The European Union's General Court has annulled the European Commission's 2020 decisions authorising EUR6 billion euro (USD6.6 billion) in state aid to Lufthansa (LH, Frankfurt International) and SEK11 billion Swedish kroner (USD1.1 billion) to SAS Scandinavian Airlines (SK, Copenhagen Kastrup) by their respective governments.

The Court found that both decisions were taken with errors insofar as they were not compliant with COVID-specific state aid rules, even though they were substantially laxer than the normal policy of the European Union.

Regarding Lufthansa, the Court found that the Commission did not assess whether the airline could raise at least part of the requested state aid on the market, for example, by mortgaging its unencumbered aircraft. The Temporary Framework - the EU's COVID-era state aid rules - required that alternative means be considered, even if they would not be sufficient for the entire amount. The Court also established that the state aid did not include the mandatory step-up mechanism incentivising a quick repayment of the aid.

The judges further said the Commission committed "a manifest error in assessment" while evaluating Lufthansa Group's market power at its hub airports. Brussels focused on slot portfolios, ignoring other factors such as aircraft capacity. The Court pointed out that based on the Commission's analysis, there was no reason to conclude that the holding held significant market power at Frankfurt International and Munich but not at Düsseldorf and Vienna, as the slot holding and congestion at all four airports was comparable.

The Court also found another "manifest error of judgment" in the Commission's decision to exclude existing operators from the first round of mandatory slot reallocation at Frankfurt and Munich airports. The Commission also did not justify allowing Lufthansa to sell the slots instead of returning them for free.

In SAS's case, the analysis was limited by the lack of a step-up mechanism pertaining to up to SEK3 billion (USD294 million) of fresh equity injected into the airline by the Swedish and Danish governments. This failed to incentivise the airline to rebuy the shares and violated the Temporary Framework. The SEK6 billion (USD588 million) in hybrid non-convertible loans also did not include a step-up mechanism, but as non-equity financing, it was not mandatory.

The annulment formally pertains to the 2020 decisions of the European Commission. The governments or airlines involved are not parties to the proceedings. Under EU law, all state aid has to be approved by the Commission. As such, the annulment of the approvals means that the rescue financing was not properly authorised.

"We will carefully study the judgments and their implications as a matter of urgency. We are aware of the uncertainty the judgments generate for the airlines concerned and the aviation sector at large. While it is too early to give any indication as to what the appropriate course of action may be, at this stage all options are on the table," Commission Executive Vice-President responsible for competition policy Margrethe Vestager said.

However, it is unclear what the practical repercussions of the ruling will be, particularly for Lufthansa. The German holding has already repaid all of its state aid and has also bought back the state's shares. It said that it also paid EUR92 million (USD101 million) in interest to the government on two "silent participation" measures, which totalled EUR5.7 billion (USD6.2 billion) and were repaid by late 2021. The government sold its 20% stake in late 2022 for more than EUR1 billion (USD1.1 billion), over three times more than it paid for the equity in 2020.

Nonetheless, Lufthansa said it would analyse the implications of the ruling.

SAS has not repaid the hybrid bonds obtained from the governments, which are not convertible into equity. The airline is currently in Chapter 11 restructuring. Vestager emphasised that the ruling had no bearing on the ongoing restructuring, which is subject to separate state aid analysis.

"SAS will now, together with the states, review the content of the ruling as well as possible ways to proceed, and will revert on these issues when there is information to share," the Scandinavian carrier said.

The General Court ruling can be appealed at the European Court of Justice. Unless the European Commission overturns the annulment or authorises the aid after a new analysis, it might be legally obliged to seek the return of the aid.

Two similar cases against Lufthansa, conflated by the Court into a single case, were brought by Ryanair and Condor. The case against SAS was brought by Ryanair. The Irish LCC welcomed both rulings.