Air Europa has been found guilty of fraud by the Supreme Court of Spain, and will have to pay back almost €14 million ($15.8 million) to the State. The courts claim the airline had fraudulently obtained subsidies for services to the Canary Islands, the Balearic Islands, Ceuta and Melilla by claiming for higher ticket prices than those actually charged to the residents.
Fraud of residents’ certificates
Like many countries with rural or outlying populations, Spain subsidizes some airline routes to ensure connectivity is delivered even when the route is poorly performing on a commercial basis. These public service obligations mean communities on islands or in remote locations retain a much-needed air service despite relatively low demand.
Air Europa has been flying such routes, serving the communities of the Canary Islands and the Balearic Islands, as well as Ceuta and Melilla, both autonomous Spanish cities in the North of Africa. However, it seems that between January 2009 and September 2010, the airline was not completely honest about the cost of running these services.
According to the courts, Air Europa was billing the State for higher fares than were actually being charged. The Ministry of Development was, at the time, funding 50% of the cost for residents of these locations, but ended up overpaying Air Europa significantly based on the fraudulent amounts submitted.
As reported in the Diario de Mallorca, the Spanish Supreme Court has this week ratified a decision to claim back almost €14 million ($15.8 million) in overpaid subsidies from Air Europa. The judgment was originally decided by the National Court in 2017, where it recognized that the Globalia group had declared “eligible amounts higher than those that actually appeared on each ticket.”
This ruling now gives the Ministry of Development the power to demand the return of the overpaid subsidy. In total, the overpayment is pegged at €10 million ($11.3 million), plus an additional €4 million ($4.5 million) in interest.
Economic woes at Air Europa
This latest twist in the Air Europa saga comes just weeks after British Airways and Iberia owner IAG officially pulled out of a deal to purchase Air Europa. The deal had been under scrutiny by competition authorities in the UK and Europe, and had already been devalued by half due to the coronavirus crisis and its effect on aviation.
Pulling out of the deal cost IAG some €75 million ($85 million) in total in payments to the Globalia group, Air Europa’s current owners. IAG will now pay Globalia an additional €35 million ($40 million) on top of a previously agreed sum of €40 million ($45 million). However, the deal is not entirely dead in the water, as IAG noted that the €75 million payout will “be applied to reduce any future purchase price if a new agreement is reached and to avoid any litigation relating to the acquisition.”
For Air Europa, the lack of a deal has come as an economic blow. It had received a bailout of €475 million ($537 million) from State Company for Industrial Participations (SEPI) in 2020, but that money is fast drying up. With a substantial refund to pay back to the State on top of the challenges of the downturned travel market, it remains to be seen if Air Europa can survive without another acquisition offer.