COVID – 19, disclosure of State Aid, rights issue and pensions guarantee

Finnair Oyj – Annual report – 31 December 2020

Industry: airlines

3.3 Financial liabilities (extract)

State aid relating to Finnair’s refinancing

The European Commission has concluded that the State of Finland’s guarantee of Finnair’s pension premium loan up to EUR 540 million, which was approved by the European Commission on 18 May 2020, and the State of Finland’s participation in the rights offering are so closely linked that they must be regarded as an overall transaction that constitutes State aid within the meaning of Article 107(1) of the Treaty on the Functioning of the European Union. Under the Commission’s decision, the Company has agreed to certain conditions following the offering, which include, among other things, a ban on acquisitions, restricting the Company from acquiring a stake of more than 10 per cent in competitors or other operators in the same line of business, including upstream or downstream operations for a period of three years from the offering.

As a result of the restrictions based on the Commission’s decision, the remuneration of each member of Finnair’s management will not go beyond the fixed part of his/her remuneration on 31 December 2019. For persons becoming members of the management on or after the rights issue, the applicable limit of the remuneration for such new member will be benchmarked to the remuneration of comparable managerial positions and areas of responsibility in Finnair applied on 31 December 2019. Finnair will not pay bonuses and other variable or comparable remuneration elements during the three fiscal years 2020-2022 to the members of the management.

Further, Finnair is committed to publishing information about the use of the aid received within 12 months from the date of the offering and thereafter periodically every 12 months, for a period of three years. In particular, this should include information on how the company’s use of the aid received supports its activities in line with EU objectives and national obligations linked to the green and digital transformation, including the EU objective of climate neutrality by 2050.

Currently, the State of Finland and Finnair are preparing to make up to 400 million euros available to Finnair in the form of an unsecured hybrid loan. The final decision on the possible financing arrangement is subject to a decision by the Government Plenary session, which will also confirm the final terms and conditions of the loan. The hybrid loan requires approval by the EU Commission.

4.5 Related party transactions (extract)

Related parties of the Finnair group includes its subsidiaries, management, associated companies and joint ventures and Finnair pension fund. Subsidiaries are listed in the note 4.2 and associates and joint ventures in note 4.4. Related party transactions include such operations that are not eliminated in the group’s consolidated financial statement.

The State of Finland which has control over Finnair owns 55.9% (55.8%) of Finnair’s shares. During financial year 2020 the State of Finland participated in the rights issue in proportion to its holding by 286.1 million euro and guaranteed Finnair’s pension premium loan up to 540 million euro. The European Commission concluded that these transactions, in combination, constituted state aid within the meaning of Article 107(1) of the Treaty on the Functioning of the European Union. The conditions relating to the state aid approval are described in the note 3.3. All the transactions with other government owned companies and other related parties are on arm’s length basis, and are on similar terms than transactions carried out with independent parties.