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Brussels, 18 th June 2009

State aid: Commission endorses €33 million aid to Volvo Aero Corporation for GEnx aeroengine component R & D

The European Commission has authorised, under the EC Treaty rules on state aid, a repayable advance of SEK 304 million (approx. €33 million) that Sweden intends to grant to Volvo Aero Corporation for the research and development of GEnx aircraft engine components. The GEnx engine is being developed by General Electric for the Boeing B787 and B747-8 aeroplanes. After an in-depth investigation, launched in July 2008 (see IP/08/1150 ), the Commission found that the project complies with the requirements of the EU framework for state aid for Research, Development and Innovation (see IP/06/1600 and MEMO/06/441 ). In particular, the aid addresses a market failure, it enables Volvo Aero to carry out additional research and the aid amount is proportionate to the nature of the market failure.

In 2004, Volvo Aero signed a risk-sharing partnership agreement with General Electric for the development of components of the GEnx engine, involving new lightweight technology. General Electric is developing the GEnx engine with a number of partners in order to equip the Boeing B787 and B747-8 aircraft. The Swedish Government intends to support the project to reduce the risk linked to this type of project, where returns on investment tend to be uncertain and slow. The aid would be granted to Volvo Aero in the form of a repayable advance.

The Commission assessed the aid notified by Sweden in December 2007, on the basis of the EU Framework for State aid for Research, Development and Innovation (the R&D&I Framework, see IP/06/1600 and MEMO/06/441 ). In July 2008, the Commission opened an in-depth investigation (see IP/08/1150 ) to clarify the magnitude of the market failure, the incentive effect, the necessity and the proportionality of the aid and invited interested parties to submit observations on the effects on competition.

The Commission's investigation found that a market failure exists, as the measure addresses the problem of imperfect and asymmetric information inherent to this type of project. The Commission's investigation further found that the aid has an incentive effect as it reduces the risk of the project to a level that makes it acceptable for the company to undertake it. In fact, the Swedish Government's assurance to grant the aid played a critical role in Volvo Aero's decision to engage in the project.

Volvo Aero had been able to secure short-term funding from the Volvo Group to start implementing the project without state intervention. The Commission took this into account when assessing the proportionality and necessity of the aid. In the course of the investigation, Sweden agreed to reduce the aid amount from the initially notified SEK 362 million (approximately €39 million) to SEK 304 million (approximately €33 million), which represents 33.5% of the R&D project costs eligible for the aid. The Commission concluded that the reduced aid amount was proportionate to the degree and magnitude of the market failure. The Commission also found that the repayment modalities of the loan were proportionate, as they are based on revenues and ensure a relatively high return to the Government if the project succeeds.

The non-confidential version of the decision will be made available under the the case number C33/2008 in the State Aid Register on the DG Competition website once any confidentiality issues have been resolved. New publications of state aid decisions on the internet and in the Official Journal are listed in the State Aid Weekly e-News .

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