Q&A: competition law and state aid for the aviation sector in Portugal

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Competition law

Specific regulation

Do sector-specific or general competition rules apply to aviation?

The aviation sector is subject to general competition rules established in the Portuguese Competition Act (Law 19/2012, as amended by Law 17/2022), as well as EU competition rules.

Regulator

Is there a sector-specific regulator, or are competition rules applied by the general competition authority?

The Portuguese Competition Authority (PCA) is the entity entrusted to apply and enforce national and EU (when applicable) competition rules. Pursuant to the Portuguese Competition Act, ANAC is entitled to issue opinions prior to the adoption of decisions by the PCA, concerning the aviation sector, in the fields of both antitrust and merger control.

Market definition

How is the relevant market for the purposes of a competition assessment in the aviation sector defined by the competition authorities?

The PCA’s practice in the aviation sector is, in general terms, aligned with the one from the European Commission (EC). The PCA has defined product and geographic markets that correspond to the airline routes – that is, to the pairs of origin or destination (O/D) in which the undertakings concerned have overlapping activities – and has defined separate product markets for air transport of passengers and air transport of cargo or mail. The combinations of O/D include all airports at the same destination, as the PCA has not found the need to analyse and define markets more narrowly. Concerning the air transport of passengers, the PCA has generally indicated that the assessment of whether direct and indirect flights form part of the same market or route should be done on a case-by-case basis. Separate markets have been identified for services relating to air transport, such as ground handling services and catering services.

Code-sharing and joint ventures

How have the competition authorities regulated code-sharing and air-carrier joint ventures?

There are no specific rules regarding these arrangements. However, code-sharing and other air carrier agreements may fall under the scope of the general prohibition of agreements and concerted practices between undertakings that restrict competition by object or effect, under both Portuguese and EU law. So far, the PCA has not issued any decisions regarding anticompetitive practices in the air transport sector.

As for air carrier joint ventures, these may be subject to the general Portuguese and EU rules on merger control and, therefore, subject to mandatory prior notification and clearance by the PCA or the EC, provided they constitute full-function joint ventures and the notification thresholds (in terms of turnover or market share in the affected markets) are met.

Assessing competitive effect

What are the main standards for assessing the competitive effect of a transaction?

Under the Portuguese Competition Act, the assessment of a transaction under merger control rules is based on the analysis of whether such transaction is likely to create significant impediments to effective competition in the domestic market or a substantial part of it, in particular if the impediments result from the creation or reinforcement of a dominant position in a given relevant market. For the purposes of this assessment, the PCA will take into consideration several factors, such as:

  • the structure of the relevant markets;
  • the position of the companies involved in the transaction compared with those of their main competitors;
  • potential competition; and
  • the existence, in fact or in law, of barriers to entry into the market.

 

As indicative remark, in the air transport sector, Case Ccent 12/2009 – TAP/SPdH was blocked by the PCA as it found that the transaction would reinforce a dominant position in the market for ground handling services in the airports of Lisbon, Porto, Faro, Funchal and Porto Santo, as well as in the related market for the air transport of passengers. Since the merger was implemented before the notification, the PCA imposed several measures to revert it and re-establish effective competition between the parties.

Remedies

What types of remedies have been imposed to remedy concerns identified by the competition authorities?

The PCA may subject the approval of a merger to the adoption of either structural (ie, divestment of businesses or assets, or both) or behavioural commitments. In principle, structural commitments are preferred to behavioural ones, as the first generally allow the entry of new market players. In relation to divestment commitments, the acquirer of the divested business or asset is subject to prior approval by the PCA in order to constitute a viable and competitive alternative in the relevant market.

As indicative remark, in the air transport sector, the PCA has approved both structural and behavioural commitments in Case Ccent 57/2006 – TAP/Portugália, which were specifically aimed at permitting the entry of a new market player in the Lisbon–Porto route. The main commitments consisted of:

  • providing slots at Lisbon and Porto Airports for a new entrant having an offer capacity at least equivalent to the target company;
  • freezing the number of flights operated by the acquirer on the affected routes; and
  • providing passenger fees equivalent to that of highly competitive routes.

Financial support and state aid

Rules and principles

Are there sector-specific rules regulating direct or indirect financial support to companies by the government, government-controlled agencies or companies (state aid) in the aviation sector? Is state aid regulated generally?

State aid is a matter dealt with only at EU level. Thus, the rules established by article 107 of the Treaty on the Functioning of the European Union (TFEU), which contains a general prohibition on state aid, as well as the State Aid General Block Exemption Regulation (Commission Regulation (EU) 651/2014 – GBER), are applicable in Portugal. When granting state aid in the aviation sector, the Portuguese Authorities should also consider the EC Guidelines on State Aid to Airlines and Airports (2014/C 99/03), which, although not binding to the Courts, establish the conditions under which EU member states can grant state aid to airlines and airports.

What are the main principles of the state aid rules applicable to the aviation sector?

The EC Guidelines on State Aid to Airlines and Airports are aimed at promoting the sound use of public resources to allow effective aid measures while minimising distortions of competition. In general terms, these guidelines allow:

  • investment state aid for airport infrastructure if there is a genuine transport need and the public support is necessary to ensure the accessibility of a region. The guidelines define maximum aid intensities depending on the size of an airport, allowing higher amounts for smaller airports than for larger ones;
  • operating aid to regional airports (with fewer than three million passengers a year) for a transitional period of 10 years under certain conditions to give airports time to adjust their business model. To receive operating aid, airports need to work out a business plan paving the way towards full coverage of operating costs at the end of the transitional period; and
  • start-up aid to airlines to launch a new air route, provided it has a time-limit.

Exemptions

Are there exemptions from the state aid rules or situations in which they do not apply?

EU law establishes that de minimis aid (ie, up to €200,000 per undertaking over any period of three fiscal years), does not fall under the scope of the general state aid prohibition, pursuant to the De Minimis Aid Regulation (Commission Regulation (EU) 1407/2013). Furthermore, aid covered by the GBER is considered automatically approved and compatible with the internal market, without the need for notification and prior approval by the EC, provided the conditions established in the GBER are fulfilled.

Clearance of state aid

Must clearance from the competition authorities be obtained before state aid may be granted? What are the main procedural steps for doing so?

Any state aid measure is bound to mandatory prior notification to the EC, meaning that there is a standstill obligation that must be complied with (except for the cases falling under the exemption measures) and must follow EU regulatory procedure. Therefore, a notification will trigger a preliminary investigation by the EC, which has a two-month period to either adopt a decision or open a formal investigation under article 108(2) of the TFEU where it has serious doubts about the aid’s compatibility with EU state aid rules. Should the notification be deemed incomplete, the EC may submit requests for information to the notifying member state, with the consequent deadline’s restart. If an information request is not replied in the prescribed period of time, the notification is deemed to be withdrawn. In the end of the preliminary or formal investigation the EC can adopt one of the following decisions:

  • a positive decision, finding that the measure does not constitute state aid or is compatible with EU law;
  • a conditional decision, imposing conditions to ensure compatibility of the measure; or
  • a negative decision, blocking implementation of a measure deemed incompatible with EU law.

Recovery of unlawful state aid

If no clearance is obtained, what procedures apply to recover unlawfully granted state aid?

Should the EC conclude that a state measure already granted is incompatible with EU state aid law, it will open a recovery procedure. Under such procedure, the member state is obliged to recover the aid (with interest) from the beneficiary(ies), unless such recovery would be contrary to a general principle of EU law. If the decision is not complied with in due time, the EC may open an infringement procedure against the member state under article 258 of the TFEU. If the aid is not recovered within a 10-year period then its recovery becomes time barred.

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