In-depth investigation by the European Commission into EUR 9 million Spanish aid to Air Nostrum

On 20 December 2019, the European Commission's decision to initiate the formal investigation procedure regarding a EUR 9 million aid from the Valencia Region to Air Nostrum for the renewal of its fleet, i.e. the acquisition of 10 Bombardier CRJ1000 aircraft, was published in the Official Journal of the EU (SA.50707). The Commission doubts that this aid complies with European rules on state aid.

The measure in question aims to support the renewal of the fleet by purchasing more environmentally friendly aircraft. EUR 3 million was already granted in 2018, a budget of EUR 6 million is planned for the period 2019-2020.

In this respect, Spain is of the opinion that this measure complies with the environmental protection rules laid down in the General Block Exemption Regulation (hereinafter referred to as the "GBER") and therefore that it does not require prior notification to the Commission for formal authorisation.

The rules laid down in the GBER (and included in the guidelines on State aid for environmental protection and energy for aid exceeding the notification thresholds) allow Member States to support measures with a positive impact on the environment, provided that certain conditions are met:

• the aid must enable the beneficiary to increase the level of environmental protection resulting from its activities;
• the aid must have a real "incentive effect", i.e. it must genuinely encourage the beneficiary to invest in more environmentally friendly solutions;
• the aid must be limited to the minimum necessary to encourage the company to invest in more environmentally friendly solutions;
• the aid must not have undesirable negative effects in terms of competition on the market.

In the present case, however, the Commission has doubts that all these conditions are met.

• As regards the incentive effect, the Commission notes that Air Nostrum had already started renewing its fleet before 2017, without public aid. The decision to invest in this fleet would therefore not be a direct result of public aid.
• Moreover, as the GBER only applies to measures which aim to support investments made by the beneficiary airline, the Commission has doubts at this stage that the type of leasing used by Air Nostrum fulfils this condition (for a lease to constitute an investment, the contract must provide for the obligation - and not the possibility - to purchase the aircraft in question).

Although the Commission supports in principle this type of initiative, it considers, however, that an airline's decision to invest in a more environmentally friendly fleet may be motivated by the granting of State aid, but also by other factors, such as the fact that fuel-efficient aircraft also reduce its operating costs.

Nevertheless, the granting of public aid to a large company which would still have invested in newer and greener aircraft has, according to the Commission, the sole effect of reducing its normal operating costs, to the detriment of its competitors who have to bear those without aid.

The in-depth investigation will determine whether or not such doubts are well-founded.

The decision was sent to the Spanish State, which was given the opportunity to comment on the Commission's position.

By publishing this decision in the OJ, the European Commission invites interested third parties (Air Nostrum, the Region of Valencia, etc.) to submit their comments by 20 January 2020. Any third party comments will then be sent to the Spanish State, who in turn will have the opportunity to comment upon them. The European Commission should then have all the information before adopting a final decision in this case. If it concludes that there is unlawful and incompatible aid, the company will have to reimburse the amount already paid, plus interest.

The issue of sustainable development is the subject of many debates in the air transport sector and the current European rules are probably no longer adapted to the scale and urgency of the challenges. On this subject, it should be noted that the Guidelines on State Aid to Airports and Airlines for 2014 were the subject of a consultation last summer. Although the issue of environmental protection was not mentioned explicitly in this consultation, this debate is of course integrated into the possible revision of the European rules applicable to this sector.