.
mission decision N 428/2002, OJ C 148, 25.6.2003), or a decrease
of market share – Cyprus Airways: 3 % (Commission decision
C10/2006, OJ L 49, 22.2.2008, p. 25, recital 129).
( 2 ) For details, see Table 5.

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EN
3.4.2013 Official
Journal
of
the
European
Union L
92/33
Private bank loan by Komerní banka
9 December 2009, 2 February 2010 and 13 May
2010. The sale of these assets amounted to
(149) The proposed loan granted by Komerní banka consists
CZK [1 620–1 850] million ([15–17]% of the total
of a credit line based on a framework agreement. The
restructuring costs).
Commission notes that the framework agreement
providing a credit line of CZK [480–540] million was
already concluded on 31 March 2009 and that, owing
to the deteriorating financial situation of SA, the credit
(155) The Czech Republic has enacted a law on the ownership
line has been reduced in subsequent amendments of the
of Prague-Ruzyně Airport by which all land and property
framework agreement. The latest amendment of the
in the perimeter of Prague-Ruzyně Airport must be
framework agreement of December 2009 provided a
owned by a State-owned company in view of their
credit line of only CZK
[200–220] million until
strategic importance. According to the Czech authorities,
30 June 2010. The Commission understands that the
the property is strategically important to Prague-Ruzyně
proposed own contribution of CZK [125–140] million
Airport in view of the new runway to be built there.
is the latest balance of this credit line.
(156) All of these assets were sold at a price established in
appraisal reports written by independent experts from
(150) The own contribution should demonstrate that the
the Czech Republic ( 1 ) before the respective transactions
market believes in the feasibility of the envisaged return
took place. The Commission has analysed the submitted
to viability. Since the relevant loan agreement was
appraisal reports and found them to be sufficiently
concluded long before the beginning of the restructuring
sound. The evaluations give no cause for concern since
period and given the fact that Komerní banka reduced
no errors have been detected, accepted methodologies are
the credit line successively, the Commission does not
applied and the evaluations are based on credible
accept this private loan as an own contribution in
assumptions. The Commission also notes that the
terms of point 43 of the R&R Guidelines.
appraisal reports were produced before the respective
transactions took place and do not take into account
the monopsony situation of the State as the only
possible buyer. Therefore, the Commission considers
that the results of the present appraisal reports are an
Sale of assets
appropriate approximation for the realistic market prices
of the assets.
(151) The sales of assets can be divided into three groups – (i)
sales to private market operators, (ii) sales of immovable
assets to Prague Airport and (iii) sales of subsidiaries to
the Czech State (AH).
(157) The appraisal report did not take into account any
pledges or other forms of encumbrance. As to pledges,
especially securing the Osinek loan, the Czech authorities
have confirmed that all pledges were lifted before the
sales took place. In two of the three sale contracts,
(i) Sales to private market operators
dated 9 December 2009 and 2 February 2010, the
(152) A part of these sales was carried out on the basis of an
parties agree that the property will be transferred
open, transparent and unconditional tender such as the
without any encumbrances. Only the third contract,
sale of the duty-free business and the sale of Slovak Air
dated 13 May 2010, contains a provision under which
Services, s.r.o.. Another part was sold after individual
the property transferred includes the encumbrances and
negotiations to private entities such as the aircraft and
easements listed in the land registry. The relevant encum
London-Heathrow slots which were sold to various
brances are the following:
airlines and British Airways respectively. These sales
took place in July 2010 and generated CZK [3–3,5]
billion ([31–35]% of the total restructuring costs).
(a) easement in favour of Prague Airport for the usage of
transformers and distribution points (on plot
No 2587);
(153) The Commission notes that this part of the contribution
to the restructuring costs comes indeed from the own
(b) easement in favour of SA for the use of the land for
resources of the company and is real and actual as
operating purposes (plot No 2588/3);
required by point (43) of the R&R Guidelines. The
Commission thus accepts these proceeds as an own
contribution.
(c) easement in favour of PREdistribuce, a.s. for main
tenance of a cable network and the right to enter the
property (plot No 2586/1).
(ii) Sale to Prague Airport
( 1 ) These experts (YBN Consult–Znaleck ústav, s.r.o. and PROSCON,
s.r.o.) are registered in the Register of Expert Institutes maintained by
(154) Land and property located in the perimeter of
the Ministry of Justice of the Czech Republic and have experience in
Prague-Ruzyně Airport was sold to Prague Airport on
the field of the evaluation of assets.

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L 92/34
EN
Official Journal of the European Union
3.4.2013
(158) The Commission considers that encumbrances and
than a mere transfer of capital to SA. The major
easements can in principle reduce the value of real
objective of AH is to make the State-owned
estate. However, the Commission notes that the
companies more attractive to potential investors. With
easement in point (a) in recital 156 ceased to exist at
the AH structure in place it will indeed be easier to
the time when the property was transferred as the
privatise individual subsidiaries of SA to different
easement was in favour of the buyer itself. The Czech
investors separately. Furthermore, the creation of AH
authorities have confirmed that the easement in point (b)
should ensure a competitive pricing of intra-group
in recital 156 did not exist any more at the time when
services and stimulate the profit making of all
the property was transferred. The third easement, in
subsidiaries as well as their orientation towards external
point (c) in recital 156, is still in place but this
customers.
easement is one of the conditions for connecting
Prague Airport to the electricity distribution network
operated by PREdistribuce, a.s.
(164) Finally, the creation of AH in its current form was
approved by the Czech competition authority (with
commitments) and, the sales of the subsidiaries were
(159) In view of the vital nature of the only easement trans
carried out on the basis of the above-mentioned
ferred with the property, the Commission considers that
appraisal reports.
the above-described easements did not have an impact
on the value of the assets sold.
(165) In the light of the above, the Commission notes that the
total own contribution including the sales of the
subsidiaries would amount to [78–85]% of the total
(160) In the light of the above, the Commission accepts
restructuring costs. In the present case, however, it is
the proceeds from the land sale amounting to
not necessary to take this measure into account as
CZK [1 620–1 850] million as an own contribution.
even without it SA has provided a sufficient own
contribution to cover its restructuring costs (consisting
of the sale to private market operators, the sale of land
and property to State-owned Prague Airport and the
(iii) Sale of subsidiaries to AH
aircraft lease), which amounts to CZK [5,2–5,8] billion
or [55–60]% of the restructuring costs ( 1 ).
(161) Another part of sales to the State consists of the
sale of SA's subsidiaries to AH. These were HCA
(CZK [500–580] million); Czech Airlines Handling, a.s.
(CZK [700–800]
million);
SA Services, s.r.o. (166) Therefore, the Commission considers that the
(CZK [25–28] million) and Czech Airlines Technics, a.s.
requirements of point 43 of the R&R Guidelines have
(CZK [1–1,15] billion). The total value of these sales is
been fulfilled and hence the amount of aid is limited
CZK [2,35–2,6] billion ([24–26]% of the total restruc
to the strict minimum of the restructuring costs
turing costs).
necessary.
(162) The sales values were established on the basis of the
6.3.5. ‘One time, last time’ principle
appraisal reports by Deloitte Advisory, s.r.o. and Price
waterhouseCoopers eská republika, s.r.o. referred to in
(167) Finally, the aid must respect the condition that it is ‘one
recital 53. The Commission has analysed the submitted
time, last time’. Point 72 of the R&R Guidelines provides
appraisal reports and found them to be sufficiently
that a company that has received rescue and restructuring
sound. The evaluations give no cause for concern since
aid in the past ten years is not eligible for rescue or
no errors have been detected, accepted methodologies are
restructuring aid.
applied and the evaluations are based on credible
assumptions. Therefore, the Commission considers that
the results of the present appraisal reports are an appro
priate approximation for the realistic market prices of the
(168) In the opening decision the Commission had doubts
assets. The Commission also notes that the appraisal
about the possible State aid elements involved in the
reports were produced before the respective transactions
Osinek loan. However, in its final decision in case
took place.
( 1 ) The notified aid element is 2 500 million. The aircraft lease
(CZK [520–600] million), the sale to private market operators
(CZK [3–3,5] billion) and sale of land and property to the State
(CZK [1,62–1,85] billion) add up to CZK [5,2–5,8] billion. Hence,
(163) The creation of AH was the target of the comments by
even if the sale of subsidiaries to AH was considered aid, the aid
the competitor, stating that the purpose of such a
element would be CZK [4,5–5] billion (CZK 2 500 million plus
structure is only to provide SA with additional funds.
CZK [2,35–2,6] billion). This aid element is lower than the
amount of the own contribution (CZK [5,2–5,8] billion), which
However, the Commission notes that the Czech Republic
would thus cover more than 50 % of the total restructuring costs
has declared that the creation of AH has reasons other
of CZK [8,9–10,5] billion.

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EN
3.4.2013 Official
Journal
of
the
European
Union L
92/35
SA.29864 – Possible State aid implications of a loan
previously employed by SA terminated their contracts
provided by Osinek, a.s. the Commission concluded
and concluded new ones with HCA. No seniority rights
that the Osinek loan did not constitute State aid, and
were transferred with the new contracts.
even if it did this aid would be compatible under the
TF ( 1 ). Furthermore, the Czech authorities have confirmed
that SA has not benefited from any rescue or restruc
turing aid in the past 10 years. The Commission
therefore considers that the ‘one time, last time’
(173) Finally, the Czech Republic has confirmed that there is
principle is respected.
no diversion of a part of SA's fleet to HCA where it
would be used to operate SA flights. HCA has not
expanded since 2009 and is merely returning to the
original volume of flights operated by SA's charter
division in the years 2008 to 2009. It will not take
6.3.6. Other possible State aid issues
over the operation of scheduled flights to destinations
(169) In the course of the formal investigation procedure third
discontinued by SA, but will only offer charter flights.
parties raised a number of additional potential state aid
issues, namely concerning the sale of HCA, cross-
financing of the remuneration of the CEO of SA by
Prague Airport, and a possible advantage granted to
SA for the operation of the Prague-Tel Aviv route.
(174) In the light of the information provided, the Commission
does not consider that any cross-subsidisation of
activities between SA and HCA is taking place and
that the selective advantage provided to SA has not
been passed on to HCA.
Sale of HCA
(170) In its comments, TS claimed that SA has used the State
aid it received to expand its charter business (conducted
through its subsidiary HCA), which would offer flights at
Cross-financing of CEO remuneration
a price 20 % lower than the standard prices on the
market.
(175) SA's CEO was also the CEO of Prague Airport and
received a salary from both in 2010 and 2011. As
regards the claim concerning the potential advantage
given to SA in the form of the salary of its CEO, the
(171) The Commission has requested detailed information
Czech Republic has explained that the remuneration of
regarding the sale and future operation of HCA. The
the CEO was set on the basis of two separate
Czech Republic has clarified that no aircraft was
management agreements concluded between the CEO
contributed into HCA upon the transfer of the charter
and SA and Prague Airport respectively. Furthermore,
transport business and confirmed that all aircraft leases
the Czech Republic has asserted that Prague Airport was
are carried out on market terms in accordance with
not providing any compensation for the payment of
either an expert opinion on transfer pricing (
remuneration for the activities of the CEO in SA.

2 ) or lease
rates set on the basis of the Lease Rate Digest published
Under the two management agreements, the remun
by the International Bureau of Aviation
(
eration consisted of two components, a base salary and

3 ), which
specializes in estimates of market rates of operating
a performance-based bonus. The base component in the
leases for individual types of aircraft and years of
SA contract was reduced to CZK 1 per month until
production.
SA attains positive operating results. The amount of
performance-related bonuses was, however, still set at
twelve times the non-reduced base component per year.
(172) Regarding any potential transfer of employees, the Czech
authorities have clarified that a small number of adminis
trative staff (approximately 20) were transferred to HCA
(176) The Commission has verified the CEO's salary overview
from SA in 2010 in connection with the contribution
which shows that, indeed, the salary and bonuses paid by
of SA's charter business and in accordance with rules
SA to the CEO amounted to approximately […] of his
set out in the Czech Commercial Code. The majority of
annual income, the other […] coming from his
staff, including all pilots and cabin crew, has joined HCA
employment with Prague Airport. This difference is
following a new selection process. All staff that were
justified in particular by the different performance of
the two companies in the relevant period.
( 1 ) State aid granted under the TF serves a different purpose, namely to
facilitate the access of a firm to external finance to remedy serious
disturbance in the economy of a Member State under
Article 107(3)(b) TFEU and does not, therefore, constitute rescue
and restructuring aid within the meaning of the R&R Guidelines
(177) Since the CEO was remunerated for his work in both
under Article 107(3)(c) TFEU.
companies in a way that reflected their performance, the
( 2 ) Expert opinion dated 3 June 2011, carried out for the SA Group
by Ernst&Young Valuations, s.r.o.
Commission finds that no State aid has been granted to
( 3 ) http://www.ibagroup.com/publications/lease-rate-digest.
SA by the way its CEO was remunerated for his work.

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L 92/36
EN
Official Journal of the European Union
3.4.2013
Tel Aviv route
to the other Contracting Party one or more airlines for the
purpose of operating the agreed services on the specified
(178) In its comments, TS alleges that the Czech Republic
routes." Therefore, SA is not the only air carrier that
negotiated the possibility of operating the Prague-Tel
could benefit from the change of the Agreement.
Aviv route for more than one carrier especially for the
Indeed, the revision of the Agreement seems to constitute
benefit of SA. The negotiations, which involved a
a market-opening measure which can be regarded as pro-
change in the bilateral Air Transport Agreement (here
competitive. It cannot therefore be concluded that this
inafter referred to as "the Agreement") between the
measure favours SA specifically and therefore
Czech Republic and the State of Israel ( 1 ), took place
constitutes State aid.
shortly after the conclusion of an open tender to
operate this route which was won by TS (see recital 73).
6.4. CONCLUSION
(179) The Commission notes that the Czech Republic had the
(184) The notified measure constitutes State aid within the
legal right to initiate negotiations with the State of Israel
meaning of Article 107(1) TFEU. The Commission
for extension of rights for access to the transportation
regrets that the Czech authorities did not comply with
market for air carriers of both parties until such time as a
the standstill obligation under Article 108(3) TFEU.
uniform European-Mediterranean Aviation Treaty is
However, in view of the above, the Commission
concluded between the EU and its Member States of
considers that the granted aid amounting to CZK 2 500
the one part, and the State of Israel of the other part.
million and the RP are compatible with the conditions of
the R&R Guidelines. The Commission therefore considers
the aid to be compatible with the internal market under
(180) In the process of consultations preceding the conclusion
Article 107(3)(c) TFEU,
of the Agreement, the aviation authorities agreed, inter
alia, on a temporary extension of access to the trans
portation market by permitting “special flights” which
HAS ADOPTED THIS DECISION:
was followed by amendment of the Agreement.
Article 1
(181) The Czech authorities have explained that the extension
of access to the Czech-Israeli transport market was not
The restructuring aid notified by the Czech Republic consisting
negotiated solely for SA’s benefit and that the extension
in granting CZK 2 500 million to eské aerolinie, a.s. (Czech
of access was undertaken in full compliance with
Airlines) in the form of a debt-for-equity swap of a loan,
domestic legal regulations and was not in conflict with
constitutes State aid within the meaning of Article 107(1) of
the Decision of the Department of Civilian Aviation of
the Treaty on the Functioning of the European Union.
the Ministry of Transport of the Czech Republic granting
transportation rights for the operation of the route to
Travel Service ( 2 ).
Implementation of this State aid is compatible with the internal
market on the basis of Article 107(3)(c) of the Treaty on the
Functioning of the European Union.
(182) The Commission considers that it is indeed a right of the
Member State to initiate a change in the bilateral
Agreement at any time if the subject matter is not in
Article 2
conflict with the provisions of Union law. Furthermore,
the decision by which TS was awarded the right to
This Decision is addressed to the Czech Republic.
operate the Prague-Tel Aviv route does not provide
that similar rights might not be awarded to another
operator if this is in compliance with the provisions of
Done at Brussels, 19 September 2012.
the Agreement.
For the Commission
(183) Finally, the Commission notes that Paragraph 1 of Article
III of the revised Agreement lays down that "Each
Joaquín ALMUNIA
Contracting Party shall have the right to designate in writing
Vice-President
( 1 ) Treaty between the Government of the Czech and Slovak Federal
Republic and the Government of the State of Israel on Air
Transport, signed in Jerusalem on 24 April 1991.
( 2 ) Decision of the Department of Civilian Aviation of the Ministry of
Transport of the Czech Republic No 278/2011-220-SP/18 of
30 June 2011.

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