State aid: General Court confirms European Commission decision on Sardinian aid in favour of easyJet, Volotea and Germanwings

On 13 May 2020, the General Court confirmed a decision of the European Commission of 29 July 2016 declaring partially incompatible an aid scheme of the Region of Sardinia in favour of the low-cost airlines easyJet (T-8/18), Volotea (T-607/17) and Germanwings (T-716/17).

In the actions for annulment brought by the airlines easyJet, Volotea and Germanwings, the General of the EU confirmed the legality of the Commission's decision which had held that the aid scheme for the development of air transport in the Region of Sardinia in favour of the operators of Sardinian airports, presented by the Italian State as services of general economic interest (SGEI), constituted illegal and incompatible State aid under European law.

In 2010, Italy had notified, in accordance with Article 108.3 TFEU, a regional aid scheme to the Commission in favour of the operators of Sardinian airports. The aim was to stimulate the Region's air sector, in particular by eliminating the seasonality of air traffic.

The regional scheme applicable to Sardinian airports provided for three separate measures:

The first measure aimed at increasing air traffic by airlines under the SGEI framework. More specifically, airlines and airport managers defined routes of strategic interest, qualified as SGEIs (but outside the scope of the public service obligation (PSO) as regulated by European Regulation 1008/2008) and set targets for flight frequency, capacity provision and passenger numbers. These annual business plans were submitted to the Region for approval. If the targets were met, financial compensation was granted, in the absence of penalties to be paid by the airlines.

The second measure was aimed at the promotion of Sardinia as a tourist destination by the airlines. The above-mentioned business plans were to include marketing and advertising activities aimed at increasing the number of passengers and promoting the airport's catchment area.

The third measure included other promotional activities entrusted by airport operators to third party service providers other than airlines on behalf of the Region.

In its decision of 26 July 2016, the Commission considered that the support scheme for the operators of Sardinia's main airports (Alghero, Cagliari-Elmas and Olbia) actually benefited the airlines, which were ultimately the beneficiaries of the resources attributable to the Italian State.

In support of their actions for annulment, the applicants alleged the existence of certain errors of law regarding the concept of State aid and the possibility of justifying the aid in question.

First, according to the applicants, the payments made by the airport operators under the commercial agreements did not satisfy the definition of State aid, which necessarily implies the imputability of the aid to the Italian State within the meaning of Article 107.1 TFEU. However, the General Court confirmed the Commission's position that the resources were initially paid to the airport operators, and were then granted, through the latter, to the low-cost companies, the real beneficiaries of the aid. Thus, the Court maintained that there was indeed a mobilisation of public resources.

Secondly, the applicants submit that the Commission made a manifest error of assessment as regards the perception of an advantage by the airlines.

On the one hand, the applicants refuted the qualification of the contested measures as an 'aid scheme'. That qualification had the effect of lightening the Commission's administrative workload. It enabled the Commission to carry out an overall examination of the characteristics of the measures in question, without having to analyse the conformity of each individual public intervention with the rules on State aid. On that point, the General Court held that the constituent elements of the aid scheme at issue were the implementing measures for Law No 10/2010 adopted by the Region and that it was therefore not necessary to examine the conclusion of each individual contract between airport operators and companies.

On the other hand, the applicants submit that the Commission erred in law by not applying the principle of 'private operator in a market economy' to transactions between the airlines with, on the one hand, the airport operators and, on the other hand, with the Region. That argument was rejected by the General Court.

With regard to the airport operators, the General Court held that the airport operators had merely implemented the disputed aid scheme introduced by the Region. For its part, the Region did not act as an investor since it had set up the aid scheme in question solely for the purposes of the island's economic development. According to the General Court, the existence of an advantage constituting aid may be ruled out if the services concerned are acquired, not because of the existence of reciprocal services, but in accordance with the rules on the award of public contracts laid down by European law (or by a similar procedure). In the present case, the calls for expressions of interest published prior to the conclusion of the agreements with the airlines were not considered by the General Court to be equivalent to tendering procedures, in particular in the absence of any selection according to precise criteria among the airlines which responded to the calls.

Thirdly, in the Volotea and easyJet cases, the applicants challenged the legality of the order for recovery of the unlawfully granted aid on the basis of the principle of legitimate expectations. The Court of First Instance rejected that argument. According to the latter, the airlines could not have any legitimate expectation as to the legality of the aid, since it was implemented without waiting for the Commission's approval.

The General Court therefore held that the aid granted by the Region of Sardinia to the airlines, through the airport operators, constituted illegal and incompatible State aid.

The General Court must still hold its judgment on the Ryanair’s appeal in the same case.

This case law confirms the very restrictive practice of the European Commission with regard to public support measures granted directly or indirectly by public authorities to airlines.

With the exception of start-up aid, which is of little practical interest because it is aimed at rebates on airport charges which can also be put in place without State aid, public authorities have very limited room for manoeuvre to support the development of new routes from airports under their jurisdiction.