Swiss Federal Council approves state aids for SR Technics despite COMCO’s warning: escalation of dispute with the EU?

As aviation is an economically critical infrastructure, the Swiss Federal Council decided on 8 April 2020 to take measures to ensure that Switzerland remains connected to the international air transport system. Furthermore, the Swiss Parliament approved during its special session a guarantee and budgetary credits worth over CHF 600 million in order to support aviation-related businesses.

SR Technics Switzerland AG (hereinafter “SRT”), headquartered in Kloten near Zurich, operates internationally as a provider of technical maintenance services for aircrafts, components and engines. In particular, SRT provides maintenance services to air carriers at Swiss airports. To overcome its liquidity shortage due to the COVID-19 pandemic, SRT has taken out several loans, inter alia a loan over CHF 120 mio. from a consortium of banks. During its meeting on 1 July 2020, the Swiss Federal Council decided to cover 60% of this loan by a deficiency guarantee provided by the Swiss Confederation worth CHF 79.2 mio. (i.e. CHF 72 mio. plus interest and fees). However, such a financial support might constitute a state aid under the competition law of the European Union.

In the context of the so called “Bilaterals I” of 1999, the European Union and Switzerland agreed on an Air Service Agreement. This Agreement adopted EU competition law and therefore prohibits wrongful state aid measures to the aviation sector and related economic sectors. This refers to (financial) advantages granted by public authorities which are not granted under market conditions and that might distort competition. According to the Swiss Federal Aviation Law (Luftfahrtsgesetz), the Swiss Competition Commission (hereinafter “COMCO“) is competent for the monitoring and the review of state aids in the aviation sector in Switzerland. Pursuant to the COMCO, the above mentioned state aid to SRT is not compatible with the Air Service Agreement. Nevertheless, the Federal Council has noted COMCO’s position, but wishes to maintain the support to SRT. According to the Swiss Federal Council, the Swiss Confederation and the banks would be compensated for their involvement in line with market rates. Furthermore, the pledging of shares would provide adequate collateral.

However, in case the state aid to SRT might not be compliant to the Air Service Agreement, the Swiss Federal Council’s violation of the Air Transport Agreement – and thus of EU competition law – could escalate the dispute between Switzerland and the EU regarding the introduction of state aid rules in the institutional agreement currently being negotiated.

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