Cyprus closed down its flag carrier Cyprus Airways today after the European Commission ordered the struggling airline to pay back over €65m in illegal state aid.
EU Competition Commissioner Margrethe Vestager said Cyprus Airways had no chance of becoming viable without continued state subsidies.
This means the money paid out in 2012 and 2013 as part of a €103m restructuring package would have to be recovered by the government.
In 2013, Cyprus was forced to take a €10 billion bailout from the European Union and International Monetary Fund.
In Nicosia, authorities said the Cyprus Airways decision meant a suspension of operations.
"The company has ceased being a viable entity, and cannot continue to operate," Finance Minister Harris Georgiades said.
"Following today's decision for immediate termination of the flight programme of Cyprus Airways, the Cyprus government decided to offer alternative arrangements to all passengers who have in their possession tickets of Cyprus Airways flights," an official statement said today.
An administrator would be appointed and it was expected its air licence certificate would be revoked, the Finance Minister said.
Under EU rules, a company can only receive state assistance once every ten years. Cyprus Airways, which recently resorted to selling assets such as its slot at London Heathrow to stay afloat, had previously received financial assistance in 2007.
The Commission opened an investigation into the aid in March 2013, and the state-owned airline has ten years to pay back the money.
The Commission said Cyprus had provided no evidence that the airline faced "exceptional and unforeseeable" circumstances that would justify additional aid after the 2007 rescue package.
"Cyprus Airways has received large quantities of public money since 2007 but was unable to restructure and become viable without continued state support - injecting additional public money would only have prolonged the struggle without achieving a turn-around," Vestager said in the statement.
In addition, EU law requires that the company receiving restructuring aid contributes at least 50% to the cost.
"The Commission found that Cyprus Airways' own contribution is significantly below the level of 50% required by the guidelines," it said.
Attempts to sell Cyprus Airways flopped last year. Ryanair and Greece's Aegean Airlines had expressed some preliminary interest but it was not followed up with anything firmer.
Both Ryanair and Aegean, which have taken market share away from Cyprus Airways, have submitted applications to Cypriot authorities seeking an air operator certificate, which would allow them to create subsidiaries on the island.
The carrier, 93% state-owned, has struggled to survive against intense competition on its most popular routes to Greece and London, and several cost-cutting plans have failed to stem losses.
It posted a net loss of €55.8m in 2012, more than double the €23.88m of the previous year.
