UK: European Competition Law: Commission Decisions on State Aid

Last Updated: 5 February 2003
Article by Fernando Albino

On 11 December 2002 the European Commission issued a series of decisions ranging from minor investigations in inducements for new regional operations to major State Aid infringement cases. The broad nature of the Commission’s decisions shows us just how important the European regulatory system has become to the everyday activity of the aviation industry.

EU COMMISSION REQUESTS GREECE TO RECOVER 194 MILLION

"The Commission concluded its examination of the Olympic Airways case". Thus began the press release announcing the Commission’s decision to call on Greece to recover part of the aid granted to Olympic Airways within the scope of its restructuring plan for the period 1998-2002. In 1998, following a close monitoring of the airline’s restructuring schemes since 1994, the Commission authorised a series of restructuring aid to "ensure the return of Olympic Airways to viability". The 1998 decision was granted on the basis of a new restructuring plan for the period 1998-2002 under which the company was allowed to maintain existing loan guarantees, secure a new loan guarantee totalling US$378 million for the purchase of new aircraft, carry out various operations of debt reduction (427 billion drachma – approximately US$1.5 billion) and debt conversion (64 billion drachma – approximately US$225 million) and receive a capital injection of 40.8 billion drachma (approximately US$143 million).

In return the Company had to satisfy a number of conditions, namely various financial objectives, the introduction of a computerised management system and the submission of regular reports to the Commission. The Greek State also committed to ensure that Olympic Airways would have the fiscal status of a private limited company and would be subject to the same law as other carriers with no special privileges. It was agreed the Greek State would not interfere with the management of the company, that it would enact the necessary legislation for the effective fulfilment of the restructuring plan and, most importantly, that no further state aid would be granted.

In its investigation, prompted by two complaints from the Hellenic Air Carriers’ Association, the Commission found that the restructuring plan had not been put in place, the financial objectives had not been satisfied, the computerised management system had never been operational and the regular reports for March and October 2000 were not submitted.

The Commission also concluded that Olympic Airways continued to benefit from a deferred payment system of its fiscal and social security contributions to the Greek State and that it benefited from unfair advantages related to the fuel distribution operations. The Commission also concluded that a €19.5 million loan granted in February 2002, the compensation paid to Olympic Airways for moving to the new Athens- Spata Airport and the reduced 8% VAT charged on domestic flights did not constitute state aid.

The Greek Ministry of Transport immediately reacted to the Commission’s decision, announcing the intention of the Greek State to challenge it, in particular concerning the level of subsidy that needs to be recovered from Olympic Airways. According to the Greek Government the amount at stake is not the €194 million sought, but only €41 million.

The Greek Government emphasized that this decision should not affect the ongoing privatisation of Olympic Airways.

Greece has 60 days after the official notification to inform the Commission of its intentions in respect of the decision.

ITALY 1 – FRANCE 0

Not a football result, but the result of two separate investigations by the Commission into insurance/compensation schemes following the terrorist attacks on 11 September 2001.

In the Italian case the Commission decided that the insurance guarantee scheme put in place by Italy for its air industry from 28 September 2001 to 31 October 2002 complied fully with earlier decisions involving other Member States, including the UK. It went on to state that after 31 October 2002 the general rules on State Aid laid down by the Treaty will be applied on a case-by-case basis and the exceptional circumstances of terrorism and security will no longer justify any exceptions to those rules.

In the French case France sought to extend the compensation scheme for losses caused to airlines as a result of flights being cancelled or delayed by national authorities in the United States. The compensation scheme had originally been allowed by the Commission only for four days following 11 September 2001. Because no similar intention was notified by any other Member State, the Commission decided that an extension of that compensation scheme to French operators "could lead to significant distortion of competition".

STATE AID OR REGIONAL DEVELOPMENT?

The Commission has started two separate investigations into alleged benefits conferred by the Walloon Region (Belgium) and the Brussels South Charleroi Airport Management to Ryanair and by the Generalitat Government of Catalonia (Spain) to Intermed.

In the Belgian case the Commission is particularly interested in reduced landing fees charged to Ryanair and concessions in respect of recruitment, training and living costs of Ryanair staff, as well as the provision of office space and substantial contributions to promotion and advertising campaigns. In exchange Ryanair undertook certain obligations over several years.

Perhaps anticipating the company’s reaction, the Commission finishes its press release by stating that its investigation "does not seek to question the development of low-cost activities which respond to clear consumer wishes, but aims to ensure a level playing field for all airlines".

In the Spanish case the benefits at stake relate to financial and other support rendered to Intermed for operating scheduled services between Gerona, north of Barcelona, and Madrid. The Commission’s investigation aims to verify that the Community rules in respect of public service obligations for specific routes have been complied with.

Generally the Commission will look at various factors like the importance of the routes at stake for the development of the region. Furthermore, the support must be limited to ensuring the necessary standards of continuity, capacity and pricing that would otherwise not be met if the carrier was only considering its commercial interest. Procedural rules, specifically public procurement tender processes, must also be complied with.

It will be interesting to see the Generalitat’s reaction particularly considering the imminent start of TGV train services between Madrid and Barcelona which clearly represent a serious competition to the existing air routes.

Both these cases are interesting in that they are not directed at Member States but rather against regional entities. Clearly the Commission’s perspective is that the alleged regional nature of some operations or the local public interest do not by themselves justify exceptions to the general rules of the internal market.

The content of this article does not constitute legal advice and should not be relied on in that way. Specific advice should be sought about your specific circumstances.

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