(1)

The Union has to ensure the effective protection of the integrity and proper functioning of its financial system and the internal market from money laundering and terrorist financing. Directive (EU) 2015/849 therefore provides that the Commission should identify high-risk third countries which have strategic deficiencies in their regimes on anti-money laundering and countering financing of terrorism (AML/CFT) that pose significant threats to the financial system of the Union.

(2)

Commission Delegated Regulation (EU) 2016/1675 (2) identifies high-risk third countries with strategic deficiencies.

(3)

Considering the high level of integration of the international financial system, the close connection of market operators, the high volume of cross-border transactions to and from the Union, as well as the degree of market openness, any AML/CFT threat posed to the international financial system is also a threat to the financial system of the Union.

(4)

In accordance with Article 9(4) of Directive (EU) 2015/849, the Commission takes into account recent available information, in particular the recent Financial Action Task Force (FATF) public statements, the FATF list of ‘Jurisdictions under Increased Monitoring’, and FATF reports of the International Cooperation Review Group in relation to the risks posed by individual third countries.

(5)

Since the latest amendments to Delegated Regulation (EU) 2016/1675, the FATF has updated its list of ‘Jurisdictions under Increased Monitoring’. At its plenary meeting in February 2023, the FATF added Nigeria and South Africa to that list and deleted Cambodia and Morocco from that list. Given those changes, the Commission has conducted an assessment for the identification of high-risk third countries in accordance with Article 9 of Directive (EU) 2015/849.

(6)

In February 2023, Nigeria made a high-level political commitment to work with the FATF and the Groupe Intergouvernemental d’Action contre le Blanchiment d’Argent en Afrique de l’Ouest (GIABA), which is its FATF-style regional body (FSRB), to strengthen the effectiveness of its AML/CFT regime. Since the adoption of its mutual evaluation report in August 2021, Nigeria has made progress on some of the actions recommended in that report to improve its system, including by improving its AML/CFT legislative framework and updating its assessment of inherent money laundering/terrorism financing/proliferation financing risks, and has strengthened its implementation of targeted financial sanctions. Nigeria will work to implement its FATF action plan by: (1) completing its residual money laundering/terrorism financing risk assessment and updating its national AML/CFT strategy to ensure alignment with other national strategies relevant to high-risk predicate offences; (2) enhancing formal and informal international cooperation in line with money laundering/terrorism financing risks; (3) improving AML/CFT risk-based supervision of financial institutions and designated non-financial businesses and professions, and enhancing implementation of preventive measures for high-risk sectors; (4) ensuring that competent authorities have timely access to accurate and up-to-date beneficial ownership information on legal persons, and applying sanctions for breaches of beneficial ownership obligations; (5) demonstrating an increase in the dissemination of financial intelligence by the Financial Intelligence Unit and its use by law enforcement authorities; (6) demonstrating a sustained increase in money laundering investigations and prosecutions in line with money laundering risks; (7) proactively detecting violations of currency declaration obligations, and applying appropriate sanctions and maintaining comprehensive data on frozen, seized, confiscated and disposed assets; (8) demonstrating a sustained increase in investigations and prosecutions of different types of terrorism financing activities in line with risk, and enhancing inter-agency cooperation on terrorism financing investigations; and (9) conducting risk-based and targeted outreach to non-profit organisations at risk of terrorism financing abuse and implementing risk-based monitoring for the subset of non-profit organisations that are at risk of terrorism financing abuse without disrupting or discouraging legitimate activities of non-profit organisations.

(7)

In February 2023, South Africa made a high-level political commitment to work with the FATF and the Eastern and Southern Africa AML Group (ESAAMLG), which is its FSRB, to strengthen the effectiveness of its AML/CFT regime. Since the adoption of its mutual evaluation report in June 2021, South Africa has made significant progress on many of the actions recommended in that report to improve its system, including by developing national AML/CFT policies to address higher risks and newly amending the legal framework for terrorism financing and targeted financial sanctions, among others. South Africa will work to implement its FATF action plan by: (1) demonstrating a sustained increase in outbound mutual legal assistance requests that help facilitate money laundering/terrorism financing investigations and confiscations of different types of assets in line with its risk profile; (2) improving risk-based supervision of designated non-financial businesses and professions, and demonstrating that all AML/CFT supervisors apply proportionate and effective sanctions for noncompliance; (3) ensuring that competent authorities have timely access to accurate and up-to-date beneficial ownership information on legal persons and arrangements, and applying sanctions for breaches of violation by legal persons to beneficial ownership obligations; (4) demonstrating a sustained increase in law enforcement agencies’ requests for financial intelligence from the Financial Intelligence Centre for its money laundering/terrorism financing investigations; (5) demonstrating a sustained increase in investigations and prosecutions of serious and complex money laundering and the full range of terrorism financing activities in line with its risk profile; (6) enhancing its identification, seizure and confiscation of proceeds and instrumentalities of a wider range of predicate crimes, in line with its risk profile; (7) updating its terrorism financing risk assessment to inform the implementation of a comprehensive national counter financing of terrorism strategy; and (8) ensuring the effective implementation of targeted financial sanctions and demonstrating an effective mechanism to identify individuals and entities that meet the criteria for domestic designation.

(8)

The Commission’s assessment therefore concludes that Nigeria and South Africa should be considered as third-country jurisdictions which have strategic deficiencies in their AML/CFT regimes that pose significant threats to the financial system of the EU. Nigeria and South Africa should therefore be added to the table in point I of the Annex to Delegated Regulation (EU) 2016/1675.

(9)

The Commission has reviewed the progress in addressing the strategic deficiencies of Cambodia and Morocco. These are countries listed in Delegated Regulation (EU) 2016/1675 but deleted from the FATF list of ‘Jurisdictions under Increased Monitoring’ in February 2023.

(10)

The FATF has welcomed the significant progress made by Cambodia and Morocco in improving their AML/CFT regimes and has noted that these countries have established legal and regulatory frameworks to meet the commitments in their respective action plans on the strategic deficiencies identified by the FATF. Cambodia and Morocco are therefore no longer subject to the FATF’s monitoring process under its ongoing global AML/CFT compliance process and will continue to work with their FSRBs to further strengthen their AML/CFT regimes.

(11)

As Cambodia and Morocco have strengthened the effectiveness of their AML/CFT regimes and addressed technical deficiencies to meet the commitments in their action plans on the strategic deficiencies identified by the FATF, the Commission’s assessment of the available information leads it to conclude that Cambodia and Morocco no longer have strategic deficiencies in their AML/CFT regimes. It is therefore appropriate to delete Cambodia and Morocco from the table in point I of the Annex to Delegated Regulation (EU) 2016/1675.

(12)

Delegated Regulation (EU) 2016/1675 should therefore be amended accordingly,

(1)

Pursuant to Article 50(2)(a) of Regulation (EU) No 1151/2012, Austria’s application to register the name ‘Lesachtaler Brot’ was published in the Official Journal of the European Union (2).

(2)

As no reasoned statement of opposition under Article 51 of Regulation (EU) No 1151/2012 has been received by the Commission, the name ‘Lesachtaler Brot’ should therefore be entered in the register,

(1)

Pursuant to Article 50(2)(a) of Regulation (EU) No 1151/2012, Romania’s application to register the name ‘Pită de Pecica’ was published in the Official Journal of the European Union (2).

(2)

As no reasoned statement of opposition under Article 51 of Regulation (EU) No 1151/2012 has been received by the Commission, the name ‘Pită de Pecica’ should therefore be entered in the register,

(1)

Pursuant to the first subparagraph of Article 53(1) of Regulation (EU) No 1151/2012, the Commission has examined Italy’s application for the approval of amendments to the product specification for the protected designation of origin ‘Strachitunt’, registered under Commission Implementing Regulation (EU) No 244/2014 (2).

(2)

Since the amendments in question are not minor within the meaning of Article 53(2) of Regulation (EU) No 1151/2012, the Commission published the amendment application in the Official Journal of the European Union (3) as required by Article 50(2)(a) of that Regulation.

(3)

As no statement of opposition under Article 51 of Regulation (EU) No 1151/2012 has been received by the Commission, the amendments to the specification should be approved,

(1)

In accordance with Article 5(2) of Regulation (EU) 2021/2117 of the European Parliament and of the Council (2), the rules applicable before 7 December 2021 continue to apply to applications for approval of amendments to a product specification received by the Commission pursuant to Regulation (EU) No 1151/2012 before 8 June 2022.

(2)

On 15 April 2022 the Commission received from Italy an application for the approval of amendments to the product specification for the protected geographical indication ‘Carota dell’Altopiano del Fucino’, registered under Commission Regulation (EC) No 148/2007 (3), as amended by Implementing Regulation (EU) No 162/2014 (4).

(3)

The Commission has examined Italy’s application in accordance with Article 50(1) of Regulation (EU) No 1151/2012 in conjunction with the first subparagraph of Article 53(1) of that Regulation, as applicable before 7 December 2021.

(4)

Since the amendments in question are not minor within the meaning of Article 53(2) of Regulation (EU) No 1151/2012, as applicable before 7 December 2021, the Commission published the amendment application in the Official Journal of the European Union (5) as required by Article 50(2)(a) of that Regulation.

(5)

As no reasoned statement of opposition under Article 51 of Regulation (EU) No 1151/2012 has been received by the Commission, the amendments to the product specification should be approved,

(1)

Pursuant to the first subparagraph of Article 53(1) of Regulation (EU) No 1151/2012, the Commission has examined Italy’s application for the approval of amendments to the specification for the protected designation of origin ‘Riviera Ligure’, registered under Commission Regulation (EC) No 123/97 (2), as amended by Commission Regulation (EU) No 718/2011 (3).

(2)

Since the amendment in question is not minor within the meaning of Article 53(2) of Regulation (EU) No 1151/2012, the Commission published the amendment application in the Official Journal of the European Union (4) as required by Article 50(2)(a) of that Regulation.

(3)

As no statement of opposition under Article 51 of Regulation (EU) No 1151/2012 has been received by the Commission, the amendments to the specification should be approved,

(1)

The current economic situation is characterised by general high costs of living, which affect wine consumption and sales, and increased input costs for the agricultural production and wine processing, which affect wine prices. These circumstances threaten to disturb significantly the Union wine market as they affect several key producing Member States by increasing the available wine stocks to levels that risk becoming unsustainable in view of the forthcoming harvest and production season and by causing financial difficulties and cash-flow problems to wine producers.

(2)

The global inflation and the related reduction in purchase power of the consumers is further exacerbating the general declining trend observed in wine consumption in the last years. The apparent decline in consumption in the ongoing marketing year is estimated at 7 % in Italy, 10 % in Spain, 15 % in France, 22 % in Germany and 34 % in Portugal compared to the pre-COVID-19 market situation. This trend affects in particular certain wine market segments, namely red and rosé wines.

(3)

The figures available show a drop in wine sales in the current marketing year, consistent with the observed reduced domestic demand, e.g. a decline in sales amounting to 5,3 % in Spain and France, with some strongly affected areas where the sales dropped by 25 % to 35 % in comparison with the same period of the previous marketing year. In the meantime, Union wine exports for the period from January to April 2023 are 8,5 % lower than for the same period of 2022.

(4)

The general increase of key input costs for agricultural production such as costs for fertilisers, energy and bottles required for wine production, which is partially also due to the Russia’s war of aggression against Ukraine, has led to an exceptional increase of production costs reaching in some Member States up to an estimated average increase of 30 % to 40 %. These circumstances are putting further pressure on Union wine producers and reducing their capacity for marketing actions and investments. Furthermore, in spite of the increasing costs along the full cycle of wine production, available data suggest an abrupt drop in prices for certain wines in the most affected by the crisis regions, compared to the pre-COVID-19 situation, for example a price decline in the range of 10 % to 26 % for some regions in France.

(5)

Combined, these factors point to a general reduction in the demand and sales of Union wines, in a context where production in the Union increased by 4 % in comparison with the previous marketing year, adding to an already high level of initial stocks (+ 2 % compared to the last 5-year average). If no action is taken rapidly to reduce the growing oversupply, the situation threatens to severely disturb the market by causing a major and general market imbalance at the latest with the arrival of the new harvest when wine producers will be left with no storage capacity for the new production and forced to sale at even lower prices.

(6)

At this stage, the current market circumstances are generating disparate market disturbances to the wine sector in different production regions, due to the fact that the Union wine market is highly segmented. These are significant in certain regions of several Member States, and affect in particular the market segments of red and rosé wines. Examples that illustrate this fragmentation of the market are, for instance, 27 % higher stocks than the 5-year average in Extremadura in Spain, 24 % and 14 % higher stocks than in the previous year in the Lisbon and Alentejo regions in Portugal, respectively, and 26 % higher stocks for rosé wines at the beginning of the current marketing year than at the beginning of the previous one in Languedoc-Roussillon in France.

(7)

At the same time, the Union wine market has been already subject to aggravating conditions, in particular throughout years 2019, 2020 and 2021 as a consequence of past trade restrictions, a decrease in consumption during the COVID-19 pandemic and several extreme weather events. The current difficult circumstances are delivering a further blow to an already fragile sector and leading to significant losses of income for all actors therein. Wine growers in the most affected regions of Member States experience financial difficulties and cash-flow problems. Therefore, an immediate action is required also in this respect to efficiently respond to such heterogeneous market situation by allowing Member States to reorient part of the financial resources allocated to their national support programmes in the wine sector and to offer a more tailor-made support to the different actors in the sector.

(8)

Removing from the market of the most affected regions some of the quantities of wine that are not finding appropriate market outlets should help to address the market imbalances and prevent the current disturbances from turning into a more severe or prolonged disturbance of the entire Union wine sector. Where justified, the distillation of wine should be introduced temporarily as an eligible measure under the support programmes in the wine sector to help improve the market balance and the economic situation of wine producers in the most affected production regions. To avoid distortion of competition, the use of the obtained alcohol should not be permitted for the food and drink industry and should be limited to use for industrial purposes, including disinfection and pharmaceutical, and for energy purposes. To avoid any abuse or overcompensation following the implementation of this exceptional measure, it is pertinent to request Member States to target the measure to the regions with market imbalance, to base it on objective criteria and to limit to recent market prices the compensation that they will provide for.

(9)

The ‘green harvesting’ measure, as provided for in Article 47 of Regulation (EU) No 1308/2013, is used as a market management measure when an excessive production of grapes is expected. To help operators respond to the current market circumstances and to reduce the risk that the situation reproduces again in the upcoming marketing year, it is appropriate to allow certain flexibility in implementing this measure during the financial year 2023. In particular, it is necessary, as an exceptional measure, to provide for derogations from Article 47(1) and (3) of Regulation (EU) No 1308/2013 to allow the full destruction or removal of immature grape bunches on part of a holding, provided that this is carried out on entire parcels, and to provide for the temporary increase of the maximum Union contribution to this measure.

(10)

The addition of ‘crisis distillation’ to eligible measures as well as the flexibility introduced for ‘green harvesting’ represent a form of financial support, which, however, does not require additional Union financing since the budgetary limits for the national support programmes in the wine sector for the financial year 2023 laid down in Annex VII to Regulation (EU) 2021/2115 of the European Parliament and of the Council (2) continue to apply. Member States may thus decide to allocate higher amounts to the measures in question only within the yearly budget provided for in that Annex. The financial support to the two above mentioned crisis measures is aimed, therefore, at providing support to the sector in the given unstable market situation without having to mobilise additional funds in the first place.

(11)

In order to increase the effectiveness of Union financial resources that can be allocated to these crisis measures, Member States should be allowed to complement the Union financial assistance with national payments covering up to 50 % of the support granted for the two crisis measures provided for in this Regulation.

(12)

The negative market development, the increase of costs and the consequent cash-flow problems of the operators in the wine sector are making difficult to execute the measures of the wine national support programs at a time when the improvement of market orientation of the sector is mostly necessary. To ensure the effectiveness of the implementation of programmes in the prevailing market and economic context of the wine sector, it is pertinent to temporarily increase the maximum Union contribution to the measures ‘promotion’, ‘restructuring and conversion of vineyards’, ‘green harvesting’ and ‘investments’.

(13)

In addition, it is further important to provide beneficiaries with appropriate flexibilities for the implementation of their operations under the national support programmes so that they can react to the current market uncertainties and adapt the operations whenever needed. Such flexibilities represent a further market support measures to prevent the current economic disturbances from turning into a more severe or prolonged disturbance of the Union wine market and are ensuring that the other exceptional measures set out in this Regulation, once decided by a Member State, can be efficiently implemented also at the level of the beneficiaries. Therefore, as a further exceptional measure, it is necessary to derogate from Commission Delegated Regulation (EU) 2016/1149 (3) and allow Member States to provide some flexibilities to beneficiaries in order to adapt the planned operations following a simplified procedure and to allow their partial implementation in duly justified cases.

(14)

Provided that the reasons to apply increased Union financial rates for certain measures and to allow certain flexibilities in the management of the programmes relate to the current economic situation of the wine sector and because the measures are temporary, it is pertinent to limit their scope of application to operations that started to be implemented during the financial year 2023. By contrast, these measures should not apply, for instance, to operations implemented in previous financial years and only paid in financial year 2023.

(15)

For imperative grounds of urgency, considering the ongoing market disturbance as well as the short time available to Member States to implement the measures included in this Regulation within the current financial year, and to prevent further market deterioration, it is necessary to take immediate action. On the one hand, in the most affected regions, the excess of supply needs to be removed from the market as soon as possible and in any case before the start of the new harvest, by end of August or early September 2023, otherwise the market situation would further deteriorate and the current imbalance would be carried over into the new marketing year threatening to cause a prolonged crisis of the entire Union wine market. On the other hand, all the measures included in this Regulation, have to be implemented before the end of the current wine national support programmes, which apply only until 15 October 2023 as provided for in Article 5(7) of Regulation (EU) 2021/2117 of the European Parliament and of the Council (4). Pursuant to that provision, Articles 39 to 54 of Regulation (EU) No 1308/2013 continue to apply after 31 December 2022 as regards expenditure incurred and payments made for operations implemented before 16 October 2023. Therefore, delaying action would risk making difficult or even impossible for the affected Member States to implement the measures within the financial year 2023, which is the last implementation year of the current national support programmes in the wine sector.

(16)

In view of the above-referred imperative grounds of urgency, this Regulation should be adopted pursuant to the urgency procedure laid down in Article 228 of Regulation (EU) No 1308/2013.

(17)

In view of the necessity to take immediate action, this Regulation should enter into force on the day of its publication in the Official Journal of the European Union,

(1)

Regulation (EU) 2016/429 provides that consignments of animals, germinal products and products of animal origin must come from a third country or territory, or zone or compartment thereof, listed in accordance with Article 230(1) of that Regulation in order to enter the Union.

(2)

Commission Delegated Regulation (EU) 2020/692 (2) lays down the animal health requirements that consignments of certain species and categories of animals, germinal products and products of animal origin, from third countries or territories, or zones thereof, or compartments thereof in the case of aquaculture animals, must comply with in order to enter the Union.

(3)

Commission Implementing Regulation (EU) 2021/404 (3) establishes the lists of third countries, or territories, or zones or compartments thereof, from which the entry into the Union of the species and categories of animals, germinal products and products of animal origin falling within the scope of Delegated Regulation (EU) 2020/692 is permitted.

(4)

More particularly, Annexes V and XIV to Implementing Regulation (EU) 2021/404 set out the lists of third countries, or territories, or zones thereof authorised for the entry into the Union, respectively, of consignments of poultry, germinal products of poultry, and of fresh meat of poultry and game birds.

(5)

Chile has notified the Commission of one outbreak of highly pathogenic avian influenza (HPAI) in poultry in the region of Metropolitana, which was confirmed on 4 June 2023 by laboratory analysis (RT-PCR).

(6)

Following this recent outbreak of HPAI, the veterinary authorities of Chile established a restricted zone of at least 10 km around the affected establishment and implemented a stamping-out policy in order to control the presence of HPAI and limit the spread of that disease.

(7)

Chile has submitted information to the Commission on the epidemiological situation on its territory and the measures taken to prevent the further spread of HPAI.

(8)

That information has been evaluated by the Commission. The Commision considers that, in view of the animal health situation in the area under restrictions established by the veterinary authorities of Chile, the entry into the Union of consigments of poultry, germinal products of poultry, and fresh meat of poultry and game birds from that area should be suspended, in order to protect the animal health status of the Union.

(9)

Canada and the United Kingdom have provided updated information in relation to situations that gave rise to the suspension of the entry of some products into the Union.

(10)

In particular, Canada has submitted updated information on the epidemiological situation on its territory in relation to two outbreaks of HPAI in poultry establishments in the provinces of Ontario and Quebec, which were confirmed on 5 April 2023 and 18 April 2023, respectively.

(11)

In addition, the United Kingdom has submitted updated information on the epidemiological situation on its territory in relation to four outbreaks of HPAI in poultry establishments in the counties of Powys in Wales (3) and South Yorkshire in England (1), United Kingdom, which were confirmed between 13 April 2023 and 29 April 2023.

(12)

Canada and the United Kingdom have also submitted information on the measures they have taken to prevent the further spread of HPAI. In particular, following those outbreaks of that disease, Canada and the United Kingdom have implemented a stamping out policy in order to control and limit the spread of that disease, and they have also completed the requisite cleaning and disinfection following the implementation of the stamping out policy on the infected poultry establishments on their territories.

(13)

The Commission has evaluated the information submitted by Canada and the United Kingdom. The Commission considers that Canada and the United Kingdom have provided appropriate guarantees that the animal health situation that gave rise to the suspensions, no longer represents a threat to animal or public health within the Union, and that, consequently, the entry into the Union of poultry commodities from the zones of those countries from which entry into the Union had been suspended should be reauthorised.

(14)

Annexes V and XIV to Implementing Regulation (EU) 2021/404 should be therefore amended to take account of the current epidemiological situation as regards HPAI in Canada, Chile and the United Kingdom.

(15)

In addition, Commission Implementing Regulation (EU) 2022/215 (4) amended Annex V and Annex XIV to Implementing Regulation (EU) 2021/404 by adding zone CA-2.1 to the entries for Canada in Annex V and in Annex XIV. As one error has been detected, the row for the zone CA-2 in Part 2 of Annex V should be corrected accordingly.

(16)

Furthermore, entries in Part 1, Section A of Annex XV to Implementing Regulation (EU) 2021/404 have been frequently amended. For clarity reasons, this section in Annex XV should be replaced as a whole.

(17)

Taking into account the current epidemiological situation in Canada, Chile and the United Kingdom as regards HPAI and the serious risk of its introduction into the Union, the amendments to be made to Annexes V and XIV to Implementing Regulation (EU) 2021/404 by this Regulation should take effect as a matter of urgency.

(18)

The correction for the entry for Canada in the row for the zone CA-2 in Part 2 of Annex V to Implementing Regulation (EU) 2021/404 should apply from the date of application of Implementing Regulation (EU) 2022/215.

(19)

The measures provided for in this Regulation are in accordance with the opinion of the Standing Committee on Plants, Animals, Food and Feed,

(1)

The Convention for the Protection of the Marine Environment of the North-East Atlantic (1) (‘the Convention’), to which the Union is a Contracting Party, entered into force on 25 March 1998.

(2)

Pursuant to Article 10(3) of the Convention, the Commission established by Article 10(1) of the Convention (‘the OSPAR Commission’) is able to adopt decisions and recommendations in accordance with Article 13 of the Convention.

(3)

During the ministerial segment of its 24th annual meeting on 1 October 2021, the OSPAR Commission adopted OSPAR Decision 2021/01 on the establishment of the North Atlantic Current and Evlanov Sea basin Marine Protected Area (‘OSPAR Decision 2021/01’) and OSPAR Recommendation 2021/01 on the Management of the North Atlantic Current and Evlanov Sea basin Marine Protected Area (‘OSPAR Recommendation 2021/01’). At the same time, it was also decided that the conservation scope of the North Atlantic Current and Evlanov Sea basin Marine Protected Area (‘the NACES MPA’) would need to be reviewed, with a view to expanding it.

(4)

A review of the conservation scope of the NACES MPA has been carried out and has resulted in two proposed acts of the OSPAR Commission: a decision amending OSPAR Decision 2021/01 and a recommendation amending OSPAR Recommendation 2021/01. The OSPAR Commission is to adopt the envisaged decision and the envisaged recommendation during its 26th regular meeting on 26 June 2023.

(5)

The envisaged decision of the OSPAR Commission extends the conservation scope of the existing NACES MPA and indicates the geographical coordinates (latitude and longitude) of its boundaries.

(6)

The envisaged recommendation of the OSPAR Commission aims to guide Contracting Parties in their actions and in the adoption of measures to achieve the revised conservation objectives, in accordance with the extended conservation scope of the envisaged decision.

(7)

As there is a close link between the two envisaged OSPAR Commission acts, it is appropriate for them to be covered by the same position of the Union.

(8)

The envisaged acts relate to the protection of the environment, which is a shared competence between the Union and its Member States under Article 4(2), point (e), of the Treaty. The envisaged acts do not fall within an area which is largely covered by Union rules concerning such protection. The Union does not intend to make use of the possibility to exercise its external competence with regard to areas covered by those acts in relation to which its competence has not yet been exercised internally.

(9)

It is appropriate to establish the position to be taken on the Union’s behalf within the OSPAR Commission with regard to the proposed amendments to OSPAR Decision 2021/01 and OSPAR Recommendation 2021/01, as the decision to be taken by the OSPAR Commission will be binding on the Union,

(1)

The measures provided for in this Decision are in accordance with the opinion of the Advisory Committee for Public Contracts.

(2)

On 6 January 2023 Lietuvos paštas, AB (‘the applicant’) submitted a request to the Commission pursuant to Article 35(1) of Directive 2014/25/EU (‘the request’). The request complies with the formal requirements set out in Article 1(1) of Commission Implementing Decision (EU) 2016/1804 (2) and in Annex I to that Implementing Decision.

(3)

The applicant is a postal service provider in Lithuania and a contracting entity within the meaning of Article 4(2) of Directive 2014/25/EU. The applicant is the only contracting entity in Lithuania providing postal services within the meaning of Article 13(2), point (b), of Directive 2014/25/EU. The request concerns certain postal services, as referred to in Article 13(1)(a) of Directive 2014/25/EU, provided by the applicant in the territory of Lithuania, in particular, express parcel delivery services (3). Standard parcel delivery services are not subject matter of the Request. The applicant provides express parcel delivery services under brand name ‘LP Express’, which include delivery of parcels from a pick-up point (e.g., clients’ home, business place, pick-up parcel locker) to a delivery point specified by the client (home, office, post office or pick-up parcel lockers) (4).

(4)

The request was not accompanied by a reasoned and substantiated position adopted by an independent national authority that is competent in relation to the activity concerned, which thoroughly analyses the condition for the applicability of Article 34(1) of Directive 2014/25/EU to the activity concerned, in accordance with paragraphs 2 and 3 of that Article. In accordance with point 1(a) of Annex IV to Directive 2014/25/EU, considering that free access to the market can be presumed on the basis of Article 34(3), first subparagraph, of that Directive, the Commission is to adopt an Implementing Decision on the request within 105 working days.

(5)

Following a request by the Commission on 13 February 2023, the applicant submitted additional information on 20 February 2023. On 23 February 2023, the Commission submitted an additional request for information to the applicant. On the same day, the Commission sent a request for information to the Lithuanian authorities. The applicant submitted additional information on 9 March 2023 and the Lithuanian authorities replied to the request for information on 14 March 2023.

(6)

Directive 2014/25/EU applies to the award of contracts for the pursuit of activities related to postal services referred to in Article 13(2), point (b), of that Directive.

(7)

Pursuant to Article 34(1) of Directive 2014/25/EU, contracts intended to enable the performance of an activity to which that Directive applies are not to be subject to that Directive if, in the Member State in which it is carried out, the activity is directly exposed to competition on markets to which access is not restricted.

(8)

Direct exposure to competition is to be assessed on the basis of objective criteria, taking account of the specific characteristics of the sector concerned. This assessment is, however, limited by the short deadlines applicable and by the need to rely on the information available to the Commission. That information originates either from already available sources or from the information obtained in the context of the request pursuant to Article 35 of Directive 2014/25/EU and cannot be supplemented by more time-consuming methods, including, in particular, public inquiries addressed to the economic operators concerned.

(9)

Direct exposure to competition in a particular market should be evaluated on the basis of various criteria, none of which are by themselves decisive.

(10)

For the purposes of assessing whether the relevant activities are subject to direct competition in the markets concerned by this decision, the market share of the main players and the number of market players is to be taken into account.

(11)

The aim of this Decision is to establish whether the activities concerned by the request are, in markets to which access is not restricted within the meaning of Article 34 of Directive 2014/25/EU, exposed to a level of competition which ensures that, also in the absence of the procurement discipline brought about by the detailed procurement rules laid down in Directive 2014/25/EU, procurement for the pursuit of the activity concerned will be carried out in a transparent and non-discriminatory manner based on criteria allowing purchasers to identify the solution which overall is the economically most advantageous one.

(12)

This Decision is based on the legal and factual situation as of January 2023 and on the information submitted by the applicant, the authorities of Lithuania and the information that is publicly available. It may be revised, should significant changes in the legal or factual situation mean that the conditions for the applicability of Article 34(1) of Directive 2014/25/EU are no longer met.

(13)

Access to a market is deemed to be unrestricted if the Member State concerned has implemented and applied the relevant Union legal acts opening a given sector or a part of it. Those legal acts are listed in Annex III to Directive 2014/25/EU, which includes, as regards postal services, Directive 97/67/EC of the European Parliament and of the Council (5).

(14)

As confirmed by Lithuania (6), and on the basis of the information available to the Commission, Lithuania has transposed (7) and applies Directive 97/67/EC. Consequently, access to the relevant market is deemed to be unrestricted in accordance with Article 34(3) of Directive 2014/25/EU.

(15)

According to the applicant, the relevant product markets could be segmented as follows: (a) domestic express delivery (courier) services; and (b) international express delivery (courier) services (international outgoing and international incoming) (8).

(16)

The Commission has held in previous decisions (9) that the market for mail delivery services can be segmented into express and standard (also referred to as ‘deferred’) delivery services. This segmentation takes into account that express services are faster and more reliable than a standard service, that each of those services requires a different infrastructure and that express services comprise additional value added service features, such as track and trace services, and are usually also more expensive.

(17)

The Commission has also made in previous decisions (10) a distinction between domestic and international parcel delivery services. The Commission held that domestic parcel delivery services are provided by companies operating national distribution networks whereas international parcel delivery consists in collecting parcels to be transported and delivered abroad.

(18)

The applicant takes the view that the relevant product markets for express parcel delivery services correspond to the two types of postal services regarding parcels which are covered by the Request and are set out in points (a) and (b) of recital 15. This approach is in line with Commission previous practice.

(19)

Narrower market definitions might be envisaged in certain cases (i.e. domestic express parcel delivery services Consumer to consumer/business (C2X) and domestic express parcel delivery services Business to consumer/business (B2X)). However, the precise definition of the relevant market can be left open for the purposes of this Decision. The result of the analysis remains unchanged whether it is based on a narrow or a broader definition (11).

(20)

According to the applicant, relevant geographic market for both domestic express delivery services and international express delivery services should be defined as national, comprising the territory of the Republic of Lithuania (12).

(21)

As regards the geographical market, in its previous practice (13), the Commission took the view that the markets for express parcel delivery, irrespective of the distinction between domestic and international express delivery services, are national in scope. The applicant’s position is in line with Commission practice.

(22)

The applicant provides both domestic and international parcel delivery services in Lithuania.

(23)

In the absence of any indication of a different scope of the geographic market, for the purposes of the assessment under this Decision and without prejudice to competition law, the geographic scope of the domestic and international express parcel delivery services can be considered to cover the territory of Lithuania.

(24)

There are around 60 express parcel delivery services providers in Lithuania (14). Based on the information submitted by the applicant, there are 4 postal services providers who hold more than 10 % in the market of domestic express parcel delivery services (15). According to available information, the market share of the applicant in this segment of the market was [20-25] % for the period between 2019 and 2021, both in terms of value and volume (16).

(25)

The market shares of the competitors of the applicant are bigger or comparable to those of the applicant. The market shares of the biggest competitors both in terms of value and volume (17) for the period between 2019 and 2021 are as follows: DPD Lietuva [30-35] %, Venipak Lietuva [15-20] % and Omniva LT [10-15] %;

(26)

Even if the alternative product markets are defined (i.e. domestic express parcel delivery services (C2X) and domestic express parcel delivery services (B2X)), the competitive situation remains unchanged. Hence, as far as domestic express parcel delivery services (C2X) is concerned, the first market operator in this segment, Omniva LT, had a [35-40] % share for the period between 2019 and 2021, both in terms of value and volume. Omniva LT is in the leading position in this segment of the market. Applicant’s share was [30-35] % for the period between 2019 and 2021, both in terms of value and volume. DPD Lietuva had a [15-20] % share and Venipak Lietuva had a [5-10] % share. Regarding domestic express parcel delivery services (B2X), there are 4 postal services providers who hold more than 10 % in this segment. According to available information, the market share of the applicant in this segment of the market was [15-20] % for the period between 2019 and 2021, both in terms of value and volume. The market shares of the competitors of the applicant are bigger or comparable to those of the applicant. The market shares of the biggest competitors both in terms of value and volume for the period between 2019 and 2021 are as follows: DPD Lietuva [35-40] %, Venipak Lietuva [25-30] % and Omniva LT [10-15] % volume (18).

(27)

Based on the information submitted by the applicant (19), there are no regulatory barriers to market entry for the provision of domestic express parcel delivery services. Performance of postal activities does not require any formal permission of state institutions. According to the information submitted by the applicant (20), and as confirmed by the information submitted by the Lithuanian authorities (21), the only obligation for the provider is to notify the Communications Regulatory Authority of the Republic of Lithuania (RRT) of the beginning of the provision of services and comply with the requirements set for the postal service provider (22).

(28)

In addition, the Commission notes, based on the information submitted by the applicant, that certain competitors expanded their services by introducing infrastructure of pick-up parcel lockers. Moreover, all main competitors are planning further investments and expansion of pick-up parcel lockers infrastructure (23). According to information published by the RRT, pick-up parcel lockers are gaining popularity in general and are now one of the two most popular delivery points. Delivery by couriers and to pick-up parcel lockers accounting for 50-60 % and 35-46 % respectively, whereas delivery to post offices accounts only for about 2 % of total parcel delivery in Lithuania (24). In this regard, although the applicant runs a network of post offices, which other courier services providers do not have, it may not be considered as a factor providing a significant competitive advantage to the applicant vis-à-vis its competitors in this segment of the market.

(29)

For the purposes of this Decision and without prejudice to competition law, the factors described in recitals 24, 25, 26, 27 and 28 should be taken as an indication of exposure to competition of that activity in Lithuania. Consequently, since the conditions set out in Article 34 of Directive 2014/25/EU are met, it should be established that Directive 2014/25/EU does not apply to contracts intended to enable the pursuit of the activity in Lithuania.

(30)

There are strong services providers active in the international express parcel delivery services, including international market operators, such as DHL or FedEx. According to available information, the applicant’s share in this segment of the market was [0-5] % for the period between 2019 and 2021, both in terms of value and volume (25).

(31)

The applicant`s share in this segment of the market is very low compared to its competitors. According to available information, the first market operator in this segment, DPD Lietuva had a [40-45] % share for the period between 2019 and 2021, both in terms of value and volume. DHL’s share was [10-15] % for the period between 2019 and 2021, both in terms of value and volume. Two other competitors, Omniva LT and Venipak Lietuva have comparable market shares to those of DHL at [10-15] % for the period between 2019 and 2021, both in terms of value and volume (26). Considering the very low market share of the applicant in this segment, there is no need to assess separately the market share for international C2X and B2X express parcel delivery services. The market shares indicate that competitors are able to exert significant competitive pressure on the applicant in this segment.

(32)

For the purposes of this Decision and without prejudice to competition law, the factors listed in recitals 30 and 31 should be taken as an indication of exposure to competition of that activity in Lithuania. Consequently, since the conditions set out in Article 34 of Directive 2014/25/EU are met, it should be established that Directive 2014/25/EU does not apply to contracts intended to enable the pursuit of the activity in Lithuania.

(33)

In view of the factors examined in recitals 6 to 32, the condition of direct exposure to competition laid down in Article 34(1) of Directive 2014/25/EU should be considered to be met in Lithuania in respect of the activity related to domestic express parcel delivery services and in respect of the activity related to international express parcel delivery services.

(34)

Since the condition of unrestricted access to the market is deemed to be met, Directive 2014/25/EU should not apply when contracting entities award contracts intended to enable the activities referred to in recital 33 of this Decision to be carried out in Lithuania, nor when design contests are organised for the pursuit of such an activity in that geographic area.

(35)

This Decision is without prejudice to the application of the Union rules on competition and of the provisions in other fields of Union law. In particular, the criteria and the methodology used to assess direct exposure to competition under Article 34 of Directive 2014/25/EU are not necessarily identical to those used to perform an assessment under Article 101 or 102 of the Treaty or Council Regulation (EC) No 139/2004 (27) as confirmed by the General Court (28),

(1)

By letter dated 13 August 2020, amended and completed on 14 August 2020, Portugal notified the Commission of its intention to grant rescue aid to SATA Air Açores - Sociedade Açoriana de Transportes Aéreos S.A. (‘SATA’ or ‘the beneficiary’) in the form of a public guarantee on a bank loan of EUR 169 million pursuant to Article 108(3) of the Treaty on the Functioning of the European Union (‘TFEU’).

(2)

On 18 August 2020, the Commission informed Portugal that it had decided to initiate the procedure laid down in Article 108(2) TFEU to assess further the compatibility of the abovementioned rescue aid in light of the Guidelines on State aid for rescuing and restructuring non-financial undertakings in difficulty (‘R&R Guidelines’) (3). The Commission decided to initiate that procedure as it had doubts as to whether the ‘one time, last time’ principle was met in that case, namely as to whether the three increases of SATA’s share capital totalling EUR 72,6 million subscribed by the Autonomous Region of Azores (‘ARA’ or the ‘Region’) since 2017, referred to in recital 13 of that decision (the ‘past capital increases’), would amount to previous rescue or restructuring aid. In the same decision, on the basis of Article 107(3), point (c) and Article 106(2) TFEU, the Commission approved EUR 133 million liquidity support to allow SATA to fulfil its genuine public service obligations (‘PSOs’) and provide essential services of general economic interest (‘SGEIs’) in its small airports and maintain the connectivity of the outermost Region of the Azores.

(3)

The Commission decision to initiate the procedure was published in the Official Journal of the European Union (‘the opening decision’) (4) on 4 September 2020. The Commission called on interested parties to submit their comments.

(4)

The Commission received comments from 19 parties. On 13 October 2020, it forwarded those comments to Portugal, which submitted its own written reply on them by letter dated 16 November 2020.

(5)

On 17 February 2021, Portugal submitted a restructuring plan for SATA. On 14 April 2021, Portugal notified the Commission of its intention to grant restructuring aid supporting the restructuring plan, in the form of a EUR 186,7 million of a capital increase and EUR 144,2 million in public guarantee on loans.

(6)

By letters dated 29 March 2021 and 16 April 2021, the ARA requested that the guarantees on loans that the Commission authorised on 18 August 2020 continue until 18 November 2021 and that more guarantees up to an additional amount of EUR 122,5 million be authorised for a seven-month period, pending the assessment of the restructuring plan.

(7)

By letter dated 30 April 2021, the Commission informed Portugal of its decision to extend the procedure laid down in Article 108(2) TFEU in respect of the notified restructuring aid, while approving on the basis of Article 107(3), point (c) and Article 106(2) TFEU EUR 122,5 million further liquidity support to secure the continued operation of the PSOs and SGEIs until the end of 21 November 2021 or until the Commission had taken a final decision, whichever came earlier. That decision was also published in the Official Journal of the European Union (‘the extension decision’) (5) on 11 June 2021.

(8)

Portugal submitted its comments on the extension decision by letter dated 10 June 2021 and amended and further updated the restructuring plan on 15 July and 2 December 2021.

(9)

On 1 June 2021 and on 30 November 2021, Portugal informed the Commission that the beneficiary had reimbursed the past capital increases to the ARA with interest, in accordance with Chapter V of Commission Regulation (EC) No 794/2004 (6).

(10)

The Commission received comments on the extension decision from fourteen parties. On 14 July 2021, the Commission forwarded them to Portugal, which submitted observations received by letter dated 12 August 2021.

(11)

On 5 November 2021, the Commission authorised on the basis of Articles 107(3), point (c) and 106(2) TFEU a modification and temporal extension of the approved liquidity support to SATA pending the closure of the procedure (7).

(12)

On 6 April 2022, Portugal withdrew the notification of the rescue aid to SATA, confirming that the rescue aid had not been granted. In the same submission of 6 April 2022, Portugal also provided additional updated information.

(13)

Portugal agreed exceptionally to waive the rights deriving from Article 342 TFEU in conjunction with Article 3 of Regulation No 1/1958 (8) and to have the decision adopted and notified pursuant to Article 297 TFEU in English.

(14)

SATA is an operating airline company, a Sociedade Anónima (limited liability company) (9), and it holds shares in other companies based in the ARA. SATA was incorporated in 1941 and is fully owned by the Regional Government. SATA is the sole shareholder of SATA Internacional - Azores Airlines, S.A. (‘Azores Airlines’), Gestão de Aeródromos, S.A. (‘SATA Gestão de Aeródromos’ or ‘SGA’) and the tour operator Azores Vacations America, Inc. (‘Azores Vacations America’), which is inactive and is currently undergoing liquidation proceedings. In addition, SATA used to be the sole shareholder of another tour operator, namely Azores Vacations Canada, Inc. (‘Azores Vacations Canada’), which has already been liquidated (recital 62).

(15)

Any reference to SATA or the beneficiary undertaking supported by the restructuring aid in this decision includes SATA Air Açores and all its subsidiaries, unless otherwise indicated in order to distinguish its operation of air carrier (performed as ‘SATA Air Açores’) from the activities of its subsidiaries.

(16)

SATA employs around 1 400 people, of which 1 150 locally in the Region, corresponding to around 10 % of all tourism employment and 1 % of the total employment in Azores and 250 in Lisbon (10). As described in the opening decision (11) and the extension decision (12), SATA provides: (i) directly and through its wholly-owned subsidiary, Azores Airlines, air transport passenger and cargo services on routes under PSOs and on a commercial basis; and (ii) SATA provides an SGEI through SGA in relation to small airports and airfields in the Region. Sections 2.1.1 to 2.1.3. describe the two sets of activities separately.

(17)

To ensure the continuity of the provision of the scheduled air service on the routes serving the Azores some scheduled passenger air transport services in the Region have been subject to PSOs pursuant to Regulation (EC) No 1008/2008 of the European Parliament and of the Council (13). The obligations cover, inter alia, minimum flight frequency, timetables, the category of aircraft used and maximum internal configuration capacity, fares, service continuity and punctuality and marketing of flights (14). The PSOs help offsetting the isolation of the Azores Archipelago due to distance from mainland and weather conditions especially in winter.

(18)

SATA Air Açores only operates inter-island flights with PSOs with exclusivity and compensation, while Azores Airlines operates flights from the Azores to mainland Portugal, Madeira and to international destinations, with PSOs on routes to mainland Portugal and Madeira without exclusivity and without compensation. In both cases, those obligations are enshrined in public service contracts (‘PSCs’) or entrustment acts that impose minimum requirements in terms of continuity, regularity, tariffs and capacity, which must be inter alia appropriate, in normal circumstances, for the provision of scheduled air services on the routes in question. In 2019, SATA Air Açores operated more than 15 000 flights, with six Dash Bombardier planes which carried around 766 000 passengers.

(19)

In particular, SATA Air Açores has been serving the nine islands of the Region through inter-island air transport, for a total of 14 routes within the Azores, corresponding to 100 % of the air transport within the Region (15), under PSOs since 1996. SATA Air Açores is the only airline that ever submitted bids for those PSO routes (16). The PSOs were last entrusted exclusively to SATA Air Açores by means of a public service contract, including compensation under Regulation (EC) No 1008/2008, with a new contract signed on 28 September 2021 (17) for a new five-year term starting from 1 November 2021 (18).

(20)

Azores Airlines was established in 1990 under the name ‘OceanAir’ and was incorporated by SATA in December 1994. It has an administrative hub in Ponta Delgada and one operational base in Lisbon. Azores Airlines operates: (i) three PSO routes (open PSOs without exclusivity and without compensation) connecting to mainland Portugal three gateways of the Azores (Santa Maria, Horta and Pico islands), and (ii) a PSO route (open PSO without exclusivity and without compensation) linking Ponta Delgada to Funchal (Madeira island). No other air carrier is operating in competition with Azores Airlines on such routes, although there is no exclusivity in the PSC, as explained above (recital 18).

(21)

As underlined by Portugal, the PSOs on those four routes are not based on economic profitability, but rather on the Region’s interest in ensuring the continuity of such routes for reasons of public interest (19). Indeed, although the four PSO routes are open to all operators, Azores Airlines is the only operator that has expressed an interest in meeting the PSOs without compensation. On 27 March 2021 an emergency COVID-19 PSO (20) was imposed on two routes (Lisbon – Horta - Lisbon and Lisbon - Santa Maria – Lisbon) for the 2021 IATA (International Aviation Transport Association) summer season, and on 28 October 2021 prolonged for the 2021-2022 IATA winter season. Portugal, together with the ARA, is currently assessing the situation of these four routes and their possible modifications in the future (21) (recitals 57 to 59 and 106).

(22)

SGA, incorporated by SATA in 2005, manages the airports of Pico, Graciosa, Corvo and São Jorge, as well as the Flores island terminal, as an SGEI until the expiry of its entrustment in July 2025 (22). Air traffic in each of those airports and that terminal has been below 200 000 passengers per year in the three previous years (23). Hence, Portugal reported to the Commission the SGEI concerning those five airports in 2016-2017 (24). Indeed, Portugal considers that the need to ensure the connectivity of an isolated area of the Union justifies the SGEI, in view of the lack of alternative means of transport available and in light of the criteria set out in the Guidelines on State aid to airports and airlines (25) (‘Aviation Guidelines’).

(23)

Portugal considers that, on grounds of the limited, mostly seasonal traffic and the remoteness of their location, the management of those airports is not economically attractive for private parties, unlike the airports of São Miguel and Terceira. The concession awarded to SGA in relation to the services of operation and management of the airfields of Graciosa, Pico, São Jorge and Corvo, provides for compensation for its SGEI to be paid to SGA for each year of duration of the contract. The compensation for the period from 2020 until 2025 has been set at EUR 17 million.

(24)

Besides the PSO and SGEI services provided, SATA also provides air transport services on a commercial basis, such as air cargo and, through Azores Airlines, passenger transport services on liberalised routes, including flights to facilitate travel for the significant Portuguese diaspora in the United States of America (USA) and in Canada, as well as to provide better access conditions for travellers to the Azores. In terms of connections to the Union, however, in addition to mainland Portugal, SATA has only two direct flights to other European destinations, namely London and Frankfurt, as further detailed below (recital 28) (26).

(25)

In particular, SATA Air Açores provides 100 % of the regional air cargo transported in the nine islands of the archipelago, corresponding to around 2 900 tons of goods each year, while Azores Airlines carries over [60-70] % of the air cargo from and to outside the Azores, corresponding to over 1 300 tons of cargo, including fish, post and medical supplies (27). In competition with Azores Airlines, only TAP operates in the cargo services to/from the Azores, with a market share that, in 2019, was around [30-40] % (28).

(26)

As for the international flights, which have an important role in the economy of the Region, mainly through investment and private expenditure, Azores Airlines operates regular routes in the North Atlantic to Boston, Oakland, Toronto and Montreal. Azores Airlines also operates niche tourist markets and charter services. Overall, in 2019 Azores Airlines operated around 7 000 flights (including on the PSO routes), through six medium course Airbus 320 planes, serving around 946 000 passengers, corresponding to 40 % of the passengers transported to the Azores from abroad.

(27)

Furthermore, with a view to connecting North America, mainland Portugal and the Region throughout the year, since 1985 SATA controlled two tour operators in North America, Azores Vacations America and Azores Vacations Canada.

(28)

In competition with SATA, commercial routes between the Azores archipelago and the rest of the territory of the Union are operated, in order of size, by TAP-Transportes Aéreos Portugueses S.A., Ryanair, Arkefly and Jetairfly – although some of these routes have been discontinued after the COVID-19 outbreak. As for direct routes, in 2019 Ryanair connected the Azores with Lisbon and Porto (in Portugal) and with London, Manchester and Frankfurt (outside Portugal). On the London and Frankfurt routes, in 2019 Azores Airlines had market shares equal to, respectively, 70 % and 23,6 %, while Ryanair had market share equal to 30 % and 76,4 % (29). Jetairfly had a route connecting Azores with Brussels. Arkefly connected Azores with Amsterdam and Tenerife in the Canary Islands (Spain) (30).

(29)

Finally, in terms of alternative modes of transport, ferries only ensure connections between the two closest islands (Faial and Pico) and from those to the island of São Jorge, with daily frequency over the summer period, but only weekly frequency during the winter. Hence, due to geographical distance and weather conditions, as evidenced by Portugal (31), the Azorean population is dependent on air transport throughout the year for inter-island mobility, as well as travelling outside the archipelago (32).

(30)

As described in the opening and in the extension decisions (33), SATA has been facing financial difficulties since at least 2014, with steady and substantial operating losses and negative equity of EUR -55,8 million in 2014. In the subsequent years, due to the steady accumulation of losses, SATA registered increased negative equity (EUR -94,6 million in 2016, EUR -135,6 million in 2017 (34) and -156,3 million in 2018 (35)). In 2019, SATA presented a considerably increased total negative equity amount of EUR -230,3 million. This showed that more than half – actually all – of its subscribed share capital had been depleted. Furthermore, around 70 % of total debt to suppliers in 2019 was overdue and the EUR 464 million in liabilities greatly exceeded its assets worth EUR 234 million. Accordingly, SATA also fulfilled the criteria under national law for being placed in collective insolvency proceedings at the request of its creditors.

(31)

The equity position and financial situation of SATA has further deteriorated since the opening and the extension decisions. SATA’s net result was negative in 2020 (EUR -87,1 million), and is estimated to remain so in 2021 (EUR -32,7 million) and 2022 (EUR […] million). As a result, equity was negative in 2020 (EUR -369,3 million) and in 2021 (EUR -319,5 million) and is expected to remain so in 2022 (EUR […] million) (36).

(32)

Portugal explains that, in addition to the underfunding of its PSO/SGEI operations (recitals 17 to 23, 57 and 129), SATA’s overall difficult situation was and remains mainly caused by Azores Airlines’ poor performance. By way of illustration, in 2019 SATA Air Açores had registered EUR 84 million revenues and a positive EUR 2 million in earnings before interest and tax (EBIT) and equally positive EUR 2 million net income. SGA registered a revenue of EUR 3 million, an EBIT close to zero, but still positive, and net income of EUR 0,1 million. However, Azores Airlines registered EUR 157 million revenue, but negative EBIT of EUR -33 million and net losses of EUR 56 million that cancelled out the net earnings of the other operating subsidiaries.

(33)

Based on the information provided by Portugal, six key factors contributed to the origin of Azores Airlines’ difficulties (37): (i) the reduced capacity utilisation (40-50 % below benchmark block hours per plane, its network plan being historically highly dependent on seasonal traffic and lack of overnight flights), (ii) a rise in the compensation costs due to irregularities in the flight schedule: from EUR 1,5 million in 2015 to EUR 4,5 million in 2019, whereas in 2018 alone, the cost of leased aircraft to solve disruptions was over EUR 15 million, (iii) high maintenance costs linked to legacy fleet needing heavy corrective maintenance in 2019 and high provisions required in 2019), (iv) extra costs with the execution of fleet replacement (late delivery of one A321 aircraft in 2019 led to the need for an extra lease, delays in crew training for new fleet leading to cancellations in the 2017 peak season), (v) sub-par revenue and performance given PSO requirements (schedule limitations for the four PSO routes limiting network, fleet and crew optimisation, PSO regulated fares limiting revenue potential, with the four PSO routes resulting in a negative EUR 13 million EBIT margin impact in 2019), (vi) increased pressure following, after 2015, the liberalisation of the Ponta Delgada – Lisbon route by low cost carriers, with entry by Ryanair, and TAP increasingly flying from SATA’s Ponta Delgada hub, for instance to North American destinations.

(34)

The effects of the COVID-19 pandemic in the aviation and tourism sectors have aggravated the difficulties of SATA. The pandemic has triggered a sizeable and long-lasting demand shock mainly caused by travel and commerce restrictions put in place in Portugal, other Member States and in North America to curb its spread as from March 2020, and which have a visible effect on the real economy of the Azores (and also in the Autonomous Region of Madeira (38)).

(35)

Whereas SATA operated 44 000 flights in the two years preceding the COVID-19 outbreak between March 2018 and February 2020, SATA operated 34 821 flights in the period between March 2020 and February 2022, thus reducing its supply by 21 %. With reference to the same periods and the impact on SATA’s operation, the number of passengers transported dropped by 43,5 % from 3,36 million to 1,9 million, the available seats per kilometre dropped by 43,2 % from 5 843 million to 3 326 million and the revenue per passenger kilometre dropped by 58 % from 4 582 million to 1 928 million. Likewise, the number of passengers departing and arriving in the airfields operated by SGA dropped by 33 % from 0,56 million to 0,38 million and the operational revenues decreased by 46 % (39).

(36)

In terms of revenues lost since the outbreak of the COVID-19 pandemic, even assuming conservatively that SATA’s revenues would have increased at a growth rate of 5 %, which is lower than the growth rate of 7,8 % for SATA Air Açores and 5,1 % for Azores Airlines in the period between 2015 and 2019, the comparison shows loss of revenues amounting to, respectively, EUR 35,3 million for SATA Air Açores and EUR 180,3 million for Azores Airlines. Despite measures taken to reduce non-fixed or semi-fixed costs, the impact on SATA’s EBITDA can be estimated to be approximately EUR 80 million, with a loss of net income of EUR 54,5 million in March 2020-February 2022 compared to March 2018-February 2020.

(37)

On 30 April 2021, the Commission approved, pursuant to Article 107(2)(b) TFEU, a EUR 12 million compensation to SATA Air Açores and Azores Airlines for direct damages suffered due to the travel restrictions that the ARA, Portugal and the authorities of other destination countries imposed between 19 March 2020 and 30 June 2020 to limit the spread of the COVID-19 pandemic (40). However, the sharp decline on demand caused by the COVID-19 pandemic has persisted after June 2020 and the impact on SATA’s revenues and losses until now has been five to six times greater than the losses covered by damage compensation aid.

(38)

The restructuring aid supports the implementation of a restructuring plan that has already been implemented since the end of 2020 (41) and comes to an end at the end of 2025. The restructuring plan provides for a relaunch of SATA’s operations based on reorganisation of the corporate governance of SATA as a group and focus on air transport to ensure essential connectivity of the Region, with ensuing reduction of non-essential routes and introduction of efficiency measures in the air transport operations.

(39)

The following sections describe the restructuring measures separately, as each of them constitutes, according to Portugal, a distinct feature of the overall strategy to ensure the return to long-term viability of the beneficiary at the end of the plan. Furthermore, the description includes a section describing the proposed measures to limit distortion of competition caused by the restructuring aid and a section on the need for State intervention, as maintained by Portugal.

(40)

Portugal plans to simplify SATA’s corporate structure, so as to make it more attractive to potential private investors in the future. The reorganisation started at the end of 2021 and will entail the creation of a new holding company (‘SATA SGPS’), incorporated by the Region, to become the holding company of the SATA Group. Consequently, SATA Air Açores and its current subsidiaries, namely Azores Airlines and SGA, as well as the new entity resulting from the carve-out of the ground handling activities, will become subsidiaries that will be wholly owned by the Region via the newly created SATA SGPS (42).

(41)

The corporate reorganisation entails the following steps: (i) incorporation of a new SATA SGPS by the Region; (ii) transfer of SATA and its subsidiaries to the SATA SGPS; (iii) sale of […].

(42)

The corporate reorganisation would be necessary to streamline and optimise the SATA Group structure, in order to prepare it for the divestment of assets as envisaged in the plan (recitals 62 to 63), as well as to separate clearly the different missions of each subsidiary.

(43)

The restructuring plan is premised on SATA’s market position at pre-COVID levels being recovered by 2023 (Western Europe, regional and international) in terms of traffic volumes, as well as revenues (43), and the Azores being an increasingly attractive destination for tourism, with boosted demand from the Portuguese diaspora in North America. However, the Portuguese authorities also stress that SATA’s capacity will focus on essential operations, in particular, PSOs and SGEIs, which SATA has lower flexibility to reduce, given the type of service and the nature of traffic, whereas remaining non-essential routes will be reduced to the minimum indispensable to improve utilisation and optimise network. Nonetheless, according to the latest information provided by Portugal, SATA is already performing above the projections of the Business Plan and that the SATA airlines’ performance, in terms of transported passengers, is well above European and global figures. More specifically, whilst IATA International passenger’s demand in 2021 was 75,5 % below 2019 levels, for SATA Azores Airlines it was just 31 % below 2019 levels (25 % below including Air Açores inter-island traffic), whereas over the second half of 2021 passenger volumes were only 10 % lower, compared to the same period 2019. Furthermore, Portugal shows that SATA’s performance in terms of transported passengers in the past year is well above European and global figures, being just -25 % of passengers compared to 2019 (both airline companies together), much better than the ICAO estimate for Europe (-56 %) or for the World (-49 %).

(44)

As explained by Portugal, the restructuring plan rests on two main strategies: (i) improved operations and schedules and (ii) reduced operating costs.

(45)

The improvement in fleet capacity and use is based on phasing out older, end-of-lifecycle planes and reducing the number of aircraft from 15 to 13 and, upon completion of the restructuring plan and divestment of Azores Airlines, to six aircraft only. By 2025, Azores Airlines would be operating seven planes (A-320 and A-320/21 NEO), in addition to a possible extra aircraft under a ‘Power by the Hour’ (PBH) agreement (44), to 17 destinations and SATA Air Açores would be operating six planes (Q400 and Q200) to nine destinations. Block-hours per plane and day would increase from […] in 2019 and currently […] to […] by 2025, so that the smaller capacity in planes and seats would be used more intensely. Azores Airlines would increase capacity by […] % until 2025, improving connectivity within the Region’s network in response to a steady increase in demand.

(46)

As for the reduction of operating costs, the plan rests on four pillars: (i) fleet restructuring by incorporating new planes that have lower maintenance needs and lower fuel consumption, thus reducing costs; (ii) boosting operational efficiency through initiatives regarding fuel, catering, crew and distribution; (iii) renegotiation of main contracts with suppliers to obtain better conditions; (iv) productivity measures to adjust labour force to SATA's current needs. The combined effect of the restructuring measures would lower Azores Airlines’ current costs per available seat per kilometre by around 36 % until 2025, from EUR cent […] to EUR cent […]. The aggregate cost reductions derived from such efficiency measures and cost savings are estimated as around EUR […] million by 2025 (recital 49).

(47)

In its submission of 2 December 2021, Portugal estimated the restructuring costs as equal to EUR […] million, revised on 6 April 2022 to EUR […] million (45). They include EUR […] million of […] and various other operating costs not expected to be covered with normal operating revenues, State aid or own contribution for EUR […] million. In particular, according to Portugal, the total amount of restructuring costs had to be increased comparing to the initial estimates, on grounds of (i) the unexpected effects of the COVID-19 pandemic on the first half of 2021 (with subsequent revision of the financial projections), (ii) the inclusion of the amounts for the amortisation of the ‘Legacy Debt’ on the side of restructuring costs, and (iii) adjustments due to the extension of the use of vouchers, update of acquirer retention, provisions and pensions, as well as adjustments to working capital as a result of supplier debt agreements (46).

(48)

In light of the form and amount of the restructuring measures set forth in the restructuring plan to bring the beneficiary back to viability, allowing SATA, inter alia, to achieve a Net Financial Debt / EBITDA ratio (47) of at least […] x by […], the overall amount of the restructuring aid has also been revised by Portugal on 2 December 2021 from the initial EUR 330,09 million to EUR 453,25 million. In particular, the restructuring aid has been adjusted due to: (i) the liquidity needs of SATA pending approval of the restructuring plan and consequent prolongations of the loans associated with the liquidity support, as well as (ii) budgetary constraints of ARA, which determined changes in the State aid instruments set forth in the restructuring plan (48). The restructuring aid, therefore, is currently composed of the following measures (jointly: the ‘measures’ or the ‘restructuring aid’):

(49)

According to Portugal, SATA would contribute to the restructuring plan with cost reductions derived from efficiency and cost-cutting measures that are estimated at around EUR […] million by 2025 (50), as follows:

(50)

Furthermore, the restructuring plan would be supported by the following own resources provided by SATA, as submitted by Portugal on 2 December 2021:

(51)

Finally, in addition to the above measures, Portugal plans divesting a controlling interest in Azores Airlines and carving-out and selling the entire ground handling business to contribute to the restructuring. The sale of such assets is to take place by the end of 2025 (57) and, in relation to Azores Airlines, involves the Region’s commitment to hand over managerial control to new investors through a shareholding stake of 51 %. Hence, including expected proceeds from the privatisation of Azores Airlines (around EUR […] million) and the privatisation of the new ground handling business (around EUR […] million), according to Portugal, SATA’s estimated own contribution to the restructuring costs would be EUR […] million, which would represent around […] % of the restructuring costs (EUR […] million).

(52)

Portugal provided updated the baseline scenario of the restructuring plan on 15 July 2021 and on 2 December 2021. In its submission of 15 July 2021, Portugal had revised its projections adjusting them to take into account the lower operation level of Azores Airlines in the first quarter of 2021, due to the severity of the impact of the COVID-19 pandemic. However, the latest updated figures presented in the report covering the first three quarters of year 2021 (58) reflect improved results, above the conservative expectations in the submission of 15 July 2021. Notwithstanding the adjustments, also in the latest revision of the Business Plan projections, Portugal estimates that SATA’s earnings before interest and tax (EBIT) would turn positive […].

(53)

After the restructuring period in 2025, […].

(54)

The new ground handling business unit is expected to achieve […] and will be divested by the end of 2025. In any event, at the end of the restructuring period, revenues and costs of SATA Air Açores are projected to be […], whereas SGA is expected to […] (from EUR […] million in 2020 to EUR […] million in 2025).

(55)

For the baseline scenario, Portugal equally calculated the financial ratios of the return on capital employed (ROCE) (59) (Table 1.A) and estimated the weighted average cost of capital (WACC) at […] %. ROCE would reach […] % at the end of the restructuring (year 2025).

Table 1.A

Financial projections of the restructuring plan (baseline scenario)

Table 1.B

Financial projections of the restructuring plan (baseline scenario) group

(56)

Portugal also provided the ROCE in 2019 of a group of airlines for comparison, showing average ROCE of 6,9 %, and median ROCE of 11,8 % (Table 2).

Table 2

ROCE peer group in 2019

(57)

One of the main difficulties of SATA is the uncompensated part of activities regarding the PSOs performed by Azores Airlines, as described in section 2.2. In the period from 2009 to 2019, as reported by Portugal, the total operating deficit for the PSO routes operated by Azores Airlines – excluding the commercial routes – reached EUR […] million (60). However, according to Portugal, in the future Azores Airlines might be compensated for the PSO routes connecting Lisbon and Horta, Pico and Santa Maria (61), should it win an open tender for the operation of those PSO routes. The compensation needed to cover costs for the operation of PSOs on the above routes is estimated at EUR […] million/year. Azores Airlines has the necessary fleet ([…]) and personnel required to operate those national PSOs (62), although the relevant tender has not been launched yet. In any event, Azores Airlines would not bid for the PSOs below the expected costs incurred in discharging them (63).

(58)

Portugal also provided projections in an adverse scenario of the restructuring, in which revenues of Azores Airlines would be 15 % lower than in the base case (64). Portugal submits that, if the above PSOs were not entrusted to Azores Airlines, the available capacity may be profitably deployed in the following activities (65):

(59)

The Portuguese authorities indicate that, with regards to […]. According to Portugal, at any rate, the above options may be alternative or combined, being pursued simultaneously, depending on the future market developments, as well as the final outcome of the public tender procedures for the award of the PSO routes at stake.

(60)

In the adverse scenario, SATA would still generate EUR […] million a positive EBIT as of 2025, which would be systematically positive thereafter (Table 3). In the adverse scenario, the expected proceeds from sale of a stake in Azores Airlines would also still restore the equity position of SATA, financial debt would be stable and the net financial debt to EBITA would reach […] in 2025. As from 2026, the SATA Group […].

Table 3

Financial projections of the restructuring plan (adverse scenario)

(61)

Portugal submits that other combinations of aid instruments or amounts would compromise the objectives or imply an unbearable financial cost, hampering the long-term viability of SATA.

(62)

The Portuguese authorities commit to the following measures to limit distortions of competition for the duration of the restructuring period:

(63)

Portugal plans the divestment of assets by 31 December 2025, as it deems that the development of a positive operational and financial track record as a result of the restructuring would comfort potential investors in the majority shareholding of Azores Airlines. Similarly, with respect to the ground handling business to be carved out and divested, this timeframe would allow the beneficiary to achieve a normalised/recurrent earnings before interest, taxes, depreciation, and amortisation (EBITDA) of around EUR […] million/year.

(64)

Portugal submits that, in the absence of restructuring aid, SATA would run out of liquidity, given, inter alia, the upcoming redemption dates of the main banks’ funding - including on 6 March 2022 a loan of EUR 155 million by Deutsche Bank - for which SATA has an insufficient cash balance and has been experiencing difficulties in negotiating further extensions (69). There would then follow the suspension and subsequent withdrawal of its operating licence, which would deprive it of its main source of income and would lead to SATA’s liquidation. It would also lead to the disruption of the current PSO routes serviced by SATA among the islands of the archipelago and between the archipelago and mainland Portugal and Madeira at least until another carrier would be willing to sign the public service contract. Similarly, SATA would be unable to further provide the SGEI that it currently offers to the five small airports operated by SGA.

(65)

Furthermore, the default of SATA would imply the loss of over 1 000 jobs in an already assisted area (70) and drawback effects on the overall economy of the Azores - in particular, on the tourism and fishing sectors – as this outermost Region of the Union is heavily dependent on flight connections, especially in the winter season. In particular, in 2019 tourism represented around 12 000-15 000 direct and indirect jobs, corresponding to around 13 % of the whole Azores’ gross domestic product (‘GDP’). Furthermore, this 13 % is estimated to grow in the future (by 70-80 %), thus promoting and driving sales of Azorean original products and services (71). Portugal also stresses that the income level in the Azores is still catching up, with a GDP per capita that is 68 % of the Union average, whilst the local economy is in transition to higher value added services and exports (which account for 10 % of the overall employment in the primary sector) (72).

(66)

Portugal remarks that in recent years other air carriers have shown a lack of interest in developing connectivity with the Azores. In particular, TAP has not bid for the PSO routes to link Portugal mainland with the Azores since April 2015; EasyJet left the market in 2017, allegedly because it could not ensure a quality offering (i.e. frequency), prioritising other markets; Delta cancelled its route New York – Ponta Delgada one year after its launch in 2018, whereas Ryanair is reducing its capacity to the Region following the outbreak of the COVID-19 pandemic. The limited direct connectivity would be demonstrated also by the very low number of direct flights scheduled to the Azores (10 direct destinations in 2019) in comparison to other Regions similar to the Azores in terms of distance from national mainland (e.g. 116 direct flights scheduled to Canary islands or 130 to the Balearic islands) (73).

(67)

Hence, as Portugal underlines, without intervention by the Region of Azores, SATA would almost certainly go out of business in the short term, as no private investor seems ready to inject capital and no financial institution is willing to offer fresh finance, considering also the geographical location of Azores and its economic condition of assisted area. No alternative scenarios seem credible, not only to keep SATA afloat, but also to maintain air transport connection to and within the Region (recitals 122 to 124), taking into account the wider consequences of the COVID-19 pandemic on the aviation sector and on the economy of the Region of Azores, which is heavily dependent on tourism (recitals 128 to 133).

(68)

In the opening and the extension decisions (74), the Commission preliminarily found that in the absence of State intervention, no other private undertaking was likely to take on SATA’s activities, including the PSOs and SGEIs currently performed, so that there would be the risk of disruption of connectivity for one of the outermost regions of the Union. In addition, the exit of SATA would have potential negative consequences in light of its important systemic role in the Azores and would lead to severe social and economic hardship for the Region and significant negative spill-over effects on important segments of the economy concerning tourism-related activities.

(69)

Furthermore, the Commission did not contest the incentive effect of the aid, nor its appropriateness. In particular, the Commission considered that the restructuring measures address in parallel a situation of extreme deterioration of the equity of SATA, which is deeply negative, whilst servicing the existing debt and meeting cash flow needs for regular operations (75).

(70)

Finally, the Commission considered the measures to limit distortions of competition to be adequate with respect to the size of the company, as the full divestment of the ground handling business and the sale of a control shareholding in Azores Airlines appear to allow alternative service providers to step in the relevant markets (76). Also, the restructuring plan would significantly reduce the perimeter of ownership and control of SATA, focusing its activities on the public interest mission, namely the operation of five airports in the smallest and farthest islands of the archipelago and the provision of air transport services in the Azores (77).

(71)

In the opening decision, the Commission found that neither the past capital increases nor the guaranteed rescue loan appeared to meet the conditions of compatibility with the internal market (78). In particular, with regard to the past capital increases, amounting to EUR 72,6 million, the Commission raised doubts as to their alleged market-conformity and, absent such market-conformity, on their alleged compatibility with the internal market, notably as rescue or restructuring aid. The Commission was not in a position to conclude whether an exception to the ‘one time, last time’ principle in exceptional and unforeseeable circumstances for which the beneficiary is not responsible was justified in relation to such capital increases (point 72 (c) of the R&R Guidelines) (79).

(72)

The extension decision raised further doubts with respect to the proportionality of the restructuring aid, given: (i) the absence of burden sharing, (ii) the insufficient real and actual own contribution of SATA, required to be at least 50 % of the restructuring costs pursuant to point 64 of the R&R Guidelines, and (iii) the long timespan of the restructuring plan, including assets to be divested only by 2026, at conditions of governance that were not specified.

(73)

In particular, the absence of burden sharing by existing creditors results in a significant amount of State aid in relation to the cost of the restructuring plan. In this respect, Portugal failed to substantiate the purported impossibility of a partial reduction of debt borne by current creditors (80), also in the light of the high level of indebtedness of SATA (EUR […] million financial debt pre-existing the restructuring). Furthermore, the measures envisaged by Portugal did not involve fresh finance at market terms, only freeing resources by reducing the beneficiary’s operating costs (81).

(74)

With regard to the own contribution of the beneficiary, the only sources that could be considered real and actual amounted to […] % of the costs of the restructuring plan, which is significantly below the proportion of 50 % that the Commission normally considers as adequate (82). At the same time, Portugal had not provided evidence of the fact that the envisaged own contribution measures are effective, lasting and not reversible. Likewise, in the uncertain outlook until 2026, Portugal had not committed to maintaining those measures and not withdrawing them if the operating results of the beneficiary improved faster or more than anticipated in the projections of the business plan. (83)

(75)

Finally, the Commission had doubts on the length of the process and the certainty of the corporate measures for the divestment of interest in Azores Airlines and in the ground handling business of SATA that was expected to only take place after the restructuring period, in 2026 (84). In this sense, (i) irrespective of the adequacy of multiples used to assess their value ( […] ), the estimated amounts (EUR […] million) seemed premised on hypothetical individual company performance; (ii) Portugal had not produced any firm sale and purchase agreements or binding commitments from specific buyers (85); and (iii) it was also doubtful that sufficiently clear governance conditions and agreements would be in place to accompany such divestiture by 2026 (86).

(76)

Overall, 19 third parties submitted comments on the opening decision, out of which 18 were submitted within the deadline provided for in the decision (87), whereas 14 third parties submitted their comments on the extension decision, of which 12 of whom submitted them within that deadline (88).

(77)

Those parties include one interested party, namely Ryanair, which is a competitor that falls within the definition laid down in Article 1(h) of Council Regulation (EU) 2015/1589 (89).

(78)

Third parties include traditional customers and beneficiaries of the services provided by SATA (overseas companies, tour operators, etc.), various associations, including Azorean diaspora organisations (90), Azorean municipalities, as well as other stakeholders such as the Partido Popular Monarquico (‘PPM’) (a Portuguese political party) and the Economic and Social Council of the Azores (Conselho Económico e Social dos Açores) CESA.

(79)

Their comments on the opening, as well as on the extension of the procedure, are presented together below.

(80)

Ryanair considers that the opening decision signals the Commission’s intention to authorise the past capital increases as consideration for inadequate compensation for SATA’s SGEIs. However, given the opening decision’s failure to present any information on the level of compensation of SATA Air Açores for operating routes with PSOs and other services of general interest provided by SATA, Ryanair claims to have been deprived of the possibility to provide comments on that point. Likewise, Ryanair complains that it has been deprived from the possibility to comment in respect of the extension decision, alleging that it has been withheld access to confidential information contained therein and relating to the restructuring plan, the operational aspects (counting 115 instances of confidential treatment) and measures to limit distortions of competition.

(81)

On the other hand, Ryanair considers that the opening decision signals the Commission’s intention to authorise the rescue aid to SATA as an exception to the ‘one time, last time’ principle, due to exceptional and unforeseen circumstances. In Ryanair’s view, the COVID-19 crisis should not be considered as an exception to the ‘one time, last time’ principle, pursuant to point 72(c) of the R&R Guidelines, to the benefit of SATA. According to Ryanair, if SATA's PSOs were causing losses to the company, then the decrease in traffic due to the COVID-19 crisis should have reduced SATA's losses instead of aggravating its difficulties. Furthermore, Ryanair submits that the massive overcapacity caused by the COVID-19 crisis allows for competitors to step in and replicate the role of SATA Air Açores and Azores Airlines with superior efficiency.

(82)

Ryanair submits that its 27 aircraft that were grounded when Ryanair submitted its comments on 5 October 2020 represented more than twice the entire fleet of SATA Air Açores and Azores Airlines (91). In Portugal, a total of 60 aircraft were grounded at that time, while for the Eurocontrol zone this figure reached 3 242 aircraft (92). Aircraft are highly movable assets, and the removal of SATA Air Açores and Azores Airlines' capacity from the market will most likely be followed by the positioning of currently idle aircraft of other airlines on the routes of SATA Air Açores and Azores Airlines.

(83)

Ryanair also considers that the Commission’s claim in the opening decision (93) that ‘in the present circumstances triggered by the COVID-19 outbreak, it is not possible for any competitor, including those already active on the Portuguese market, to step in and fully or significantly replicate the role of SATA Air Açores’ is unsubstantiated and that, on the contrary, SATA’s exit from the market would allow more efficient competitors to step in and provide a broader range of services and better quality for a lower price to passengers.

(84)

To support its claims, Ryanair refers to the precedents of the bankruptcies of Malév and Spanair, which showed that such a positive outcome is foreseeable, a fortiori since 2020 was marked by incomparably higher available capacity than that of 2013, with positive growth of traffic from Budapest and Barcelona airports and refers to Eurostat data in this regard.

(85)

Further to this, Ryanair submits that it would be able to take over all of SATA Air Açores and Azores Airlines’ routes to the mainland in a matter of days. Ryanair also notes that the opening decision (94) mistakenly states that ‘Ryanair connects the Azores with London, Manchester and Frankfurt’, omitting Ryanair’s operation of routes between Ponta Delgada and Terceira Lajes (both in the Azores) and Lisbon and Porto on a year-round basis.

(86)

Ryanair maintains that, following its investigation in this case, the Commission should be in a position to conclude that the COVID-19 crisis should not be considered as a circumstance that justifies an exception to the ‘one time, last time’ principle. On the contrary, the overcapacity generated by this crisis makes it easier for competitors to step in and it makes it less justified to artificially maintain SATA which has proved its inefficiency. Ryanair recalls that SATA was already on the brink of collapse before the COVID-19 crisis and was saved through recurrent capital injections by Portugal. Ryanair also states that the COVID-19 crisis is not a valid reason to allow Portugal to keep injecting funds to SATA.

(87)

On the extension decision, in particular, Ryanair claims that due to the excessive confidentiality treatment of parts of that decision concerning the restructuring measures, own contribution and measures to limit distortions of competition, it was deprived of its right to make comments. Ryanair also reiterates that the opening and the extension decisions omit to mention, among the routes between the Azores and the Portuguese mainland operated by Ryanair, the following routes: (i) Ponta Delgada and Porto on a year-long basis, and (ii) Terceira and Lisbon and Porto on a year-long basis. In addition, Ryanair suggests that SATA should be stripped of operations outside the PSO/SGEI realm, given that such unclear delineation of the missions of SATA, as a public service provider and commercial air carrier, probably explains most of its difficulties. Ryanair adds that the growth of its operations between the Azores and the Portuguese mainland despite the COVID-19 crisis confirms that it would be able to take over all of SATA’s commercial routes to the mainland at short notice.

(88)

Moreover, taking into account the overcapacity caused by the COVID-19 crisis in the aviation sector, Ryanair invites the Commission to refrain from assuming, in respect of the routes currently operated by SATA Air Açores and Azores Airlines, that the condition set out in paragraph 1 of Article 16 of Regulation (EC) No 1008/2008 is automatically satisfied (namely that PSOs should be imposed when carriers would not assume a certain level of services, if they were solely considering their commercial interest). Finally, Ryanair advocates to limit the amount of aid to what is necessary to pursue SATA’s PSO/SGEIs tasks.

(89)

With respect of the measures subject to the proceedings, PPM has opposed the rescue aid and the restructuring plan. PPM considers that some information provided by Portugal is incorrect. Namely, it underlines that the activities of SATA Air Açores and Azores Airlines should not be mixed: while the former operates only inter-islands flights under PSOs with an important financial compensation (more than EUR 135 million for the period 2015-2020), the latter competes with other airlines companies (e.g. TAP, Ryanair, EasyJet, Euroatlantic, Cabo Verde Airlines, Binter). PPM also stresses that TAP, Ryanair and Azores Airlines compete on the same market for two liberalised routes (95) and that routes under PSOs do not have a high level of demand. Lastly, PPM mentions that before the COVID-19 outbreak TAP was a competitor that also connected the USA and Canada. (96)

(90)

Further to this, PPM submits that Azores Airlines is voluntarily operating several PSO routes (97) (previously operated by TAP) and that Portugal never submitted to public tender such routes. Therefore, Portugal is not entitled to justify aid granted to Azores Airlines for these PSO routes. Furthermore, PPM underlines that a statement made by the Commission regarding the cessation of activity of EasyJet (98) on a PSO route (99) in 2017 is incorrect, as the said route was not in fact a PSO route, but a liberalised one.

(91)

Concerning the inter-islands PSO routes operated by SATA Air Açores, PPM submits that the reason why the public tender was not attractive is due to: (1) the complexity the Government placed on the PSO and tender rules and (2) the fact that the tender for the inter-island routes is for all the routes as a group. In that regard, fair, reasonable and more transparent conditions would allow for the reduction of the amount of the financial compensation to be paid. Finally, PPM considers that financial compensation paid to SATA Air Açores for the PSOs also constitute an unlawful subsidisation of Azores Airlines and that the latter company should be managed separate from the former.

(92)

PPM also alleges that territorial continuity between Portugal mainland and the Azores would not be disrupted in the case of SATA’s failure: indeed, TAP and Ryanair are operating the routes from São Miguel (PDL) and Terceira (TER) to Lisbon (LIS).

(93)

Other third parties have submitted comments supporting the rescue and restructuring plan of SATA because of the importance of SATA and the potential impact of its market exit to the economy and connectivity of the Azores Region and the communities of the Azorean diaspora.

(94)

The vast majority of the third parties that submitted comments, both on the opening decision and the extension decision, are concerned with the need to ensure the principle of territorial continuity. Thus, they support the continuation of the flight services provided by SATA for the Azores diaspora, regional economy, health and education of the region, considering the characteristics of the ARA as an outermost region of the Union, as recognised in Article 349 TFEU. In the absence of SATA those routes would not be replicated by any other airline in the same level in their view, given the seasonality of the other carriers’ connections, and the fact that the other carriers have not demonstrated a continued interest in ensuring these connections.

(95)

Without exception, the diaspora associations underline the importance of SATA for the maintenance of the roots and connectivity of the Azorean community in North America, the Azorean community in Toronto, Montreal, Ontario, Winnipeg, California and the east coast of the USA (100).

(96)

In this context, a vast number of third parties stress the relevance of SATA to the tourism sector, considered as an essential sector for the development of the Azores and a key source of employment and wealth for the region. SATA played, and still plays, a leading role in the growth of the Azores as a tourism destination and, consequently, in the employment and wealth of the region, as it secures internal mobility within the Azores archipelago and its connectivity with the mainland, Europe and North America. In addition, SATA secures the access to essential and non-essential goods from outside the Azores, necessary for the development of all tourism-related activities.

(97)

The Portuguese Association of Travel Agencies and Tourism (‘APAVT’), as well as the Azorean Tourism Association (‘ATA’) consider that the economic impact of SATA on the whole of the tourism value chain is unique. In their view, the passenger flows stemming from SATA’s flight operations result not only in the direct creation of numerous jobs, but also in the creation of multiple businesses downstream, namely hotels and short-term rentals, restaurants, rent-a-car, travel agencies and tourist entertainment companies.

(98)

Furthermore, associations such as the Azorean Agricultural Federation (‘FAA’) and the Azorean Fishing Federation (‘FPA’) highlight the specificity of the Azores region and the instrumental role that SATA plays in accessing other regions and secure the distribution and export of products from the Azores archipelago to other lands, continental Portugal and other territories within (and outside the Union), thus enhancing the access to fair opportunities for producers of the Azores, in particular for the transport in terms of the fish distribution. FAA and FPA submit that SATA ensures the socio-economic development of the fishing and agricultural sectors by transporting these products within the Azores archipelago and from the latter to other regions.

(99)

Other parties, such as the direct customers and travel agencies (A.J.F. Accounting (‘AJFA’) and SDA Building Services (‘SDABS’), which have investments in the Azores, , as well as the tourism agency ‘BTA’) are in favour of supporting SATA, whereas Associação de Municípios da Região Autónoma dos Açores (‘AMRAA’) recalls the fact that SATA was a guarantor of the non-isolation of the Azorean population from the outside and an instrument for the implementation of territorial, economic and social cohesion; in addition, they point out that SATA has an essential role in times of crisis, such as natural catastrophes and during the COVID-19 pandemic, and underline the key role of SATA’s services for the transport of medical equipment, medication and personal protective equipment.

(100)

A trade association Câmara do Comércio e Indústria de Ponta Delgada/Associação Empresarial das Ilhas de S. Miguel e Santa Maria (‘CCIPD’) acknowledges that SATA has been a key instrument for ensuring internal mobility and connectivity to the outside, while nevertheless expressing concern over the management of SATA during the support period and suggests improving performance through an action plan. CCIPD recognises the state of emergency and suggests an amendment of PSO for inter-island flights and connections for non-liberalised gateways.