The airline has had significant financial difficulties, making consistent losses since 2006. It received a total of almost €85m in state aid, which it has been ordered to repay, and was set to receive a further €40.7m.

Margrethe Vestager, EU commissioner in charge of competition policy, said: “Companies should compete based on a sustainable business model rather than relying on continued support by the state to stay in the market.

“Estonian Air has repeatedly received public subsidies over the past five years but did not carry out the necessary restructuring to become a viable business.”

Keeping Estonian Air in the market artificially was neither a “good use of taxpayer money” or “fair to competitors”, she said.

The commission’s guidelines for rescue and restructuring aid state that it may only be granted once in a ten-year period to prevent companies relying on public money.

Estonia however granted at least three public subsidy measures to the airline between 2010 and 2014. These came in the form of a state capital injections of €17.9m in 2010, a further state capital injection of €30m, split into two separate payments in 2011 and 2012 and a rescue loan of €37m. 

A further €40.7m state capital increase was also planned. Estonian Air has been ordered to repay the €84.9m it has already received and has been barred from receiving the further payment.

The commission’s investigation also revealed that Estonian Air had no credible restructuring plan to ensure the company could become viable without continued state support.

On Saturday it was announced that the company did not have the ability to pay and it ceased operations a day later, offering replacement flights and ticket refunds.

The commission also recently made two high-profile state aid rulings regarding the Netherland’s tax deals with Starbucks and Luxembourg’s with Fiat.