State aid: the Court of Justice of the EU annuls Commission decision in the Sardinian airports case

On 17 November 2022, the Court of Justice of the EU held two judgments annulling the rulings of the General Court of the EU of 13 May 2020 for case easyJet (T-8/18) and case Volotea (T-607/17), which had upheld a European Commission decision of 29 July 2016 declaring partially incompatible an aid scheme of the Region of Sardinia in favour of easyJet (case C-343/20) and Volotea (case C-331/20). The Court also annulled the Commission decision as Volotea and easyJet are concerned because the Commission did not establish the existence of an abnormal advantage granted to these two airlines.

Background

In 2011, Italy notified to the European Commission, under State aid rules, of a regional funding scheme in favour of the operators of five Sardinian airports for the period 2010 to 2013. The objective was to stimulate the aviation sector in the Region, in particular by eliminating the seasonality of air routes.

The notified aid concerned three separate measures:

1. The first measure was aimed at increasing air traffic by airlines in the context of services of general economic interest (SGEI). More concretely, airlines and airport managers defined routes of strategic interest, qualified as SGEI (but outside the scope of the public service obligation or PSO) and set targets for flight frequency, capacity supply and passenger numbers. These annual business plans were subject to approval by the Region. If the targets were met, financial compensation was granted, otherwise penalties had to be paid by the airlines.
2. The second measure aimed at the promotion of Sardinia as a tourist destination by airlines. The above-mentioned business plans were to include marketing and publicity activities aimed at increasing the number of passengers and promoting the catchment area of the airport.
3. The third measure involved other promotional activities entrusted by the airport operators to third party service providers other than airlines on behalf of the Region.

In its final decision of 29 July 2016, the Commission concluded that these different measures, granted through the airport operators to the airlines, constituted illegal sState aid and were incompatible with the internal market. The beneficiaires identified in the decision were Ryanair/AMS, easyJet, Air Berlin, Meridiana, Alitalia, Air Italy, Volotea, Wizzair, Norwegian, JET2.COM, Niki, Tourparade, Germanwings, Air Baltic and Vueling, in so far as it related to the operations of those airlines at Cagliari-Elmas airport and Olbia airport.

Subsequently, several airlines appealed against this decision to the General Court of the EU (GCEU)  in order to obtain the annulment of the Commission's decision (in this respect, see our article of 4 June 2020).

In its judgments of 13 May 2020 for the easyJet case (T-8/18), Volotea case (T-607/17) and Germanwings case (T-716/17), the TEU rejected these appeals and confirmed the Commission’s approach towards such public funding. These judgments were challenged by Volotea and easyJet before the Court of Justice of the EU  (CJEU).

Judgment of the CJEU

In its judgment of 17 November 2022, the CJEU first recalls that an aid measure is qualified as sState aid within the meaning of Article 107(1) TFEU, provided that the undertaking concerned has actually received an abnormal economic advantage (i.e. an advantage that a private operator could not obtain under normal market conditions).

Indeed, the CJEU specifies, in accordance with established case-law, that such an advantage exists in the presence of  any sState measure, which, whatever its form and objectives, is capable of favouring directly or indirectly one or more undertakings, or confers on such undertakings an advantage that they would not have obtained under normal market conditions.

The CJEU recalls that the characterisation of the existence of such an advantage is made through the principle of the private operator in a market economy, except in cases where there is no possibility of comparing the behaviour of the granting public entity in a given case with that of a private operator. This would be the case where the conduct of the public entity is inextricably linked to the existence of an infrastructure, which no private operator could ever have provided or where the sState acted in its capacity as a public authority.

However, the CJEU indicates that the mere exercise of public power, such as the use of legislative or fiscal means, does not in itself entail the inapplicability of the private-operator principle. Indeed, the CJEU considers that the decisive factor to be taken into account is the economic nature of the State intervention in question and not the means implemented to that end.

Moreover, according to the CJEU, this legal exercise requires that the Commission must show, after an overall assessment taking account of all the relevant factors in the particular case, that the undertaking or undertakings benefiting from the StateState measure in question would clearly not have obtained a comparable advantage from an ordinarily prudent and diligent private operator operating under normal market conditions. In making this overall assessment, the Commission must take into account all the options that such an operator would reasonably have considered, any available information that could significantly influence its decision and any foreseeable developments at the time when the decision to grant an advantage was taken.

In particular, the Commission must assess whether, at that date, the transaction by which the advantage was conferred could be regarded as economically, commercially and financially rational, having regard to its prospects of profitability in the short or longer term and the other commercial or economic interests involved.

The CJEU also points out that, where the Commission initiates proceedings on a StateState measure and, at the end of those proceedings, adopts a decision in which it classifies that measure as “State aid”, it is for the Commission to prove, in its decision the existence of such aid and thus, in particular, that the measure grants an advantage to the undertaking or undertakings benefiting from it, on the basis of an investigation that must have been carried out diligently and impartially, on the fullest and most reliable evidence possible.

In this case, the CJEU ruled that the TEU had not examined whether the Commission had actually determined whether the service contracts concluded between airport operators and airlines constituted normal market transactions. Indeed, the TEU had wrongly held that the private operator principle in a market economy was not applicable in that the Autonomous Region of Sardinia, acting through private airport operators, was pursuing public policy objectives.

Furthermore, according to the CJEU, the GCUE erred in law in holding that the airlines had benefited from an advantage on the grounds that the remuneration paid to them under those contracts did not constitute consideration for services satisfying genuine needs on the part of the Autonomous Region and that those contracts had, moreover, been concluded by the airport operators in question without the prior implementation of a tendering procedure or an equivalent procedure.

In view of these arguments, the CJEU annulled the judgments of the GCEU and the Commission's decision. The Commission must now adopt a new decision in the light of the CJEU's considerations.

Conclusion

This case-law questions the Commission's restrictive interpretation of public support measures granted directly or indirectly by public authorities to companies. It now compels the Commission to systematically examine the application of the private-operator principle to the public measures under investigation, even when the StateState concerned does not invoke its application.

Moreover, the CJEU recalls a fundamental principle of law: it is up to the Commission to demonstrate the existence of an abnormal economic advantage and not to the beneficiary of a measure to prove its absence.

Further judgments are expected in the months to come on this topic.

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