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European Commission

MEMO

Brussels, 20 February 2014

State aid: Commission adopts new guidelines on state aid to airports and airlines (Aviation Guidelines)
- Frequently asked questions

A - GENERAL QUESTIONS

  1. What is the purpose of the Aviation Guidelines?

The Aviation guidelines set out the conditions under which Member States and local authorities can grant state aid to airports and airlines in the EU. The Commission, which is competent for controlling state aid in order to preserve fair competition in the Single Market, will apply these criteria when it receives notifications from Member States and when it carries out state aid investigations in the aviation sector.

These new rules aim to ensure that airports located in regions with a genuine transport need get access to the public funding that they need while also maintaining a level playing field for airports and airlines irrespective of their business models.

The guidelines allow public authorities to support investments into airport infrastructure and equipment as well as, for a transitional period of 10 years, the operating losses of small airports (below 3 million passengers), before they become profitable. Since very small airports with annual traffic of less than 700 000 passengers may face specific difficulties, they may benefit from operating aid to cover losses without such a transitional period.

Under certain conditions, airlines may also receive "start-up aid" that gives them the necessary incentive to create new routes from regional airports, increases the mobility of EU citizens by establishing access points for intra-EU flights and stimulates regional development. As remote regions1 are handicapped by their poor accessibility, the criteria for granting start-up aid for routes from these regions are more flexible.

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

The 1994 Aviation Guidelines were adopted in the context of the liberalisation of the market for air transport services. They were complemented in 2005 by guidelines on the public financing of airports and on the start-up of airline services from regional airports.

During the last ten years, the market environment of the aviation industry has changed considerably. Many regional airports have been set up in the EU, often duplicating airport capacity at local level, while in large hubs congestion problems have arisen. The landscape of airport activities has also evolved: they have become a new market, with half of their revenues stemming from non-aeronautical activities, and are increasingly in the hands of private companies. As regards airlines, concentration has stepped up, some flag carriers have run into difficulties and the "low cost - low fares" model has developed successfully. Experience in applying the current set of rules has shown the need for an update in order to safeguard fair competition and ensure a level playing field for airlines and airports irrespective of their business models.

Also, the observations received from stakeholders in the public consultations carried out in 2011 (see IP/11/445) and 2013 (see IP/13/644) showed a clear need to update the current rules. Stakeholders emphasised the need for more clarity and for active enforcement of the applicable rules. In particular, they stressed that 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 relation between the new Aviation Guidelines and the Commission's broader policy objectives?

The new Aviation Guidelines contributes to the Commission's broader policy objectives. The Europe 2020 strategy 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 the need to internalise externalities, eliminate unjustified subsidies and preserve competition in order to achieve sustainability goals. The Aviation Guidelines also aim to maintain a dynamic and competitive European aviation industry by ensuring that taxpayers' money is used where it is truly needed – that is, where the market alone does not supply the necessary services or infrastructure.

The new Aviation Guidelines are also in line with the objectives and principles of the Commission's agenda for State Aid Modernisation (IP/12/458), which aims to facilitate well-designed state aid targeted at market failures and objectives of common European interest, while avoiding the waste of public resources and limiting competition distortions that would undermine the level playing field in the Single Market. In particular the Aviation Guidelines promote the use of taxpayers' money where it is justified in order to meet the transport needs of European citizens, while avoiding a duplication of unprofitable airports and the creation of overcapacities.

  1. What happens next?

As from the publication of the guidelines in the EU Official Journal, in March 2014, the Commission will assess the public funding to finance airport infrastructure and operation, as well as aid to airlines notified by Member States according to the criteria set out in the new Aviation Guidelines. Within 12 months from that date, Member States should also bring their existing aid schemes in line with the new Guidelines.

B - STATE AID RULES FOR AIRPORTS

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

In March 2011, the EU General Court confirmed its earlier jurisprudence (Aéroports de Paris) and the Commission's longstanding decision practice that building and operating airport infrastructure is an economy activity (case T-443/08, see also MEMO/11/191). Public support for such activities may therefore constitute state aid in the meaning of Article 107 of the Treaty on the Functioning of the EU (TFEU).

  1. Do all measures related to airport infrastructure fall under State aid rules?

In the Aéroports de Paris and Leipzig-Halle airport cases, the EU Courts confirmed 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 state aid rules. Such activities include air traffic control, police, customs, firefighting and activities necessary to safeguard civil aviation against acts of unlawful interference.

The public funding of such non-economic activities does not constitute state aid, but should be strictly limited to compensate the costs to which they give rise and may not be used to finance other – economic - activities. Any possible overcompensation by public authorities of costs incurred in relation to non-economic activities may constitute state aid. Also, the public financing of non-economic activities must not lead to undue discrimination between airport managers. Therefore, when certain airport managers do not have to bear the costs of certain services, whereas other airport managers do have to bear those costs, the former may be granted an advantage even if the provision of those services is considered an activity of a non-economic nature.

  1. Under which conditions is public funding of airport 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 (according to the so-called "Market Economy Operator Principle", MEOP). This assessment should in principle be based on a business plan taking into account available information and foreseeable developments at the time when the public funding was granted. Public funding granted in circumstances which correspond to normal market conditions does not involve state aid in the meaning of EU rules.

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

Yes. Under the new Aviation Guidelines, if a genuine transport need and positive externalities for a region can be established, investment aid to airports will continue to be accepted by the Commission with maximum levels of aid (so-called "aid intensity") ranging from 75% to 25% of eligible costs depending on in the size of the airport. To ensure proportionality, the maximum permissible aid intensities are higher for smaller airports than for larger airports.

The Commission will take into consideration whether the region is already served by another airport or other modes of transport, for example a high speed train or train connections to other airports. The Commission will also analyse whether the infrastructure has prospects of meeting in the medium-term the forecasted demand of airlines, passengers and freight forwarders in the catchment area of the airport. The key element for assessing the aid will be a business plan based on sound forecasts for passenger and freight traffic.

  1. Will Member States be able to grant investment aid for infrastructure projects at big airports (over 5 million passengers per annum)?

Investment projects of this size can normally be privately funded and may in principle not receive state aid. Only where a clear market failure exists, and taking into account the magnitude of the investment and competition distortions, airports over 5 million passengers per annum may receive aid to finance airport infrastructure. The Commission will assess, in particular, the proportionality, the necessity and the maximum aid intensity of the aid granted on the basis of the funding gap analysis or the counterfactual scenario of each specific case.

  1. Under which conditions is public funding of safety upgrading programmes in line with EU State aid rules?

Public funding of safety upgrading programmes related to activities that normally fall under State responsibility in the exercise of its official powers as a public authority does usually not fall within the ambit of State aid control. Such "public remit" activities are generally air traffic control, police, customs, firefighting and activities necessary to safeguard civil aviation against acts of unlawful interference. However, such public funding should not lead to an undue discrimination between airport managers.

If the public funding of safety upgrading programmes does not relate to the public remit, the Commission will assess whether it constitutes state aid. As any other business, airports have to bear also the costs necessary to comply with mandatory regulations and standards. In this respect, state aid which is primarily aimed at financing investments to comply with mandatory regulations or standards imposed under the EU law cannot be considered to have an incentive effect and be approved as compatible state aid. Only State aid granted for an earlier adaptation to comply with mandatory regulations or standards beyond these norms could be eligible.

However, if the investment is primarily aimed at creating new infrastructure or increasing capacity at an existing airport, costs due to mandatory rules, even if imposed under the EU law, can be included.

  1. Do the new Aviation Guidelines take into account the specific situation of airports located in remote regions?

The maximum permissible aid intensities for investment aid to finance airport infrastructure at airports located in remote regions may be increased by up to 20 percent irrespective of the airport size.

  1. Do the new Aviation Guidelines take into account the specific situation of small airports located in peripheral regions?

Under the guidelines, small airports with an average traffic below 1 million passengers per annum may receive a maximum aid intensity of 75%. However, where such airports are located in peripheral regions of the EU, the funding gap of an investment project may be higher than the maximum permissible aid intensities. Subject to a case-by-case assessment and depending on the particular characteristics of the airport, the investment project and the region served, a higher aid intensity may be justified in exceptional circumstances.

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

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 duplication of unused or not efficiently used airport infrastructures should be avoided.

  1. Do the new Aviation Guidelines forbid Member States to grant operating aid to airports?

Not immediately. Airports, like any other business, should normally bear their operating costs and be profitable activities. Airports should recover their operating costs from those that use their services, namely airlines and passengers. The 1994 and 2005 Aviation Guidelines did not allow the granting of operating aid to airports. Nevertheless, many regional airports depend today on public support to finance their operating losses. These airports may play a positive role in ensuring regional accessibility.

The new Aviation Guidelines therefore authorise operating aid to regional airports for a transitional period of 10 years, in order to allow them to adjust to the new market situation. This will give them time, for example, to gradually increase airport charges for airlines, rationalise their activities, differentiate their business model or attract new airlines and customers to fill 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. However, smaller airports with up to 700 000 passengers per year can benefit from operating aid without a transitional period.

In addition airports may under certain conditions receive compensation for discharging Services of General Economic Interest (SGEI, see question 16 further below).

  1. Under which conditions will operating aid be possible?

The key element for the Commission's assessment of operating aid to each airport will be an ex ante business plan ensuring that the company managing the airport will be able to cover all operation costs at the end of the 10 years transitional period. The maximum permissible aid amount will be limited, for each year of the transitional period, to 50% of the initial operating funding gap of the airport, calculated as the average of the funding gaps (the amount of operating costs not covered by revenues) during the five preceding years (2009 to 2013). The aid amount should be established ex ante as a fixed sum covering the expected funding gap, determined on the basis of the business plan during the transitional period. The transitional period will start from the date of the publication of the guidelines in the EU Official Journal.

For instance, if the initial average annual funding gap of a given airport over the period 2009 to 2013 is equal to EUR 1 million, the maximum amount of operating aid that the airport can receive will be EUR 5 million over ten years (50% x 1 million x 10).

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 airports below 700 000 passengers per annum and for Services of General Economic Interest – see questions 15 and 17 below).

  1. Will the new Aviation Guidelines take into account the specific situation of very small airports (below 700 000 passengers per annum)?

Under the current market conditions, airports with annual passenger traffic of up to
700 000 may face increased difficulties in achieving the full cost coverage during the
10-year transitional period. For this reason, the maximum permissible aid amount for airports with up to 700 000 passengers per annum will be 80% of the initial operating funding gap for a period of five years after the beginning of the transitional period, without a compulsory phasing-out of operating subsidies.

For instance, if the initial average annual funding gap of a small airport over the period 2009 to 2013 is equal to EUR 1 million, the maximum amount of operating aid that the airport could receive as an ex-ante established fixed sum would be EUR 4 million over five years (80% x 1 million x 5).

The Commission will then reassess the need for a continued specific treatment of airports below 700 000 passengers per annum and the future prospects for full operating cost coverage, in particular with regard to the evolution of market conditions and profitability prospects for those airports.

  1. Do the new Aviation Guidelines apply also to the public funding of very small airports?

The new Guidelines apply also to this category of airports in order to ensure an equal treatment between airports irrespective of their business model and to allow also this category of airports to benefit from a reduced administrative burden due to the possibility of notification of schemes2 rather then individual measure subject to a case by case assessment.

However, it is not excluded that the activity of very small airports do not affect trade between Member States and consequently public financing would not constitute State aid. This could be notably the case for airports with no regular services or with only recreational activities.

In addition, very small airports can be necessary for the accessibility of certain regions and can be qualified as SGEI. Public service compensation granted in accordance with the provisions of the 2012 SGEI Decision does not need to be notified to the Commission.

  1. Is there another possibility to grant State aid to airports?

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). The overall management of an airport could be an SGEI if, without this airport, part of the area that it serves would be isolated from the rest of the EU to an extent that would hamper its social and economic development. Aid could in such cases be granted to discharge such a SGEI. The assessment will depend on the particular characteristics of each airport and of the region that it serves.

If the state aid to discharge a SGEI is granted to airports where the average annual traffic does not exceed 200 000 passengers over the duration of the SGEI entrustment, it is exempt from the requirement of prior notification to the Commission, but it needs to comply with the compatibility criteria set out in the 2012 SGEI Decision (IP/11/1571). State aid not covered by the 2012 SGEI Decision (notably to airports exceeding the traffic threshold of 200 000 passengers a year) can be declared compatible under Article 106(2) of the Treaty, if the conditions of the 2012 SGEI Framework are met. However, the state aid granted to discharge a SGEI at airports with annual traffic above 200 000 passengers needs to be notified to the Commission.

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

The Commission strongly encourages Member States to notify national schemes rather than individual measures for each airport, in order to reduce the administrative burden. A scheme is a Member State's general framework for the granting of state aid to airports. Once such a scheme authorised by the Commission, aid that complies with the criteria of the scheme can be granted without prior notification to the Commission. At the same time, certain measures that have a high potential of distorting competition need to be notified to the Commission individually, for instance investment aid to airports above 3 million passengers per year).

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

Unlike the current guidelines, the revised rules allow operating aid to airports under certain conditions. The Commission will apply these new provisions to ongoing cases. The Commission will however not apply the new guidelines to investment aid to airports and start-up aid to airlines granted before their entry into force. For aid of this type the Commission will continue to apply the previous guidelines.

  1. When will the Commission decide on the on-going in-depth investigations?

The Commission's aim is to reach a final view on these 28 ongoing cases by
September 2014. The Commission has made good progress in investigating these cases. However, as many cases involve past operating aid to airports, it was necessary to wait for the adoption of the new guidelines to assess this type of aid.

C- STATE AID RULES FOR AIRLINES

  1. What is the Commission's view on the business model of Low Cost Carriers?

Low Cost Carriers have developed thanks to air transport liberalisation in the EU and have brought important benefits to passengers, enabling millions of European citizens to travel cheaply. The Commission does not question this business model, which has proved successful. The new Aviation Guidelines will apply to all airlines and airports irrespective of their business model in order to guarantee a level playing field in the Single Market.

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

Airports are still predominately publicly owned and 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 of increasing the connectivity of a region. Such measures may involve state aid.

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

Arrangements between airports and airlines are free of state aid when a private investor, operating under normal market conditions, would have accepted such terms (under the so-called "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 prospects when setting up the arrangement.

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

In such a case, the arrangement contains state aid which is incompatible with EU rules, unless it meets the conditions for start-up aid. The benefiting airline would need to pay back any incompatible aid.

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

Airlines departing from airports with fewer than 3 million passengers per year can receive start-up aid for up to three years for increasing the connectivity of a region by launching a new route. The aid may cover maximum 50% of the airport charges and should be allocated on a non-discriminatory basis. An ex ante business plan should show that the route will become profitable after the start-up period. In the absence of a business plan for a route, the airline must provide an irrevocable commitment to continue operating the route for at least the same period as the one during which it received start-up aid.

As remote regions are handicapped by their poor accessibility, the criteria for granting start-up aid for routes from these regions are more flexible.

  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 (see question 22) do not need to be notified to the Commission. At the same time, Member States are strongly encouraged to notify national schemes for start-up aid to airlines, rather than individual aid measures for each airport, in order to reduce the administrative burden.

  1. Under which conditions will Member States be able to grant social aid?

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, except for routes linking with remote regions. These are outermost regions, islands and sparsely populated areas.

The new General Block Exemption Regulation (GBER), which is currently being revised (see IP/13/1281), will exempt under certain conditions social aid for transporting residents of remote regions from prior Commission scrutiny. It will enter into force on 1 July 2014.

31. What about aid to companies in financial difficulty?

The conditions under which Member States may grant state aid to companies in financial difficulty are not set out in the Aviation Guidelines, but in the Commission's Rescue & Restructuring Guidelines. Such aid can only be granted under strict conditions, ensuring that the aided company will become viable without continued state support, that the company contributes to the costs of the restructuring and that the distortion of competition created by the aid is effectively off-set (see MEMO/04/172).

See also IP/14/172.

1 :

'Remote regions' mean outermost regions, Malta, Cyprus, Ceuta, Mellila, islands, which are part of
the territory of a Member State and sparsely populated areas (i. e. NUTS 2 regions with less than 8 inhabitants per km² or NUTS 3 regions with less than 12.5 inhabitants per km², based on Eurostat data on population density).

2 :

A scheme is a Member State's general framework for the granting of state aid to airports. Once such a scheme authorised by the Commission, aid that complies with the criteria of the scheme can be granted without prior notification to the Commission.


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