The European Commission committed several errors in approving the measure, according to the ruling.
The European Union General Court ruled on Wednesday that the European Commission was wrong to approve a €6 billion financial aid package granted by the German government during the pandemic to national carrier Lufthansa.
The court case had been introduced by Lufthansa's competitor, low-cost airline Ryanair.
€6 billion euros from Germany
Berlin notified the EU's executive in June 2020 that it would grant €6 billion in state aid in the form of recapitalisation to Deutsche Lufthansa AG, the company group.
The Commission is tasked with evaluating state aid packages member states hand out to ensure they do not weaken the level-playing field across the Single Market.
The financial package was part of a wider series of support measures for the airline group, meant to counterbalance the exceptional loss of revenues caused by the COVID-19 pandemic, which strongly affected air traffic.
The measure consisted of three different elements: an equity participation of approximately €300 million, a so-called "silent participation", not convertible into shares, of approximately €4.7 billion, and another "silent participation" of €1 billion, with the features of a convertible debt instrument.
"Several errors by the Commission"
According to the General Court ruling, the EU executive committed several errors in its state aid evaluation.
Indeed, the Commission classified the measure as state aid compatible with the internal market and the Temporary Framework for State aid measures, issued in March 2020 to soften EU rules on the matter to allow member states to prop up companies badly impacted by lockdown orders and supply chain issues due to the global health crisis.
But the Court found an infringement of point 49(c) of the Temporary Framework, which states that, in order to be eligible for a recapitalisation measure, "the beneficiary must be unable to obtain financing on the markets at affordable terms".
The Commission considered that condition satisfied since Lufthansa group would not have had sufficient collateral to obtain financing on the markets for the entire amount of the aid, while Luxembourg's judges contested the decision, basically claiming that the Commission had not assessed the possible availability of collateral.
Since the Commission did not assess whether Lufthansa Group could have raised a non-negligible part of the necessary financing on the markets, the General Court recognised an infringement and upheld the complaint made by Ryanair.
In a statement to Euronews, Deutsche Lufthansa AG says it "will analyse the ruling and then decide on further action", claiming to having "already fully repaid the stabilisation measures which have been approved by the European Commission, as well as around €92 million in interest rates".
The two "Silent Participations" of the Economic Stabilisation Fund (ESF) were repaid in October and November 2021, the statement also said.
"The last year 2022, the ESF sold its shares in Deutsche Lufthansa AG acquired as part of the stabilisation," which was thus already fully terminated before today's court ruling," it added.