The Minister of Capital Investment in the newly elected Government of Montenegro announced on 24 December 2020 that the Government will not grant any more state aid to the national airline Montenegro Airlines. The decision equals a death verdict for the airline, as it’s only chance of survival was the 2019 Law on Investment into Consolidation and Development of the Company for Air Transport of Passengers and Goods “Montenegro Airlines” A.D. Podgorica (“Lex MA”), a lex specialis which the previous Government adopted in order to rescue Montenegro Airlines.
As a prelude to this development, on 3 September 2020, the Montenegrin Agency for Protection of Competition (“Agency“) issued a decision to open a formal investigation procedure into the compatibility with the state aid rules of the state aid granted by virtue of Lex MA. In the course of the proceedings that led to that decision, the Government tried to prove that the set of measures provided under Lex MA, in the total value of EUR 155,1 million, were compliant with the market economy investor principle, and therefore not state aid. The Government provided an economic analysis prepared by Deloitte which proposed that the Lex MA passed the MEO test. The Agency found several shortcomings in the analysis and did not accept the conclusion that the state aid under Lex MA was MEOP compliant. It requested the Government to make a formal application for state aid approval. The decision on compatibility of Lex MA with state aid rules is still pending. The Agency also ordered the Government to abort granting of aid on the basis of Lex MA. At that moment, EUR 43 million out of the total EUR 155.1 million had been transferred to the airline. Meanwhile, the European Commission also intervened after receiving a complaint on 4 December 2020 from Ryan Air, alleging that Montenegro Airlines received state aid exceeding EUR 43 million in this year.
What lies ahead?
Given that it opened on 3 December 2019 a formal investigation into the compatibility of Lex MA with state aid rules, the Agency will have to conclude those proceedings. It is presently difficult to see any other outcome of those proceedings but a finding that Lex MA is incompatible state aid. This means the Agency will have to order the Ministry of Capital Investment, which has transport in its portfolio, to recover the amount of the aid which had already been transferred to Montenegro Airlines. The deadline for compliance with the recovery order is four months. The Ministry of Capital Investment will then have an obligation to prepare, within two months from the Agency’s decision, its own recovery order against Montenegro Airlines, with a recovery plan and a timeline. The Ministry’s recovery order is an enforceable title. If insolvency proceedings are initiated over Montenegro Airlines, the state will be insolvency creditor. If the Ministry does not issue the recovery order against Montenegro Airlines within two months from the Agency’s recover order, the Agency may sue it in judicial accountancy proceedings before the Administrative Court.
Without state aid, the company is not likely to be able to operate for much longer. The predictions are that planes will be grounded in a matter of weeks.* According to the law, the insolvency petition against Montenegro Airlines can be filed by any creditor of Montenegro Airlines, as well as by the company itself.
The Government announced that it will establish a new national airline in the coming months, with an investment of around EUR 30 million. The airline is expected to be operational by summer 2022. The establishment of the new airline will not only take time, but will also be hurdled by the fact that the slots currently held by Montenegro Airlines will be lost, and the new airline will have to conclude new international agreements and acquire necessary permits. This may negatively affect the 2021 summer season in Montenegro, as Montenegro Airlines used to fly in more than 50% of tourists. Tourism sector in Montenegro has already taken a 90% plunge in revenue between January and September 2020 due to COVID-19 restrictions. It is expected that the market will step in and private carriers will take-over some of the profitable lines. It remains to be seen whether the Government will be the sole shareholder of the new company or will look for a joint venture partner.
* Shortly after the publication of this blog, the Montenegrin Government announced that the planes from the Montenegro Airlines fleet will be grounded as of 26 December 2020.