The ECJ ruling is the latest in a legal dispute which began in July 2012 when the European Commission found that Ireland’s application of a lower rate of air travel tax for short-haul flights constituted state aid incompatible with the internal market.

There is up to €16m at stake with both airlines facing punitive bills to reclaim the disputed EU state aid. 

It therefore ordered the recovery of that aid from the beneficiaries, stipulating that the amount of the aid corresponded to the difference between the lower rate of €2 (£1.70) for flights to destinations located less than 300 km from Dublin airport and the standard rate of €10 (£8.48), that is €8 (£6.78). Aer Lingus and Ryanair, both of which were among the beneficiaries of the aid, brought legal action against the Commission decision.

At an earlier stage in the legal process the decision was partially annulled on the grounds that the Commission had failed to show that the advantage enjoyed by the airlines concerned was, in all cases, €8 per passenger. The Commission then lodged an appeal which has now been successful.

As a result, the ECJ has ruled that airlines that were able to benefit from the reduced rate enjoyed a competitive advantage of €8 by comparison with airlines that paid the standard rate. Thus, the Irish authorities are to recover a sum of €8 per passenger for each of the flights concerned.

The court made the point that the recovery of aid entails the restitution of the advantage the airlines were able to procure from the application of the reduced rate, not the restitution of the economic benefit that may have been conferred on those companies by the aid as a result of the exploitation of the advantage.

The advantage in question was not based on the fact that those airlines were able to offer more competitive prices than their competitors. It resulted quite simply from the fact that those companies had to pay a lower amount than they would have had to pay if their flights had been subject to the standard rate.

In addition, the court noted that there was nothing to prevent the beneficiaries of the aid from increasing by €8 the price of their tickets that were subject to the lower rate so as to enjoy economic benefits corresponding to the difference between the lower and standard rates.

It rejected the argument of Aer Lingus and Ryanair that, since they were effectively no longer in a position to recover the amount of €8 from their own customers, their obligation to repay that sum would be equivalent to the imposition of an additional tax or a discriminatory penalty.

Ryanair has said that the ruling would require it to repay €12m, but has indicated airlines would be able to take legal action to claim compensation from the government.

The Irish government has made no comment on the ECJ’s findings. The air travel tax moved to a flat rate in 2011 following the Commission investigation and was subsequently scrapped.

The ECJ ruling, issued on 21 December 2016, is available here Joined Cases C‑164/15 P and C‑165/15 P, Appeals under Article 56 of the Statute of the Court of Justice of the European Union, lodged on 9 April 2015, European Commission v Aer Lingus Ltd, Ryanair and Ireland