UK: Ryanair to Pay Back Discounts Granted by Charleroi Airport

Last Updated: 24 March 2004
Article by Hilary Pullum

On 3 February 2004 the European Commission announced that Ryanair must pay back some of the advantages that it was granted by Brussels South Charleroi Airport and the Walloon Region (Belgium), as the advantages amount to unlawful State Aid.

The principal EU rules on state aids are to be found in Articles 87-89 of the EC Treaty. Article 87(1) provides that "any aid granted by a Member State or through State resources in any form whatsoever which distorts or threatens to distort competition by favouring certain undertakings … shall in so far as it affects trade between Member States, be incompatible with the common market".

The advantages granted to Ryanair at Charleroi can be summarised as follows: preferential landing fees of € 1 per passenger (approximately half the rate set by law); a contribution towards marketing in the sum of € 4 per passenger for 15 years, for up to 26 flights daily; start up incentives amounting to € 160,000 per new route opened, for 12 routes; € 768,000 for pilot training; € 250,000 for hotel accommodation costs; preferential ground handling fees of € 1 per passenger (usual fees € 8-13 per passenger).

The Commission made the decision by reference to the ‘private investor principle’, namely by asking whether Ryanair could have obtained the same benefits from a private sector company under normal market conditions. In applying this test, it is necessary to examine whether a comparable private firm, in the same situation, would have entered into the same contract i.e. whether the level of anticipated profit is what a private firm would expect and whether the public body has taken advantage of the benefits arising from its status, for example easier access to finance, lack of risk of insolvency; and, whether it has had regard to considerations that would not affect a private investor, such as regional economic development and job creation.

The Commission ruled that no private investor in the same situation would have granted the same advantages to Ryanair and therefore held that some of the advantages afforded to the airline constituted state aid which could distort competition in favour of Ryanair.

Under Article 87(3) of the EC Treaty, certain categories of state aid can be considered compatible with the common market and therefore not unlawful. Specifically in this case the Commission relied on Article 87(3)(c): "aid to facilitate the development of certain economic activities or of certain economic areas, where such aid does not adversely affect trading conditions to an extent contrary to the common interest." Insofar as the aid granted to Ryanair permitted the development and improvement of the use of secondary airport infrastructure, the Commission ruled that it was acceptable and may be kept by Ryanair.

Ryanair was therefore allowed to keep the monies to develop new routes, but only when this benefit is limited to a five year duration. Ryanair has to "return" the reduced airport charges, reduced ground handling fees, incentives for the opening of new routes i.e. the monies given in respect of staff recruitment, training and accommodation costs and aid for the Dublin-Charleroi route, as the route is not new. Although final figures have not been released, the EU transport commissioner has estimated that Ryanair will have to pay back between 25-30% of its subsidies, i.e. approx EUR 4 million (US$5.15 million).

The Walloon Region is still able to introduce new standard airport charges to act as an incentive, but this must be applied to all airlines. Reduced ground handling fees are possible if any losses suffered are not offset by revenue from airport authority tasks or airport services.

Ryanair’s chief executive has described the decision as ‘bad news for consumers, for competition and disastrous for publicly-owned airports, which will now be prevented from competing on a level playing field with private airports’. Ryanair has said that it will appeal the decision to the European Court of Justice. On 26 February, the airline announced that it is terminating its Charleroi-London route from 29 April 2004 and that while the appeal is underway, there will be reductions in flights and services at Charleroi with aircraft capacity reallocated to other airports.

Charleroi was not the first of Ryanair’s operations to come under fire. In December last year, the French Court of Appeal in Nancy ruled that payments that Ryanair received from the Strasbourg Chamber of Commerce amounted to State Aid, as a result of which Ryanair moved its Strasbourg base to Baden-Baden. 

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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