State aid and Airports – A practitioners view Ulrich Soltész, 24th October 2008, Global Competition Law Centre College of Europe, Bruges

2 Airports and State aid – two aspects: Financial support for regional airports … granted by public authorities in order to promote regional development - beneficiary is the operator of the airport itself State aid to airlines (Ryanair type cases) … granting of aid to low-cost carriers by providing incentives to create new routes or new schedules from regional airports (e.g. reduced landing fees) State Airport Airline

3 Aid to airlines - Commissions view Older decisions: prohibition of discriminatory landing fees (Manchester airport) New approach: Reduction of landing fees, aid for the launch of new air routes, contributions to commercial activities, initial incentives, provision of offices, reductions of ground handling fees, etc. can constitute state aid which could be compatible under Article 87(3)(c) EC subject to detailed conditions (Ryanair/Charleroi and Community guidelines on financing of airports and start-up aid to airlines departing from regional airports, OJ 2005 C 312/1)

4 Aid to airlines – Critical comments Can start-up aid can lead to synergies ("anchor effect"), in particular follow-up investments, i.e. private investor test would be fulfilled? Unlikely, because … does the airport operator itself benefit from these effects? … and, can the airport operator cover its own costs? Imputability test (Stardust) sometimes difficult, since operating companies often act independently (CFI, T-68/03 – Olympic Airways) – New guidelines largely ignore this point

5 Aid to airlines – Conditions for approval under Art. 87 (3) EC –recipient: air carrier under Regulation 2407/92 –regional airport category C or D is linked to another EU airport; aid for routes between category B airports only in exceptional cases. Exception: routes departing from airports in outermost regions and bound for neighbouring third countries –opening of new routes or of new frequencies leading to an increase in the net volume of passengers (not when route is already being operated by an air service or equivalent high-speed rail service) –long term viability and degressive

6 Aid to airlines – Conditions for approval under Art. 87 (3) EC (contd) –compensation of additional start-up costs (e.g. marketing and advertising costs); aid granted for recurring operating costs is not eligible –strict rules on intensity and duration –link with the development of the route –non-discriminatory allocation –impact on other routes and business plan –publicity –appeal procedure –penalty mechanisms must be implemented

7 Aid to airlines – Conditions for approval under Art. 87 (3) EC - Comments Very tight rules: 12 (!) conditions to be fulfilled Massive caseload (Dortmund, Frankfurt-Hahn, Berlin- Schoenefeld, Bratislava, Aarhus, Alghero, Tampere, Luebeck, Grosseto, Pau-Béarn, etc.) Hardly feasible in practise – Fee schedules and agreements subject to constant change Creates enormous administrative burden on airlines, airports, national authorities and the Commission Overregulation thwarts regulation?

8 Aid to airports – Traditional approach State Infrastructure investments: the construction and enlargement of infrastructure projects (such as airports...) represents a general measure of economic policy which cannot be controlled by the Commission under the treaty rules on State aids. Guidelines on the application of Article 92, 93 EC to State aids in the aviation sector, OJ 1994 C 350/5, see also Manchester Airport (1999), Airport Elba I (1999), Italian Airports (2001), Airport Elba II (2004)

9 Aid to airports – The turnaround Airport Antwerp (2005): Public financing constitutes State aid, but is compatible under Article 87(3)(c) EC German aid scheme for airports (2005): Aid scheme for the construction and development of regional airports constitutes state aid, but compatible under Article 87(3)(c) EC New guidelines 2005: Airport operators carry out economic activity, even when investing in airport infrastructure, therefore public financing of airport infrastructure may constitute State aid (private investor test), see f.e. Leipzig/Halle

10 Aid to airports – 2005 guidelines Airport operators carry out economic activity when investing in airport infrastructure (?) –Completely different approach compared to 1994 guidelines –New guidelines are self-contradictory: 1994 guidelines should still apply (… add to, rather than replace guidelines …) but new guidelines take a completely different position –No basis in case-law, reference to Aéroports de Paris does not support Commissions view, since (a) it concerned Art. 82 EC, (b) the operation of an airport but not the setting-up of infrastructure, and (c) dealt with an intl hub –Regional airports hardly ever operate in a profitable manner which shows that the provision of airport infrastructure is a matter of regional and economic policy, but not a business

11 Aid to airports – Reality check Historically, most civil airports across the EU developed under public ownership …. Cranfield University, Competition between Airports and the application of State aid rules, 2002 … the Commission is not aware of any case of an ex nihilo creation of a private airport without the involvement of public funds. The process of transfer to the private sector has normally taken the form of privatisation or a progressive opening-up of capital. … infrastructure financing and maintenance is still mainly ensured by public funds … Commission, , OJ 2004 L 137/1, para. 351 – Ryanair/Charleroi

12 Aid to airports – 2005 guidelines Airport operators carry out economic activity when investing in airport infrastructure (?) (contd) -Airport should be aid recipient and donor at the same time? Both functions exclude each other. [2[2 -Airport is usually single purpose vehicle; according to consistent case law (risk capital funds) single purpose vehicles cannot be aid recipient. -New guidelines interfere with the Member states competences in the field of infrastructure planning (Leipzig/Halle airport) -Whats next? Ports, motorways, railway stations, bus stops?

13 Aid to airports – Conditions for approval under Art. 87 (3) EC –construction and operation of airport infrastructure meets a clearly defined objective of general interest –infrastructure is necessary and proportional –satisfactory medium-term prospects for use –potential users have access to infrastructure in an equal and non-discriminatory manner –development of trade is not affected to an extent contrary to the Community interest

14 Summary -State aid control becomes stricter in the field of financing of airports -Increased number of notifications -Commission has to deal with a huge number of cases -… in line with general Commission policy (SAAP)?