The European Commission (EC) has authorised French state aid of EUR136.8 million euros (USD144.3 million) to Air Austral (UU, St. Denis de la Réunion), of which EUR119.3 million (USD125.9 million) is earmarked for restructuring the airline and EUR17.5 million (USD18.4 million) in compensation for damages suffered during the Covid-19 pandemic.

In a January 5 statement, the EC also announced it had approved the restructuring plan, which runs from January 2022 to March 2025. Air Austral will contribute towards its funding through its own or private sources of funds. The new aid followed a loan of EUR20 million (USD21.1 million) from the French state to Air Austral on January 18, 2022.

Measures aimed at limiting distortions in competition will remain in place during the above-mentioned restructuring period. These include limitations on the number of seats and routes operated by Air Austral and a ban on acquiring stakes in other undertakings and business agreements with other airlines.

Brussels believes the restructuring plan will ensure the airline's long-term viability and prevent it from being wound up, which it said would harm Réunion as an outermost and assisted department of France. It reiterated that Air Austral ensured territorial continuity between Réunion and neighbouring Indian Ocean islands (Mayotte in particular) and mainland France.

The EC found that France's EUR17.5 million Covid-19 compensation to Air Austral was in line with European Union member state aid rules. It covers operating losses suffered between March 17 and June 30, 2020, as a direct result of pandemic-linked travel restrictions.

According to a presentation by Réunion Regional Council President Huguette Bello to the island's Plenary Assembly on October 28, 2022, Air Austral suffered a 77% drop in passenger traffic and a 55% drop in revenue as a result of the pandemic, resulting in a deterioration of its financial situation and a significant increase in its indebtedness.

Faced with this situation, the Réunion regional government and semi-public shareholder Sematra contributed two shareholder loans totalling EUR35 million (USD36 million) in 2020 and 2021. Discussions were had in 2022 under the aegis of the French interministerial committee in charge of restructuring state companies (Comité Interministériel de Restructuration Industrielle - CIRI) to draw up a restructuring plan for the company, which the EC has now validated. The Region proposes a fresh cash injection of EUR55 million (USD58 million) for the restructuring - including EUR30 million (USD31.6 million) of private contribution and EUR25 million (USD26 million) from Sematra - while 80% of French state-guaranteed loans would be written off and the remaining repayments staggered.

In 2023, the Regional Council will establish a monitoring committee and "be very vigilant about the implementation of the restructuring plan and the implementation of the new board of the company," Bello said.

France previously mooted a merger between Air Austral and Corsair International (SS, Paris Orly) – also in financial difficulty after the health crisis – but this was rejected by the Réunion Regional Council, fearing the carrier would lose its autonomy to provide connectivity in the region.

Air Austral is 99% owned by Sematra, bringing together the Réunion Region (73.5%), Caisse des Dépôts (13.6%), and the Department (11.4%).