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European Commission

MEMO

Brussels, 3 July 2013

State aid: Commission consults on new state aid rules
for airports and airlines- Frequently asked questions

A - GENERAL QUESTIONS

  1. What is the aim of today’s consultation?

The revised draft rules published today are a crucial step towards completing a review of the state aid rules for airports and airlines beginning of 2014.

Neither the 1994 nor the 2005 Aviation Guidelines have an expiry clause. However, in view of significant market changes that have taken place in the last decade, the Commission has initiated this review with a first public consultation in 2011 aiming in particular to determine whether a revision would be necessary (see IP/11/445).

  1. Why is there a need to revise the 1994 and 2005 Aviation Guidelines?

During the last ten years, the market environment of the aviation industry has changed considerably. Experience in applying the current set of rules has shown the need for an update of the rules. An update of the guidelines is necessary in order to safeguard fair competition and to ensure a level playing field for airlines and airports irrespective of their business model.

Also the observations received from stakeholders in the previous consultation carried out in 2011 acknowledge the clear need to update the current State aid rules for airports and airlines. Stakeholders emphasised the need for more clarity and active enforcement of the applicable rules. In particular, the rules for the financing of airports need to become more transparent. Stakeholders sought also more guidance on the application of state aid rules to rebates or other advantages granted by regional airports to certain airlines and considered that rules concerning start-up aid should be simplified.

  1. What is the objective of the revision in context of the State Aid Modernisation and the Europe2020 strategy?

The revision of the 1994 and 2005 Aviation Guidelines takes into account the objectives of the Europe2020 Strategy and the State Aid Modernisation (see IP/12/458). The Europe 2020 Strategy (EU 2020) underlines the importance of transport infrastructure as part of the EU's sustainable growth strategy for the coming decade. In particular, the Commission has emphasised that the internalisation of externalities, the elimination of unjustified subsidies as well as free and undistorted competition are an essential part of the effort to align market choices with sustainability needs. In its Communication on State Aid Modernisation (SAM), the Commission points out that State aid policy should focus on facilitating well-designed aid targeted at market failures and objectives of common European interest, and avoiding waste of public resources.

State aid control in the airport and air transport sectors should therefore promote sound use of public resources for growth-oriented policies, while limiting competition distortions that would undermine a level playing field in the internal market, in particular by avoiding duplication of unprofitable airports and creation of overcapacities.

  1. What are the main proposed changes with regard to the Commission's current guidelines?

In light of a first public consultation in 2011, the main proposed changes with regard to the Commission's current guidelines are:

  • For airport infrastructure, whereas the current guidelines leave open the issue of investment aid intensities (i.e. the level of aid that can be granted in relation to eligible costs of a project), the revised draft rules define maximum permissible aid intensities depending on the size of an airport.

  • Operating aid to airports is not allowed under the current guidelines. However, the Commission proposes to allow such aid for a transitional period of 10 years under certain conditions, in order to give airports time to adjust their business model.

  • The compatibility conditions for start-up aid to airlines have been streamlined and adapted to recent market developments.

  1. What is the Commission's timeline for the adoption of the new Aviation Guidelines?

The Commission envisages adopting the new Aviation Guidelines at the latest beginning of 2014. The detailed planning depends on the results of the public consultation.

B - STATE AID RULES FOR AIRPORTS

  1. Why is public financing of airport infrastructure regarded as State aid?

The ruling of the European Courts in the Leipzig/Halle airport case (see MEMO/11/191) has confirmed the longstanding (since 2001) decision practice of the Commission that building and commercially operating airport infrastructure constitutes an economy activity. Public support to such activities may therefore constitute state aid in the meaning of EU rules.

  1. Are all infrastructure measures of an economic nature?

The European Courts confirm that not all activities of an airport are necessarily of an economic nature. Activities that normally fall under State responsibility in the exercise of its official powers as a public authority are not of an economic nature and do not fall within the scope of the rules on State aid. Such activities include air traffic control, police, customs and activities necessary to safeguard civil aviation against acts of unlawful interference.

  1. Under which conditions is public funding of infrastructure considered free of state aid?

Public funding granted to an airport manager is considered free of aid, if in similar circumstances a private operator, having regard to the foreseeability of obtaining a return and leaving aside all social, regional-policy and sectoral considerations, would have granted the same funding (Market Economy Operator Principle, MEOP). This assessment should be in principle based on a business plan taking into account available information and foreseeable developments at the time when the public funding was granted and it should not rely on any analysis based on a later situation. Public funding granted in circumstances which correspond to normal market conditions is not regarded as State aid in the meaning of EU rules.

  1. Will Member States be able to grant investment aid to finance infrastructure investments at airports?

Yes. If a genuine transport need and positive externalities for a region can be established, investment aid to airports will continue to be accepted with maximum aid intensities in order to ensure a level-playing field across the EU. When assessing the existence of a genuine transport need the Commission will take into consideration whether the region is already served by another airport (including also other modes of transport, for example high speed train or train connections to other airports). The Commission will also analyse whether the infrastructure has prospects to meet in medium-term the forecasted demand of airlines, passengers and freight forwarders in the catchment area of the airport. The key element for the compatibility assessment of the investment aid will be an ex ante business plan based on sound passenger and freight traffic forecasts. In order to ensure overall proportionality the maximum permissible aid intensities will be higher for smaller airports than for larger airports. For large airports with a passenger volume of over 5 million per annum, investment aid should not be declared compatible with the internal market, since investments in infrastructure of this size can be privately funded.

  1. What is the Commission's view on the development of regional airports?

The Commission shares the view that the development of regional airports is important for economic growth and territorial cohesion. At the same time, a proliferation of regional airports which leads to the creation of unused or not efficiently used airport infrastructures should be avoided.

  1. Will the revised rules forbid Member States to grant operating aid to airports?

No. However, operating aid constitutes a very distortive form of aid and can only be authorised under exceptional circumstances. The Commission considers that airports, as any other undertaking, should normally bear their operating costs. The 1994 and 2005 Aviation Guidelines, do not allow the granting of operating aid to airports. Nevertheless, many regional airports depend today on public support to finance their operating losses.

The revised draft rules provide compatibility conditions for operating aid to smaller regional airports for a limited period of time (i. e. transitional period, for further details see question 12).

In addition airports may be under certain conditions entrusted with Services of General Economic Interest (SGEI, see question 15 further below) and receive compensation for services to be discharged.

  1. Why will operating aid to airports be allowed only during the transitional period?

During the transitional period the managers of smaller regional airports will be given time to adjust to the new market situation, e.g. by gradually increasing airport charges to airlines, by introducing rationalisation measures, by differentiating their business models or by attracting new airlines and customers to fill their idle capacity. During the transitional period, operating aid will be gradually phased out. At the end of the transitional period, all airports should, in principle, be able to cover their operating costs.

  1. Under which conditions will regional airports be able to benefit from operating aid?

The key element for the compatibility of operating aid to airports will be an ex ante business plan that will pave the way towards full operating cost coverage at the end of the transitional period. The path towards full operating cost coverage will be different for every airport and depend on the financial situation of the airport at the beginning of the transitional period. The operating aid amount should be established ex ante as a fixed lump sum covering the funding gap resulting from expected operating costs determined on the basis of an ex ante business plan.

  1. Will the duration of the transitional period be different for each airport? How will the duration of the transitional period be established for each airport?

The revised draft rules foresee that the duration of the transitional period for each airport will depend on its financial situation at the beginning of the transitional period. The duration of the transitional period for each airport will be established on the basis of the initial operating cost coverage, defined as the average of the three years that precede the beginning of the transitional period (i.e. 2011 to 2013). The airport shall progressively increase this initial operating cost coverage by at least an average of 10 percentage points (pp) per annum until full operating cost coverage is reached.

For example, if the initial operating cost coverage of an airport amounts to 60%, it shall be increased by at least 10 pp per annum over a period of 4 years. If the initial operating cost coverage of an airport amounts to 30%, it shall be increased by at least 10 pp per annum over a period of 7 years. After this period, no more operating aid shall be paid to the airport.

At the latest 10 years after the beginning of the transitional period, airports must have reached full coverage of their operating costs and no operating aid to airports will be allowed from then on (except for Services of General Economic Interest – see question 15 below).

  1. Is there another possibility for Member States to grant State aid to airport?

Yes. Certain airports have an important role to play in terms of regional connectivity of isolated, remote or peripheral regions of the EU and can be entrusted with a Service of General Economic Interest (SGEI). Subject to case-by-case assessment the overall management of an airport can be declared SGEI, if part of the area potentially served by the airport would be, without the airport, isolated from the rest of the EU to an extent that would prejudge its social and economic development. The assessment will depend on the particular characteristics of each airport and of the region which it serves. Such a situation may in particular occur in respect of the outermost regions referred to in Article 349 of the TFEU, as well as for islands or other areas of the EU.

  1. Do Member States have to notify all investment and operating aid measures individually to the Commission?

The Member States are strongly encouraged to notify national schemes, rather than individual aid measures for each airport. This is intended to reduce the administrative burden both for the Member States' authorities and for the European Commission. At the same time measures which are potentially more distortive of competition might need to be notified to the Commission individually (e. g. investment aid to airports above 3 million passengers per annum).

  1. Will the Commission apply the revised rules to past cases, such as the on-going investigations into several regional airports?

The revised guidelines provide compatibility criteria for operating aid granted to the airport before the entry into force of these guidelines. The Commission will however not apply the new guidelines to investment aid to airports and start-up aid to airlines granted before the entry into force of the guidelines. For aid of this type the Commission will apply the previous guidelines.

  1. When will the Commission take its final decisions in the on-going formal investigation procedures?

The Commission's aim is to reach a final view on these cases as quickly as possible. We have made progress in the on-going investigations. However, many cases involve past operating aid to airports and there is a need to wait for the adoption of the new Aviation guidelines.

B- STATE AID RULES FOR AIRLINES

  1. Is the Commission questioning the successful business model of Low Cost Carriers?

No. Low Cost Carriers have brought extremely important benefits to passengers, enabling millions of European citizens to travel cheaply. The Commission fully recognises this and does not question this business model, which has proved extremely successful. The revised rules will apply to all airlines and airports irrespective of their business model in order to preserve a level playing field in the internal market. The revised guidelines provide guidance under which conditions airport/airline arrangements can be considered free of aid.

  1. How can arrangements between an airport and an airline qualify as state aid?

Airports are still predominately publicly owned and most often rely on public support to finance their operations. Public authorities are often directly or indirectly involved in attracting airlines through marketing support, rebates or incentive schemes with the objective to increase the connectivity of the region.

  1. Under which conditions are arrangements between airports and airlines considered free of state aid?

Airport/airline arrangements can be considered free of state aid when it can be established that a private investor, operating under normal market conditions, would have accepted such terms (the market economy operator principle, MEOP). The most relevant criterion to assess this are the ex ante profitability prospects over the expected duration of the arrangements. The revised rules provide guidance how the MEOP should be applied to airport/airline arrangements.

The airport manager should demonstrate that through the revenue stemming from the airline's activity at the airport (e. g. airport charges, non-aeronautical revenues) it is capable of covering the costs stemming from the arrangement with an airline (e.g. an individual contract or an overall scheme of airport charges) with a reasonable profit margin on the basis of sound medium-term prospects when setting up the arrangement.

  1. Will the revised rules forbid price differentiation in airport/airline arrangements?

No. The Commission considers that commercially justified price differentiation - including marketing support, rebate and incentive schemes - is a standard practice in the Aviation industry, as long as it complies with all relevant competition and sectoral rules.

  1. Does the Commission consider that individual airlines have to cover all the costs of an airport?

No. On the contrary, costs which the airport manager would have to incur anyway independently from the arrangement with the airline do not need to be taken into account in the assessment of the particular arrangement.

  1. Does the airport/airline arrangement constitute aid, if it is expected to result in a loss at the beginning of the arrangements, which will be offset by expected further benefits?

No. An expected initial loss stemming from an airport/airline arrangement can be offset by expected future benefits generated by the arrangement.

  1. What are the consequences for airlines, if the airport/airline arrangement will not be profitable for the airport manager from an ex ante perspective?

If the airport/airline arrangement incrementally decreases the profitability of the airport manager, it contains incompatible aid, unless the compatibility conditions for start-up aid are met. The benefiting airline would need to pay back any incompatible aid.

  1. Under which conditions will Member State be able to grant start-up aid to airlines?

The revised draft rules foresee the possibility for Member States to grant start-up aid to airlines under strict and more streamlined conditions. Only airlines departing from airports with fewer than 3 million passengers per annum (in outermost regions also airports with more than 3 million passengers) can be granted start-up aid for launching a new route or a new schedule involving more frequent services, which increase the connectivity of a region for a limited duration of up to 24 months. The start-up aid may cover only 50% of the start-up costs and should be allocated on a non-discriminatory basis. An ex ante business plan of the routes should show that the route will become profitable for the airline after the start-up period of 24 months.

  1. Do Member States need to notify the Commission of all airport/airline arrangements?

No. Airport/airline arrangements that are in line with the MEOP do not need to be notified to the Commission. Only if a Member State decides to grant aid to airlines that is not in line with MEOP, such aid needs to be notified. At the same time the Member States are strongly encouraged to notify national schemes for start-up aid to airlines, rather than individual aid measures for each airport. This is intended to reduce the administrative burden both for the Member States' authorities and for the European Commission.

  1. Under which conditions will Member States be able to grant social aid in the field of transport services?

The revised draft rules contain compatibility conditions for aid of a social character for air transport services. Aid of a social character must be effectively granted for the benefit of the final consumer. The aid should in principle cover only certain categories of passengers travelling on the route. Where the route concerned links with remote regions (such as outermost regions, islands and sparsely populated areas) the aid can cover the entire population.

See also IP/13/644


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