By Foo Yun Chee and Ilona Wissenbach
BRUSSELS (Reuters) - Lufthansa suffered a setback on Wednesday after Europe's second-highest court sided with Ryanair and annulled a European Union competition regulator's decision clearing its state bailout.
The court cited errors in the EU competition regulators' decision to approve the German government's 6-billion-euro ($6.60 billion) rescue package and said they also failed to provide incentives for a quick repayment.
Lufthansa, which said it would decide on a further course of action after analysing the ruling, has already repaid the aid in full, which could limit any immediate impact of the ruling, although it could have consequences for future state bailouts.
Germany's economy ministry said that it was not possible to assess the impact of the judgment, which it planned to examine.
The EU's top competition official, Margrethe Vestager, said "all options" were on the table but did not indicate what her next steps could be after the ruling.
This was one of several legal cases brought by Ryanair against the aid provided to its rivals that it said unfairly skewed competition and cleared by the Commission under easier rules aimed at helping EU governments prop up companies hit by the pandemic.
The court also ruled in Ryanair's favour on Wednesday against pandemic state aid measures for SAS, saying recapitalisation measures did not include sufficient measures to incentivise the Swedish and Danish governments to exit quickly.
"Today's judgements confirm that the Commission must act as a guardian of the level playing field in air transport and cannot sign-off discriminatory State aid under political pressure by national governments," said a Ryanair spokesperson.
SAS said that the ruling will not affect its flight schedule or bookings, and that it remains under U.S. chapter 11 bankruptcy protection, which it filed for last year.
It also said that the ruling does not change SAS's expectations of getting approval for measures taken since 2020, including the U.S.' participation in the bankruptcy process.
"The General Court has found fault with the EU Commission's decision in one respect, but this does not mean that the States' participation in SAS' recapitalization constituted illegal state aid," the company said in a statement, adding that the EU Commission can reassess the measure, which SAS expects it will.
Lufthansa and several other European airlines received state aid following a protracted travel slump due to the COVID-19 pandemic, all of which were approved by the EU executive subject to conditions.
The Commission can appeal to the Court of the Justice of the European Union, Europe's highest, on points of law.
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(Reporting by Foo Yun Chee, Ilona Wissenbach, Padraic Halpin, Louise Breusch Rasmussen, Sudip Kar-Gupta and Juby Babu; Writing by Miranda Murray; Editing by Mark Potter, Miranda Murray, Sharon Singleton and Sandra Maler)