The European Commission has acknowledged that a possible bankruptcy of the Azores regional airline SATA, without state support, would cause “severe difficulties for the economy of the Azores”, an outermost region of the EU, “which faces several challenges” due to its “geographical distance from the Portuguese mainland”.
The region’s “socioeconomic shortcomings” in its “relationship with Portugal and the European Union” are also mentioned by Brussels in a letter sent to the Portuguese government regarding the approval of financial aid to the Azorean airline.
The letter was sent by the executive vice-president of the European Commission Margrethe Vestager, responsible for competition policy, to the Minister of Foreign Affairs, Augusto Santos Silva, seen by Lusa today, dated 18 August, at the ‘green light’ of the EU executive to financial support.
At the time it was also mentioned that an investigation would be opened to assess compliance with community standards in other public support to the company, specifically three capital increases in recent years.
The consequences of a SATA bankruptcy “would be particularly serious in the context of the social and economic crisis generated by the Covid-19 outbreak” and this would also hinder “the trajectory of economic recovery in the Azores, Vestager said.
“A SATA bankruptcy would lead to serious social problems and economic difficulties for the region and significantly negative side effects on important segments of the economy,” she added.
The European Commission also said it has received a guarantee from Portugal that the loan to the company will only be used “to meet the urgent liquidity needs identified”, and will cover “normal operating costs.
SATA “will not use the emergency aid to finance structural measures or other activities than its current operation,” it says.
SATA’s financial difficulties have persisted since at least 2014 when the airline began to record losses, now aggravated by the effects of the new coronavirus pandemic, which had a huge impact on the aviation sector.
It was because of these difficulties that the Autonomous Region of the Azores has approved three capital increases in the airline since 2017, in order to make up for liquidity shortfalls.
“The Portuguese authorities state that the capital increases in question do not constitute state aid under EU rules since the Regional Government of the Azores, as SATA’s sole shareholder, acted as a private investor operating under market conditions,” the European Commission said.
It is this public support that Brussels will now “investigate further” in order to understand “whether the capital increases constituted state aid that should have been notified to the Commission and, if so, whether the previous support measures meet the conditions of the 2014 rescue and restructuring guidelines,” the institution concluded.
The current board of directors of the Azorean carrier took office in January and committed to presenting a strategic and business plan by the end of the first quarter of the year, but the Covid-19 pandemic forced a reassessment of the document.
In July, SATA stressed that “the context caused by the pandemic had a very significant impact” and, due to the “almost total lack of activity, all possible measures were implemented at the management’s disposal, in a scenario where the preservation of employability was fundamental”.
Over the next six months, in accordance with EU regulations, SATA will, together with the government of the Azores and the European Commission, work on a business plan that ensures the economic and financial sustainability of the group and guarantees services of general economic interest in inter-island air transport and with the outside world.