State aid: the General Court of the EU annuls the decision of the European Commission in the Timișoara/Wizz Air case
On 8 February 2023, the General Court of the EU annulled the European Commission decision that had concluded to the absence of aid granted by Timișoara Airport in favour of Wizz Air following an annulment action by Carpatair. By this decision, the Commission had also authorized an investment aid for the airport. This aid was not challenged.
The decision of the European Commission
On 14 May 2011, the European Commission launched an investigation into contracts between Timișoara Airport and Wizz Air following a complaint from Carpatair. This investigation was then extended to public funding granted to the airport.
In 2007, following the increase in traffic resulting from Romania's accession to the European Union, the Romanian State had granted the airport financial support for the construction of a terminal for non-Schengen flights and for security equipment.
In 2008, the airport concluded commercial agreements with the low-cost airline Wizz Air in order to increase its passenger volumes.
In June 2010, the parties amended two of these agreements to introduce a new discount scheme for Wizz Air.
In September 2010, the Romanian regional airline, Carpatair SA, filed a complaint with the European Commission challenging aid granted by the Romanian authorities to Timișoara Airport in favour of Wizz Air.
Following its investigation, the Commission concluded in its decision of 24 February 2020 that the public financing granted to the airport constituted compatible investment aid in accordance with Article 107(3)(c) TFEU. The Commission referred to the Aviation Guidelines applicable at the time to examine the compatibility of this aid, namely those adopted in 2005 on the financing of airports and start-up aid for airlines departing from regional airports.
As regards the incentives granted to Wizz Air, it considered that they did not constitute State aid because the discounts and rebates on airport charges were not selective. In fact, they had been published in the airport tariff guides and were available in a non-discriminatory manner to any airline.
The Commission then examined the changes made in 2010 to Wizz Air’s contractual framework and found that the agreements were in line with the principle of a private operator in a market economy and therefore did not confer any economic advantage on the Hungarian airline. These incentives granted to Wizz Air therefore did not constitute State aid within the meaning of Article 107(1) TFEU.
EU General Court ruling
On 11 August 2020, Carpatair brought an action for annulment before the General Court of the EU against the Commission decision of 24 February 2020. Its action challenged the Commission's analysis of the incentives granted to Wizz Air.
On 8 February 2023, the General Court annulled the Commission's decision on the grounds that the Commission's reasoning was vitiated by several errors of law.
In its conclusions, the Commission, supported by Timșoara Airport, argued that Carpatair's action was inadmissible on the grounds that the contested measures would not adversely affect the applicant's current air transport services, which were different in nature from the services provided by Wizz Air during the years covered by the Commission's investigation. The airline then had no existing and current interest.
The General Court recalled that, according to Article 263(4) TFEU, any natural or legal person may bring an action against an act of which it is not the addressee if that act is of direct and individual concern to that person or if the action is directed against regulatory acts which are of direct concern to it and do not involve implementing measures. According to the General Court, the contested decision constitutes a regulatory act and the action brought by Carpatair is admissible if the airline is directly and individually concerned by the decision as regards the airport charges applied to Wizz Air.
Since those agreements were likely to substantially affect its competitive position in the markets in which it competed with Wizz Air, it is established to the requisite legal standard that the airline Carpatair is individually and directly concerned.
Next, the General Court examined the issue of the selectivity and economic advantage of the incentives granted to Wizz Air.
Case law has established that the assessment of the condition relating to the selectivity of the advantage implies verifying whether, within the framework of a given legal regime, a national measure is such as to favour "certain undertakings or the production of certain goods" in relation to others which are, in the light of the objective pursued by that regime, in a comparable factual and legal situation. De facto selectivity can be established in situations where, although the formal criteria for the application of the measure are formulated in general and objective terms, the measure is designed in such a way that its effects significantly favour a particular group of undertakings.
It should be noted that, at Timișoara Airport, items 1 to 4 of the second measure of the tariff guide indicated the different airport charge rates (i.e. landing, lighting, parking and passenger services, including security). The charges actually billed were subject to various types of discount. Points 7.1, 7.2 and 7.3 of the second measure provided, respectively, for three types of reduction, which were not cumulative:
- Discounts of 10% to 70% depending on the number of landings in the previous year for international flights.
- A 50% discount for a period of 12 months for new air carriers operating at least three flights per week, with an aircraft capacity of at least 70 seats. For each new destination served, the discount was 50% for a period of six months; in addition to these discounts, the airport also provided a 10% to 30% refund of boarding fees, depending on the number of passengers boarded per year.
- Reductions of 72% to 85% for aircraft with an MTOW of more than 70 tons carrying more than 10,000 passengers per month.
The General Court recalled that it is not sufficient for aid not to be targeted at one or more specific beneficiaries defined in advance, but for it to be subject to a series of objective criteria pursuant to which it may be granted to an indefinite number of beneficiaries, not identified individually at the outset, in order to rule out the selective nature of the measure and therefore its classification as State aid within the meaning of Article 107(1) TFEU. It is therefore necessary to verify whether, because of its application criteria, it provides an advantage to certain undertakings to the exclusion of others. Thus, the general nature of the tariff guide did not, as such, exclude possible de facto discrimination between the airlines using the airport.
The General Court noted that the Commission had examined the three types of reduction provided for jointly without explaining why a joint assessment was relevant, given that each type of reduction met different conditions and were not cumulative.
In addition, the Commission failed to examine whether the reductions provided for in point 7.3 of the second measure, taken in isolation, favoured Wizz Air because of the conditions for their application, in particular as regards the question of whether airlines other than Wizz Air had aircraft in their fleet of an appropriate size and providing sufficient frequencies to enable them to benefit from them.
In fact, the third discount of the second measure benefited only Wizz Air and the argument put forward that these discounts were intended to increase traffic at the airport and the revenue collected is irrelevant in that Article 107(1) TFEU does not distinguish according to the causes or objectives of public interventions but defines them according to their effects.
According to the General Court, the Commission erred in law by not examining whether the third rebate, taken individually, was intended to be applied selectively.
According to European case law, an incentive measure does not constitute State aid if the beneficiary company could have obtained the same advantage in circumstances corresponding to normal market conditions in accordance with the principle of a private operator in a market economy. This assessment is made on the basis of the information and documents available at the time the measures in question were adopted. In principle, any element subsequent to that date must be excluded from the Commission's analysis.
The General Court found that the Commission did not have at its disposal the economic analyses of the airport prior to the conclusion of the 2008 agreements with Wizz Air and that it therefore did not rely on such analyses to assess the profitability of those agreements in the light of the criterion of a private operator in a market economy.
The Commission concluded that the agreements were profitable on the basis of a 2015 report by Oxera, which therefore came after the conclusion of the agreements in question, which reconstructed the profitability of the agreements a posteriori on the basis of data available before the conclusion of the agreements.
The Commission's conclusion that a private market economy operator concluded the 2008 agreements between Timișoara Airport and Wizz Air is based entirely on evidence established ex post, which the General Court considers to be contrary to case law.
On this basis, the General Court considered that the Commission did not legally justify its conclusion that the public financing did not confer on Wizz Air an economic advantage that it would not have obtained under normal market conditions and which therefore did not constitute State aid.
In view of all the considerations presented, the General Court decided to annul the decision of the European Commission, which must therefore adopt a new decision in light of the General Court's considerations.
Comments
It is clear that European case law on incentives granted by airports to airlines is not a long, quiet river. In fact, there have been numerous rulings by the General Court annulling the Commission's decisions. It is also the case that the Court of Justice has overturned the General Court's rulings confirming the Commission's decisions.
This recently occurred in the Sardinia airports case, which again made it possible for public authorities to conclude marketing services agreements with airlines without such agreements automatically constituting State aid.
As regards the admissibility of the applicant, the General Court applied a lighter approach than in other similar cases. In the Marseille airport case, the action for annulment brought by Air France against the Commission’s decision approving investment aid for the airport and concluding that no aid benefited Ryanair was deemed inadmissible for failure to demonstrate its direct and individual interest, even though Air France operated at the airport. In the present case, the General Court merely noted that Carpatair carried out activities similar to those of Wizz Air and was active in the same service market and in the same geographical market as Wizz Air. It appears from the Commission's decision that Carpatair had established a hub at Timișoara airport from 2000 onwards, but this fact was not referred to by the Court in its judgment.
Furthermore, this judgment seems to call into question the case law of the Court of Justice of the EU in the Lübeck airport case, which concluded that discounts on airport charges are not selective if they are transparent and non-discriminatory, at least when they are based on the weight of the aircraft and the number of passengers per month. Indeed, the criteria of the weight of the aircraft and the number of passengers are objective criteria that can be met by many other airlines even if in fact only Wizz Air has respected them.
How the Commission will apply this judgment in its new analysis of the discounts introduced by the airport should be monitored in the present case and its future decisions.
Finally, while it is established case law that the assessment of the principle of a private operator in a market economy is indeed made at the time of the conclusion of the contracts with the companies on the basis of the elements known at that time, the Commission has developed in practice a pragmatic methodology based on the a posteriori reconstruction of business plans incorporating parameters determined on the basis of probable projections prior to the date of conclusion of the contracts concerned. In fact, in pre-2014 cases, i.e. before the entry into force of the guidelines on aid to airports and airlines, the rules applicable to such incentives were very succinct and the Commission's practice varied according to the annulments of its decisions by the EU Court. Many airports had not yet incorporated such practices, which had not been specified by the Commission in a regulatory act or even in its decision-making practice, which does not in fact rule out the profitability of such agreements. Such reconstructions have moreover been used by the European Commission to conclude that aid in favour of Ryanair in various decisions did exist, including the decisions affecting the Pau, Zweibrücken, Angoulême and Nîmes airports. It would therefore be surprising if these reconstructions were only legally acceptable if they led to negative results.
It is very likely that the Court of Justice will be called upon to examine this case.
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