COVID-19 Newsroom

The pandemic and its effects on business in Finland.

Aviation news update – Fate of domestic flight routes post-COVID-19

Multiple domestic routes could be closed permanently

To reduce losses following the COVID-19 crisis, primary Finnish airline company Finnair has suspended many of its loss-making domestic flights to eastern and western Finland. The domestic flights subject to suspension are not part of Finnair’s new flight schedule for July 2020 and Finnair has announced that in August 2020 it will further review whether these routes will be restored.

It is possible that the routes will be permanently shut down, as many flights were operating at less than 50% seating capacity before the COVID-19 outbreak. However, the Finnish government, the majority shareholder of Finnair, has publicly expressed that the suspended domestic flight routes should be restored after the COVID-19 outbreak eases.

Could domestic flight routes in Finland be put out to EU-wide tender?

The Finnish media has stated that one possible way to save the suspended domestic routes would be for the government to provide direct state aid to airlines that wish to operate them. However, such state aid would require EU Commission notification and approval. Legal scholars in Finland have argued that EU state aid rules could be interpreted more loosely due to the COVID-19 crisis in favour of state aid approval. In order for the state to offer financial aid for the routes, they would likely be put out to an EU-wide tender.

Government wants to have its shareholder cake and eat it

In May 2020, following Finnair’s decision to suspend some of its domestic routes, speculation arose as to whether the preservation of these routes should have been a condition for the financial assistance that the state provided to Finnair by way of guarantees (for further details please see “Impact of COVID-19 on Finnish air travel“) or to Finnair’s recent rights offering.(1)

The government responded, arguing that it was not in a position to impose conditions on its involvement in either of these measures to strengthen Finnair’s financial position. Nevertheless, the government deemed the suspension of domestic routes to be a matter of security of supply and noted that it has sent a strong signal to Finnair’s management that these routes should be restored as soon as possible. However, the government also indicated that all routes should be profitable and that flights with mostly empty seats are not in the government’s interest.

In light of the above, the state appears unable to strike a balance between its aims for Finnair’s operations to be profitable and for domestic routes to be preserved no matter the cost. In the event that the state provides direct funding for the operation of the suspended domestic routes, it would need to comply with EU state aid rules or its actions could become subject to another unlawful state aid investigation by the European Commission (for further details please see “Recent developments in Finnish aviation industry”). The fate of the domestic flight routes and the wellbeing of areas serviced by those routes hangs in the balance.

Endnotes
(1) Finnair arranged a rights offering between 17 June 2020 and 1 July 2020 in which a total of 1,416,635,293 new shares were offered for public subscription. The offering was oversubscribed and Finnair was able to raise more than €500 million in new equity. More information on the offering is available here.

The article was originally published by International Law Office: www.internationallawoffice.com/newsletters/detail.aspx?r=82553

Authors:

Maria Lehtimäki
Specialist Partner

Tuurna