WORKING LANGUAGE This document is made available for ...ec.europa.eu/competition/state_aid/cases/243805/... · Carinthia. The operative business is carried out by the companies themselves

Seiner Exzellenz Herrn Dr. Michael SPINDELEGGER

Bundesminister für europäische und internationale Angelegenheiten

Ballhausplatz 2

A - 1014 Wien

Commission européenne, B-1049 Bruxelles/Europese Commissie, B-1049 Brussel – Belgium

Telephone: 00- 32 (0) 2 299.11.11.

EUROPEAN COMMISSION

Brüssel, 23.02.2012

C(2012) 1011 final

Subject: State aid SA.24221 – C/2011 (ex NN/2011; CP 281/2007) – Austria – Klagenfurt

Airport – Ryanair and other airlines

Sir,

The Commission wishes to inform Austria that, having examined the information supplied by

your authorities on the aid/measure referred to above, it has decided to initiate the procedure laid

down in Article 108(2) of the Treaty on the Functioning of the European Union.

1. PROCEDURE

(1) By letter of 5 October 2007 a competitor of Ryanair on the European air passenger

transport market, which has requested not to have its identity disclosed , lodged a

complaint with the Commission alleging that the Irish Airline Ryanair plc (hereinafter:

"Ryanair") has been granted unlawful State aid by the Federal State of Carinthia, the City

of Klagenfurt, Kärnten Werbung Marketing & Innovationsmanagement GmbH (hereafter:

“Kärnten Werbung”) and the Airport of Klagenfurt via its operating company Kärntner

Flughafen Betriebsgesellschaft mbH.

(2) By letter of 11 October 2007 the Commission has forwarded the complaint to Austria and

requested information. The Austrian authorities responded by letter dated 2 January 2008.

In the published version of this decision, some information has

been omitted, pursuant to articles 24 and 25 of Council Regulation (EC) No 659/1999 of 22 March 1999 laying down detailed rules

for the application of Article 93 of the EC Treaty, concerning non-

disclosure of information covered by professional secrecy. The

omissions are shown thus […].

PUBLIC VERSION

WORKING LANGUAGE

This document is made available for information

purposes only.

(3) The Commission requested additional information from the Austrian authorities by letters

dated 15 November 2010 and 24 March 2011. The Austrian authorities responded by

letters dated 28 January 2011 and 30 May 2011.

(4) On 8 April 2011 the Commission requested information from Ryanair. Ryanair submitted

the information by letter dated 4 July 2011. On 15 July 2011 the Commission forwarded

the submission of Ryanair to the Austrian authorities, which provided their comments by

letter of 20 September 2011.

2. DESCRIPTION OF THE FACTS

2.1. Klagenfurt Airport

(5) Klagenfurt Airport (hereafter: "KLU" or "the Airport") is located in the Land Carinthia,

about 4 km of the city centre of Klagenfurt, the capital of Land Carinthia, which is

situated in the touristic region of Wörthersee.

(6) Klagenfurt Airport is owned and operated by Kärntner Flughafen Betriebs GmbH

(hereafter: "KFBG") which is held by Klagenfurt city (20%) and Kärntner Landes- und

Hypothekenbank-Holding (80%). According to publicly available information the 80%

share of the State of Carinthia in the Airport had been transferred onto Kärntner Landes-

und Hypothekenbankholding in November 2008.

(7) The capacity of the Airport terminal is 600,000 to 650,000 passengers per year which is

unchanged since 2000. Operating hours are from 6 to 23:30 hours since the 80s. The

capacity of the runway is unchanged since 2000.

Table 1: traffic figures at KLU

year total passengers movements freight in kg

2000 235 503 8 325 78 931

2001 226 701 7 133 67 159

2002 259 717 6 894 29 939

2003 313 557 6 979 47 347

2004 486 274 8 81 57 881

2005 552 697 8 907 53 212

2006 409 004 7 718 41 563

2007 469 033 8 103 34 894

2008 429 889 7 679 23 935

2009 410512 7 785 30 153

2010 425 933 7 482 13 443

(8) The main airlines using the Airport are: Austrian Airlines, Germanwings, Ryanair, Air

Berlin, Condor, Lufthansa and charters.

(9) In 2010 the carrier with the most passengers was Air Berlin ([…] % of the passengers),

followed by Austrian Airlines […]%), Lufthansa and Ryanair (each […]%) and

Germanwings ([…]%).

(10) In the past also TUIfly contributed a considerable amount of passengers and stopped

services in 2010. Ryanair had a peak in 2004 and 2005. In 2005 Ryanair cancelled the

flight connection to London-Stansted for economic reasons without stating any details.

Air Berlin and Germanwings started services in 2009.

Table 2: passenger numbers by airline

[…]

(11) The profit and loss accounts of KFBG show that it has been loss making in ordinary

activities in 2002 and 2004-2009 and that the shareholders have made contributions to the

budget from 2002 to 2006.

Table 3: financial development of KFBG

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Balance

sheet

profit

847,470 615,877 67,901 857,682 158,922 586,710 -64,573 729.385,75 912.548,2 266.297,07 990.954,46

Profit or

loss on

ordinary

activities

1,137,601 836,992 -89,510 380,114 -1,445,108 -760,566 -690,040 -588.996,41 -491.951,8 -1.204.315,92 466.342,43

Net loss/

profit

(Jahresfehl-

betrag)

952.169,13 615.877,08 -86.532,46 330.133,33 -1.446,9 -748,3 -1.214,4 -769.896,4 -633.451,8 -1.204.315,92 462.954,46

Share

-holder

contribution

0 0 181680 559644 1,605,780.10 1.344.979,10 1.149.887 1.563.855,0 0 0 0

Auflösung

von Kapital-

rück-

lagen

0 0 0 0 0 1.563.855,0 1.546.000,0 1.508.000,0 528.000,0

Gewinn-

/Verlust-

vortrag aus

dem

Vorjahr

847.470,13 847.470,13 615.877,08 67.901,23 857,7 158.921,82 -64.572,84 -64.572,84 729.385,75 912.548,2 266.297,07

Table 4: Non-aviation revenues

covered by the obligation of professional secrecy

2.2. The catchment area

(12) Klagenfurt Airport is situated at the following distances /travelling time by car to other

airports:

- Ljubljana airport: 71 km, 1 h

- Graz airport: 128 km, 1 h 10

- Maribor airport: 137 km , 1 h 47

- Trieste airport: 203 km, 1 h 51

- Salzburg airport: 223 km, 2 h

- Venezia airport: 282 km, 2 h 34

- Treviso airport: 290 km, 2 h 43

(13) The business report of the Airport of 2010 identifies seven competing airports in the

catchment area of KLU. KLU is connected with a bus shuttle service to Ljubljana1.

2.3. Entities involved

2.3.1. Destinations Management GmbH

(14) Destinations Management GmbH (hereafter: "DMG") is a 100% subsidiary of Kärntner

Flughafen Betriebs GmbH.

1 http://www.klagenfurt-airport.com/default.aspx?SIid=10&LAid=2&ARid=159

2.3.2. Kärnten Werbung, Marketing & Innovationsmanagement GmbH

(15) Kärnten Werbung, Marketing & Innovationsmanagement GmbH is owned by Kärntner

Landes- und Hypothekenbank-Holding (until November 2008 by the State of Carinthia)

(60%), the Chamber of Economy of Carinthia (30%) and the Chamber of Employees

(10%). The purpose of the company is marketing activities for the tourism in Carinthia. It

is financed by the State of Carinthia. It is controlled by the supervisory board which is

nominated by the shareholders.

(16) The Chamber of Economy of Carinthia is a body of public law (Körperschaft des

öffentlichen Rechts) established by the Law on the Chamber of Economy

(Wirtschaftskammergesetz). Its task is to represent the interest of its members. It is

supervised by the Federal Minister for Economy and Labour. Its tasks and prerogatives

are fixed by the law.

(17) The Chamber of Employees is a body of public law established by the Law on the

Chamber of Employees (Arbeiterkammergesetz). Its task is to represent the interest of its

members. It is supervised by the Federal Minister for Labour and Social affairs. Its tasks

and prerogatives are fixed by the law.

2.3.3. Kärntner Landes- und Hypothekenbank-Holding2

(18) Kärtner Landes- und Hypothekenbank-Holding (hereafter: “KLH”) is an ownerless legal

personality established by an act of the State of Carinthia which has emerged from the

Kärntner Landes- und Hypothekenbank.

(19) The purpose of KLH is to acquire, hold, administer and divest assets, in particular shares

in companies, and to found companies. KLH shall carry out a strategic holding policy for

all its companies to guarantee synergy effects, clear competences and carry out a

centralized controlling. KLH has to carry out its business in the interest of the State of

Carinthia. The operative business is carried out by the companies themselves.

(20) For the direct and indirect financing and support of projects which are in the interest of

the State of Carinthia a special fund called “Zukunft Kärnten” has been established. The

core fund consists out of EUR 500 million. The fund is administered separately from the

rest of the assets. The granting of financing by the fund has to be in the frame of

directives adopted by the supervisory board of KLH.

(21) The board of KLH is appointed by the supervisory board. When State Government

requests KLH to carry out financing of projects in the interest of the State the board has to

submit this request for adoption of a decision insofar as the State of Carinthia provides the

funding.

(22) The supervisory board is appointed by the State Government. The supervisory board has

to agree on investments above EUR 50,000. It delegates members to the supervisory

2 Website of KLH: www.klhd.at and Satzung der Kärntner Landes- und Hypothekenbank-Holding (Kärntner Landesholding) published in Landesgesetzblatt für Kärnten, 18. Jänner

2010

boards of the companies KLH owns. It has to decide on the financing of projects by the

special fund “Zukunft Kärnten”.

(23) The special fund has participated in the financing of the following projects3:

“Low cost Project Ryanair”

“Low-Cost Tuifly/Air Berlin”

„Ankauf einer Fluglinie“

„Zuschüsse an die Kärnten Werbung – 2007“

„Flughafen Klagenfurt“

2.3.4. Leading Verge.Com Limited

(24) Leading Verge.Com Limited (hereafter: “LV”) is a 100% subsidiary of Ryanair.

2.3.5. Airport Marketing Services (Jersey) Limited

(25) Airport Marketing Services (Jersey) Limited (hereafter: “AMS”) is a 100% subsidiary of

Ryanair. Its main activity is to sell advertising space on the Ryanair website.

2.4. The financing of Kärntner Flughafen Betriebs GmbH by the City of Klagenfurt

and the State of Carinthia

Table 5: Financial injections into KFBG

3 http://www.klhd.at/uploads/media/KLH_2011-10-27_-_3_Seiten.pdf?PHPSESSID=3a9d1fc61a2a8bb64d387d8e5ca728a5

(26) From the above table it appears that not only the shareholders of KFBG (Land, Stadt), but

also the Federal Ministry for the Interior and the Federal Ministry of Finances contributed

to the Airport.

Table 6: Budget and expenses of the Diet of Carinthia with regard to KLU:

(27) The figures of the contributions of the "Land" in Table 5 are not the same as in Table 6.

The Commission invites the Austrian authorities to clarify which amounts have been

transferred to which entity and for what purpose.

(28) For the period 2011 to 2012 it is planned to inject EUR 2 million for incoming air

connections. EUR 1.4 million of this amount are financed from KLH's special fund

"Zukunft Kärnten"4. The Commission invites the Austrian authorities to clarify if this

amount is being transferred to KFBG or is directly transferred to the airlines.

2.5. The airport incentive programme of Kärntner Flughafen Betriebs GmbH of 2005

2.5.1. The base rates of the airport charges

(29) The schedule of charges has not been changed since 2008. Only a minor increase of the

tariffs has been made.

(30) It consists out of two parts: Part I: “Tarifordnung” approved by the Federal Ministry for

Transport and part II “Entgeltordnung”. Part II deals with the ground handling services

(31) Part I deals with the following tariffs:

Landing fee (per turnaround)

4 http://www.klhd.at/projektbeschreibung/leitprojekt-infrastruktur-kaernten-airport-2011-2014.html?PHPSESSID=3a9d1fc61a2a8bb64d387d8e5ca728a5

Passenger fee (per departing passenger)

PRM fee

Parking fee (per turnaround)

Infrastructure fee (airside: per turnaround, landside: per passenger)

(32) The infrastructure tariff is for the use of the airport central infrastructure and applies when

a ramp / traffic handling service is provided. It consist out of the air side infrastructure

tariff which depends on the MTOW of the aircraft and the number of seats (between EUR

40 and 424 in 2009) and a landside infrastructure tariff which is EUR 1.4 per departing

passenger.

(33) The fees for ground handling services are divided into two groups: services which have to

be paid for independently of the range of the use (traffic handling charge (“THC”) and

ramp handling charge (“RHC”) and individual services which have to be paid only with

respect to the individual use. The amount of the THC and RHC depends on the MTOW of

the aircraft. The THC is between EUR 337 and 3886, the RHC is between EUR 226 and

2404).

2.5.2. The incentive scheme

(34) In 2005 KFBG introduced an incentive scheme for airlines with and from destination of

KLU with the objective to enhance the creation of new flight destinations (destinations

incentive), to intensify existing flight connections (frequency incentive) and to strengthen

and secure existing flight connections (passenger incentive). The scheme entered into

force 1 September 2005 and ended 31 December 2008. In December 2008 the incentive

programme has been extended for an undetermined time period. The scheme is open to all

airlines operating on KLU but applies only for scheduled flights, charter flights are

excluded. The application has to be based on a prior agreement between KFBG and the

airline on the current and planned frequencies and the routes.

(35) The destinations and frequency incentive scheme grants incentives as a percentage rebate

on certain airport charges (Landetarif, luftseitiger Infrastrukturtarif,

Vorfeldabfertigungsentgelt) which are laid down in the current fee regulation of KLU.

(36) The passenger incentive is an absolute amount paid per passenger of a departing flight

from KLU fixed for the whole duration of the scheme. The incentive is deducted from the

same fees as for the destinations and frequency incentive. The amount is indicated as a

maximum amount. If the flights are increased or decreased the amount is adapted

respectively but not above the maximum amount.

(37) A combination of the destinations/frequency incentive with the passenger incentive is

possible insofar as all forms of incentives can be combined but not accumulated. This

means the passenger numbers on which are based the destinations and frequency

incentives are deduced from the overall passenger number when calculating the passenger

incentive.

(38) The incentive is paid (refunded) by KFBG at the end of a calendar year. The airline has to

prove the number of passengers and flights from and to the destination of KLU.

(39) The passenger incentive scheme has been applied for Austrian Airlines retroactively for

2003 until September 2005 due to a private settlement. This settlement was the result of a

law suit between Austrian Airlines and KLU. Austrian Airlines had claimed that Ryanair

had been treated preferentially due to the cooperation with Ryanair concerning the flight

connections to London. Austrian Airlines had not made an offer on the public tender for

this route. Austrian Airlines refused then payments to the Airport. The result of the law

suit and the negotiations was that the transparent incentive scheme of 2005 was adopted

and an individual settlement was agreed according to which Austrian Airline was treated

as if the passenger incentive had already existed in 2003.

(40) The payments resulting from the Marketing Agreement with Leading Verge can be

cumulated with the incentives.

Table 7: Incentives at KLU since 2005

Year Destinations incentive on

Landetarif, luftseitiger

Infrastrukturtarif and

Vorfeldabfertigungsentgelt

Frequencies incentive on

Landetarif, luftseitiger

Infrastrukturtarif and

Vorfeldabfertigungsentgelt

Passenger

incentive

(maximum) per

departing

passenger

2005-

2008

1st year: 70 %

2nd

year: 60 %

3rd

year: 50 %

1st year: 60%

2nd

year: 50%

3rd

year: 40 %

EUR 7.62

2009 EUR 5.06

2010 EUR 4.85

2011 EUR 4,85

Table 8: Application of the incentive scheme on the airlines at KLU 2002-2010

[…]

Table 9: Amount of incentives granted per airline at KLU 2003-2007

in

thousand

€

2010 2009 2008 2007 2006 2005 [total]

Passenger incentive-

Incentive

Austrian Airlines

Group [...]* [...] [...] [...] [...] [...] [ >2000]

[...] [...] [...] [...] [...] [...] [...] [...]

[...] [...] [...] [...] [...] [...] [...] [...]

[...] [...] [...] [...] [...] [...] [...] [...]

[...] [...] [...] [...] [...] [...] [...] [...]

[...] [...] [...] [...] [...] [...] [...] [...]

Ryanair [...] [...] [...] [...] [...] [...] [...] [<1000]

[...] [...] [...] [...] [...] [...]

TUIFly (HLX) [...] [...] [...] [...] [...] [...] [<1000]

[...] [...] [...] [...] [...] [...]

airberlin

[...] [...] [...] [...] [...] [...] [<500]

[...] [...] [...] [...] [...] [...]

[...] [...] [...] [...] [...] [...]

Destination

incentive [...] [...] [...] [...] [...] [...]

[...] [...] [...] [...] [...] [...]

Lufthansa [...] [...] [...] [...] [...] [...] [<2000]

[...] [...] [...] [...] [...] [...]

Robin Hood [...] [...] [...] [...] [...] [...] [<100]

[...] [...] [...] [...] [...] [...]

Ryanair

[...] [...] [...] [...] [...] [...] [<1000]

[...]

[...] [...] [...] [...] [...] [...]

[...] [...] [...] [...] [...] [...]

TUIFly (HLX) [...] [...] [...] [...] [...] [...] [...] [<500]

[...] [...] [...] [...] [...] [...]

airberlin [...] [...] [...] [...] [...] [...] [...] [<100]

[...] [...] [...] [...] [...] [...]

[...] [...] [...] [...] [...] [...]

Frequency

incentive [...] [...] [...] [...] [...] [...]

[...] [...] [...] [...] [...] [...]

Germanwings [...] [...] [...] [...] [...] [...] [<1000]

[...] [...] [...] [...] [...] [...]

SUM

[...] [...] [...] [...] [...] [...]

(41) The Austrian authorities have submitted a cost-benefit analysis based on the actual

numbers of 2006 to 2010 for Ryanair on the route Stansted, for Austrian Airlines on the

routes to Vienna and Frankfurt and for Lufthansa on the route to Munich.

2.6. The 2002 Agreements with Ryanair and with Leading Verge.Com

2.6.1. The tender opened by Destinations Management GmbH for a flight

connection to London in 2004

(42) In November 2001 Destinations Management GmbH opened a tender for a scheduled

flight connection between London and Klagenfurt. The tender was published in the OJ

14.11.2004, p. 219 and in the official procurement journal of the Federal Ministry of

Economy and Labour. The tender offered a contract for a direct daily scheduled flight

London-Klagenfurt and back for at least 50,000 passengers per year from a central

London (in total 100,000 yearly) airport with a duration of 3 years and an option to extend

for 5 years. As a reward Destinations Management GmbH offered:

a contribution to the marketing activities of the airline with a fixed amount of 2

million ATS (145,345.67 Euros), the marketing support has to be used for the

publicity and marketing of the flight connection, the use has to be proved every half

year,

a 97% refunding of the turnaround fees (airport charges, station and ground handling

fees and the air traffic control fee) of Klagenfurt airport. These fees arise when

landing in KLU.

(43) The tender foresaw also an alternative offer with 4 flights a week and 30,000 passengers

from London (in total 60,000 passengers yearly). In this case the reward offered was a

marketing support of 1 million ATS (72,672.82 Euros) and a contribution for the

turnaround fees.

(44) The public tender did not result in any offer and was withdrawn consequently. In the

following a negotiation procedure without previous publication was carried out and

resulted in a contract with Ryanair.

2.6.2. The Cooperation Agreement between Kärntner Flughafen

Betriebsgesellschaften mbH and Ryanair of 22 January 2002

(45) On 22 January 2002 KFBG and Ryanair made an agreement which entered into force on

27 June 2002 for a period of […] years with an automatic renewal for further […] years

provided that Ryanair fully complies with its obligations under that agreement.

(46) The agreement provides for a further contract in relation to additional rotations.

(47) Ryanair is obliged under the Agreement to operate passenger air services between KLU

and London-Stansted Airport (hereafter: “STN”) commencing around the date of entering

into force of the Agreement utilising a B737 aircraft on at least a […] basis with low fares

and […] rotations per year or […] rotations per calendar quarter.

(48) Ryanair pays KLU an all-inclusive fee of EUR […] per rotation in respect of landing and

take-off fees, lighting charges, noise and night fees, ramp and passenger handling,

infrastructure charge, local Air Traffic Control and charges for the services at KLU. The

Austrian authorities explain that this all-inclusive fee is the same as the refunding of

turnaround fees mentioned in the tender made by DMG in 2001.

(49) Ryanair collects on the passenger tickets an amount of EUR […] per departing passenger

as a passenger services charge for the Airport.

(50) Ryanair collects on the passenger tickets an amount of EUR […] (fixed by the Austrian

Government) per departing passenger as a security fee for the Airport.

(51) Ryanair produces in conjunction with DMG a periodic marketing plan for the flight

connections for the information of KLU. Ryanair has complete discretion in the

application of the marketing support received with the only condition that it has to link the

appropriate tourist websites to Ryanair’s website and to incorporate appropriate logos

wherever feasible.

(52) KLU is obliged to provide airport terminal and handling services for the services of

Ryanair (including free branding space at the ticketing and check-in desks and boarding

gates), to provide public relations and marketing functions with regard to the services of

Ryanair (including press conferences), to procure the payment by DMG to Ryanair’s

media consultants of an amount of EUR [50 000 – 150 000] per year in respect of the

daily rotation commencing on 27 June 2002, payable quarterly in advance at EUR [...]. In

the extent that this amount is not paid KLU has to pay the amount to Ryanair. KLU

further has to procure the operation of a bus service at modest fares between the Airport

and Klagenfurt main station to connect with the scheduled arrival and departure times.

KLU also has to assist Ryanair in its negotiations with fuel suppliers at the Airport to

achieve the lowest costs.

(53) KLU is obliged to establish and operate a passenger service desk in the main terminal of

KLU and to staff it. The desk is to be open two hours before the departure until the

departure. For these services KLU receives from Ryanair [...] % commission on all

Ryanair fares sold by debit/credit card.

(54) The Marketing Agreement between Destinations Management GmbH and Leading

Verge.Com Limited of 22 January 2002

(55) On 22 January 2002 DMG and Leading Verge.Com made an agreement which entered

into force the same date with a duration until [...] with an automatic renewal for further

[...] years provided that LV fully complies with its obligations under that agreement.

(56) DMG appoints LV to “initiate marketing measures aimed at making the province of

Carinthia better known in the English speaking world and to arrange for legally licensed

air carriers to provide new scheduled passenger air services from locations within the

United Kingdom and/or continental Europe to Klagenfurt airport using aircraft with a

capacity of not less than 140 seats (“the Services”).”

(57) The convened “Services” “should continue to be [...] rotations per annum ([...] rotations

per quarter). “LV undertakes to procure the introduction and continuation of the Services”

“and to generate a promotional plan and web links to DMG’s homepage” and other

promotion of promoting the “Services” including links between tourist websites to LV’s

air operator client’s websites

(58) DMG pays EUR 145,000 per year in respect of the daily rotation payable quarterly in

advance at a rate of EUR 36,250.

(59) The Austrian authorities have not carried out any independent evaluation of the outcome

of the marketing activities but claim that there is a positive effect in the passenger

numbers of KLU resulting from the permanent cooperation and the success of the flight

connections.

Table 10: Refunding and payments of KFGB to Ryanair 2002-2005 in EUR

year 2002 2003 2004 2005

Refunding of turnaround fees [...] [...] [...] [2-6 million]

Payments under the marketing agreement [...] [...] [...] [200 000-600 000]

2.7. The 2006 Agreements with Ryanair and with AMS

(60) According to a press release of the State of Carinthia issued on 6 February 2007 certain

public authorities had made payments to Ryanair as follows: State of Carinthia 150,000

EUR, Klagenfurt City 150,000 EUR, Kärnten Werbung 45,000 EUR, KFBG EUR 30,000.

The Austrian authorities have declared that these contributions have been paid out to

Klagenfurt airport as a contribution to the marketing measures of Ryanair, which therefore

serve indirectly to minimise the losses of the Airport.

2.7.1. Airport Services Agreement between KFBG and Ryanair of 23 August 2006

(61) On 23 August 2006 KFBG and Ryanair made an agreement which entered into force the

same day for a [...]-a-week services operated from 19 December 2006 until 21 April 2007.

(62) The Agreement is based on the published tariffs of KLU and the new charges/incentives

scheme introduced in September 2005.

(63) Ryanair is obliged to establish and operate STN-KLU-STN with a [...]-a-week-service

which will generate at least [...] departing passengers for the term of the contract.

(64) Ryanair is obliged to pay the official charges of the Airport. The incentive scheme grants

an incentive of EUR [...] per departing passenger on new scheduled services.

(65) The Agreement has been extended on 28 February 2007 for a period of [...] years from

[...] to [...]. Ryanair commits itself to generate at least [...] departing passengers per year.

2.7.2. Marketing Services Agreement between DMG and Airport Marketing

Services (Jersey) Limited of 21 December 2006

(66) On 21 December 2006 DMG and Airport Marketing Services (Jersey) Limited made an

agreement which entered into force the 28 February 2007 for a [...]-a-week services

operated from 19 December 2006 to [...].

(67) AMS has the exclusive license to offer marketing services on the website

www.ryanair.com of Ryanair. The Agreement is rooted in Ryanair’s commitment to

operate a route between STN and KLU for the period 19 December 2006 to 21 April

2007.

(68) AMS is obliged under the Agreement to provide a package of marketing per year to the

value of EUR [350 000-150 000] as per AMS current Rate Card including a link from

www.ryanair.com to a website designated by DMG, content designated by DMG on the

Klagenfurt/Carinthia destination page and e-mail offers advertising Klagenfurt/Carinthia

sent to subscribers of the website. Additional marketing services exceeding that amount

can be decided.

(69) The websites designated by DMG cannot provide flights, car rental, accommodation and

any services that in future may be offered by www.ryanair.com but will present tourist

attractions and business opportunities of Klagenfurt/Carinthia.

(70) DMG is obliged to pay for the marketing services in monthly instalments on the basis of

invoices.

(71) On 28 February 2007 the Agreement was extended for a period of […] five years from 22

April 2007 to […]. The basis of the Agreement is a year-round, […]-a-week service STN-

KLU-STN. The yearly package of marketing in its content and rates are to be adapted

amicably each year.

2.8. Marketing cooperation with TUIfly and Air Berlin

(72) The Austrian authorities explain that other airlines than Ryanair do either not profit from

payments for new routes from and to KLU. Public money in this context is only spent

with regard to marketing measures for tourism advertising.

(73) , funds for marketing activities of the airlines came from the State of Carinthia, the City of

Klagenfurt and KFBG. The funds were transferred to KFBG. The funds were then used by

KFBG's subsidiary DMG for marketing arrangement with the airlines.

(74) According to publicly available information,for the extention of cooperations between

KFBG and TUIfly and Air Berlin an investment of EUR 15.8 million from which EUR

1.5 million are provided from KLH's fund "Zukunft Kärnten" was planned for the period

of five years starting with 1 April 20045.

5 http://www.klhd.at/projektbeschreibung/low-cost-tuiflyair-berlin.html

(75) In 2007 the State of Carinthia transferred EUR 1,205,287 for marketing activities of DMG

with Hapag Lloyd (which later became TUIfly) and Ryanair to the Airport. It is unclear

which share of the amount was given to which airline.

(76) The Austrian authorities refused to submit to the Commission information concerning

payments to other airlines at Klagenfurt airport as they consider that this information does

not relate to the present case.

(77) The Austrian authorities are nevertheless of the opinion that payments to other airlines

conform to the market economy investor principle.

Table 11: Payments of the State to KFBG with regard to marketing activities of LCCs

3. COST-BENEFIT ANALYSES SUBMITTED BY THE AUSTRIAN AUTHORITIES

3.1. Incentive Scheme of 2005

(78) The Austrian authorities have presented three model calculations for three possible

projects. These calculations were made at the time of the introduction of the incentive

scheme in 2005.

project 1: aircraft with 189 seats (e.g. B 737-800), 3 flights per week

project 2: aircraft with 72 seats (Dash 8-400), 1 flight per day

project 3: aircraft with 46 seats (ATR 45), 1 rotation per week

(79) They explain that according to these calculations not only variable costs of the three

model projects are covered but also full costs.

(80) The Austrian authorities are therefore of the opinion that the incentives comply with the

market economy investor principle.

(81) The Austrian authorities provided three different ex-ante project analyses to demonstrate

that offering an incentive scheme to an airline would provide positive return for the

airport.

(82) The analysis features a five year model. In the first three years a digressive destination

incentive is applied (70% in Y1, 60% in Y2, 50% inY3) followed by a passenger

incentive in year four and five. (EUR 7.62 per pax).

(83) All scenarios assume that each additional passenger brings EUR 7 of non-aviation

revenue. Costs are calculated as the sum of (i) 51% of the traffic handling revenues, (ii)

cost dependent on number of flights is calculated as the number of flights per year

multiplied by MTOW multiplied by the cost factor (EUR 30.6) and (iii) cost dependent of

number of passengers is calculated as the number of passengers per year multiplied by the

cost factor (EUR 7.13).

(84) The different scenario vary in their assumption of new flights per year that the scheme

allowed, the load factor of these flights over the years, the type of flights. They all

represent positive net present value at a 8% discount rate. The internal rate of return of the

project over the five years ranges from 30% to 52% depending on the different scenarios.

(85) The Austrian authorities also provided a similar analysis, this time on an ex-post basis,

based on the actual figures from 2006 until 2010 for three companies that benefited from

the incentive schemes (Ryan Air, Austrian Airlines and Lufthansa).

(86) In the case of Ryanair, the main assumption is that the scheme allowed for […] additional

flights per week. Revenues are based on the actual aviation revenue deriving from the

additional flights brought by the incentive scheme. Non-aviation revenues rely on the

assumption that each passenger spent EUR […] on average. Cost assumptions are similar

as the ones from the ex-ante analysis, except a different cost factor for each year has been

used. For each airline, the analysis shows that the scheme was profitable to the airport

(positive NPV at 8% discount rate, and high internal rate of return – […]% in the case of

Ryanair flights).

3.2. Cooperation with Ryanair for 2002 to 2005

(87) The Austrian authorities explain that cooperation with LCCs is necessary to develop the

Airport and to ensure a cost digressive use of the considerable infrastructure investments.

(88) The benefit of the cooperation agreement with Ryanair consists in a long-term

establishment of scheduled air connection between KLU and London, which is important

as well for inbound flights (tourism) as for outbound flights (mobility for the Carinthian

population)

(89) In addition, a cost-benefit analysis of the cooperation agreement between the airport and

Ryanair for the period 2002-2005 intends to demonstrate that the deal was globally

profitable for the airport. This however relies on implicit cost assumptions regarding the

three cost items used in the methodology.

(90) The Austrian authorities are of the opinion that the cooperation with Ryanair conforms to

the market economy investor principle as it is necessary for the economic development of

the Airport.

4. COMMENTS FROM RYANAIR

4.1. Comments

(91) Ryanair considers that it has not received any State aid at KLU. Ryanair expects the

Commission to assess the agreements concerning KLU under the market economy

investor principle taking into account all relevant factors, in particular non-aeronautical

revenues and network externalities. Cost benefit analysis should be based on incremental

costs and infrastructure and fixed operating costs should be considered as sunk costs.

With regard to airport fees the reduced needs of Ryanair should also be taken into

account. Ryanair expects the Commission to rely on the market based comparator market

economy investor principle and not on a cost-based market economy investor principle.

Ryanair has provided documentation with regard to the value of its marketing activities.

4.2. Oxera study

(92) Ryanair had appointed Oxera to carry out an assessment whether the agreements between

Ryanair and the fees paid by Ryanair at KLU conform to the market economy investor

principle. Not included in the assessment is the Marketing Services Agreement between

DMG and Airport Marketing Services (Jersey) Limited of 21 December 2006.

(93) Oxera has carried out two analyses: a comparator analysis and a profitability analysis.

Oxera has found that […] and […] airports are similar to KLU based on a range of

characteristics. Oxera has compared the charges paid by Ryanair in these airports

deducting the marketing support payments Ryanair receives under the 2002 agreement

with DMG but not the payments it receives under the 2006 Marketing Services

Agreement. It has compared the charges paid per turnaround and per passenger and comes

to the conclusion that the charges at KLU have always been higher than at the two other

airports.

(94) Oxera’s profitability analysis is an ex-ante assessment based on incremental costs and

revenues and a single till approach and only concerns the 2002 agreements. It comes to

the conclusion that the 2002 agreements were profitable for the airport and had a positive

net present value.

5. COMMENTS FROM THE AUSTRIAN AUTHORITIES ON THE COMMENTS OF RYANAIR

(95) The Austrian authorities are of the opinion that for the calculation of the profitability of an

air connection the marginal cost calculation should be used instead of the normal full cost

calculation as the airport infrastructure is made for a long term use but air connections are

based on short-term decisions. Additionally security measures can only be made with long

term depreciations. They also support the single till approach which includes non-aviation

revenues into the profitability calculations.

(96) KLU is considered as a regional airport for Carinthia with a strong summer and winter

tourism. Additionally it shall serve the mobility of the Carinthians. It does not intend to be

a secondary airport for Slovenia, at least only in a very small degree.

(97) With regard to the Oxera study the Austrian authorities share its result that the activities

of the Airport fulfil the market economy investor principle. It appears difficult to identify

the comparator airports. The comparability of KLU with […] seems to be very limited

due to other numbers of passengers, considerably higher volatility in the numbers of

flights and due to different geographic surroundings. The Austrian authorities also share

the analysis of the incremental assessment. They also share the doubts in the general

necessity of business plans.

6. COMMENTS FROM THE AUSTRIAN AUTHORITIES

6.1. Financing of the Airport

(98) The Austrian authorities explain that the reasons for the continuing losses of the Airport

are the following: The Airport is a regional airport with currently only 400,000 passengers

per year and this figure can only be increased to a limited extend. Due to the considerable

investments which are necessary for technical and security reasons the Airport had yearly

depreciations of EUR 2.2 to 2.5 million in the recent years. These fixed costs can actually

not be used in an optimal way. Additionally marketing efforts have to be made to keep the

Airport on the market. The losses are compensated by the contributions of the

shareholders of the Airport.

(99) The Austrian authorities are of the opinion that the operation of the Airport is a service of

general economic interest. The State of Carinthia is a region which is enclosed by

mountains with a population of about 560,000 inhabitants. As the potential of the

catchment area is limited the use of capacity of the routes is always problematic. It is

important for Carinthia to be accessible from outside for tourism and the regional

economy and to secure the mobility for its citizens outbound. The Austrian authorities

declare that no formal act of entrustment has been made but that this was ensured on the

basis of corporate law.

(100) The Austrian authorities have submitted a study of Österreichische Gesellschaft für

Marketing evaluating the economic impact of the Ryanair route to London to illustrate the

importance of flight connections to Klagenfurt for the tourism industry in Carinthia.

(101) The Austrian authorities explain that all airports except for those across the border are

more than 1.5 hours away from the Airport. Public transport to the other airports is not

available. The Airport is the only one in Carinthia region. Tourists coming to Carinthia

would not accept a distance between the final holiday destination and the airport of more

than 100 km or more than one hour drive. This is even more the case with business

travellers. With regard to the Ljubljana and Trieste airports there is additionally a barrier

of different languages and mentalities. The Austrian authorities are of the opinion that

there is no direct competition with other airports and no distortion of trade in Europe.

(102) The Austrian authorities declare that the commercial activities of KLU are restricted

exclusively to activities which are directly linked to the operation of the Airport as

parking lots, lease of spaces to the gastronomy, to small shops and transport companies

(e.g. car rentals) and to duty free shops. It appears that there is no competitive situation

with other companies outside the Airport. Additionally, the non-aviation business has

regularly positive results. Therefore there are no anti-competitive spill-over effects.

6.2. Agreements with Ryanair

(103) The Austrian authorities explain that they have not notified the marketing measures with

regard to Ryanair as they do not constitute State aid.

(104) They cannot explain whether the reduction of frequencies between Graz Airport and

Stansted was due to the reestablishment of route between KLU and Stansted but say that

due to this a new route between Maribor (SLO) and Stansted was established.

6.3. Incentive Programme

(105) As a defence the Austrian authorities have provided the Commission with a table showing

that also other airports in Austria (Vienna, Innsbruck, Graz, Linz) and other Member

States (Frankfurt-Hahn, Malta, Lübeck) offer incentive programmes to airlines6.

7. ASSESSMENT OF THE EXISTENCE OF AID

(106) The Commission has analysed whether the following measures may qualify as State aid:

the financing of KFBG

the incentive scheme introduced in 2005 and its retroactive application for Austrian

Airlines

the 2002 agreements with Ryanair and its subsidiary Leading Verge.Com Ltd.

the 2006 agreements with Ryanair and its subsidiary Airport Marketing Services

(Jersey) Ltd.

the financial contributions to TUIfly and Air Berlin

(107) By virtue of Article 107 (1) TFEU "any aid granted by a Member State or through State

resources in any form whatsoever which distorts or threatens to distort competition by

favouring certain undertakings or the production of certain goods shall, in so far as it

affects trade between Member States, be incompatible with the internal market."

6 The Commission has initiated the formal investigation procedure for Frankfurt-Hahn (C 29/2008) and Lübeck (C 24/2007, SA.27585 (2012/NN) SA.31149 (2012/NN) and has

approved the Air Route Development Scheme N 640/2006 – Malta

(108) The criteria laid down in Article 107 (1) TFEU are cumulative. Therefore, in order to

determine whether the measure in question constitutes State aid within the meaning of

Article 107 (1) TFEU all of the following conditions need to be fulfilled. Namely, the

financial support should:

- be granted by the State or through State resources,

- favour certain undertakings or the production of certain goods,

- distort or threaten to distort competition, and

- affect trade between Member States.

7.1. The aid nature of the financing of KFBG

State resources and imputability to the State

(109) The Austrian authorities acknowledged that annual capital injections are carried out by the

Federal Ministry for the Interior / for Finances, the State of Carinthia and the City of

Klagenfurt (see Table 5).

(110) Accordingly, the Commission can conclude that the annual financing provided to KFBG

involve State resources in form of direct grants from the State budget and is thus imputable

to the State.

Economic activity and notion of undertaking

(111) The Commission must first establish whether KFBG is an undertaking within the meaning

of Article 107 (1) TFEU. According to settled case-law, the concept of an undertaking

covers any entity engaged in an economic activity, regardless of its legal status and the way

in which it is financed:7 Any activity consisting in offering goods and services on a given

market is an economic activity.8

(112) In its "Leipzig/Halle airport" judgement the General Court confirmed that the operation of

an airport is an economic activity, of which the construction of airport infrastructure is an

inseparable part.9 Once an airport operator engages in economic activities, regardless of its

legal status or the way in which it is financed, it constitutes an undertaking within the

meaning of Article 107 (1) TFEU, and the Treaty rules on State aid therefore apply.10

(113) The Court also held in its "Leipzig/Halle airport" judgement that it is not relevant whether

the construction or the extension of an airport infrastructure pursues objectives of regional,

economic or transport policy. It is not relevant which purposes are followed by specific

measures but rather what effects they cause.11

7 Case C-35/96 Commission v Italy [1998] ECR I-3851, para 36; C-41/90 Höfner and Elser [1991] ECR I-1979, para 21; Case C-244/94 Fédération Française des Sociétés

d'Assurances v Ministère de l'Agriculture et de la Pêche [1995] ECR I-4013, para 14; Case C-55/96 Job Centre [1997] ECR I-7119, para 21.

8 Case 118/85 Commission v Italy [1987] ECR 2599, para 7; Case 35/96 Commission v Italy [1998] ECR I-3851, para 36.

9 Joint Cases T-455/08 Flughafen Leipzig-Halle GmbH and Mitteldeutsche Flughafen AG c/ Commission and T-443/08 Freistaat Sachsen and Land Sachsen-Anhalt c/

Commission, (hereinafter: "Leipzig/Halle case"), [2011], not yet published in ECR, see also Case T-128/89 Aéroports de Paris v Commission [2000] ECR II-3929, cofirmed

by the ECJ, Case C-82/01P, ECR 2002 Page I-9297, and Case T-196/04 Ryanair v Commission [2008], ECR II-3643, paragraph 88.

10 Cases C-159/91 and C-160/91, Poucet v AGV and Pistre v Cancave [1993] ECR I-637.

11 Leipzig-Halle case, paragraph 102 following.

(114) KFBG, which is the subject of the present decision, owns and operates the Airport. The

Commission therefore concludes at that KFBG is an undertaking in the sense of EU

competition law.

Economic advantage

(115) The annual capital injections reduce the costs that KFBG would normally have to bear

and it appears that KFBG does not pay dividends in any form to its shareholders. Therefore

the capital injections confer an economic advantage on KFBG.

Market economy investor principle test

(116) However, it could be argued that the capital injections granted to KFBG do not constitute

State aid within the meaning of Article 107 (1) TFEU if the market economy investor

principle test can be shown to be applicable in this case. In this regard the European Court

in the Stardust Marine Judgment declared "capital placed directly or indirectly at the

disposal of an undertaking by the State in circumstances which correspond to normal

market conditions cannot be regarded as State aid".12

(117) The Austrian authorities do not argue that the public funding granted annually to KFBG

complies with the market economy principle investor test. No business plan or profitability

estimations have been provided to the Commission by the Austrian authorities, which

would show that when deciding to cover annual losses, the State was in fact guided by

profitability projections.

(118) Moreover, there is no indication that KFBG paid dividends to the State. On the basis of

the information available, the Commission observes that KFBG was loss-making in

ordinary activities in 2002 and from 2003 to 2009. On the basis of information at its

disposal the Commission takes the preliminary view that KFBG would not be able to

remain on the market and would have to enter into bankruptcy without the capital injections

of the shareholders. In view of the losses at the current stage it cannot be excluded that

KFBG is an undertaking in difficulty in sense of the Rescue and Restructuring Guidelines.

(119) From the information available it is not clear whether the public authorities considered a

closing of the airport as an alternative. The Commission invites the Austrian authorities to

comment on a potential closing scenario and provide the Commission with an analysis of

the costs of closure in case such an analysis has been carried out.

(120) On the basis of the information currently at its disposal, the Commission takes the

preliminary view that the State's funding of the KFBG was not similar to one which would

have pursued by a market economy investor. It therefore takes the preliminary view that the

annual subsidies received by KFBG provide the latter with an economic advantage that it

would not obtain on the market.

(121) The Commission invites the Austrian authorities and interested parties to comment on the

application of the market economy investor principle test and to provide, if available a

business plan for KFBG or profitability calculations. The Commission also invites the

12 Stardust Marine Judgement, paragraph 69.

Austrian authorities and the interested parties to comment on the financial situation of

KFBG.

Service of general economic interest

(122) The Austrian authorities contend that the capital injections in question should be

considered compensation for the discharge of public service obligations. In order to

conclude on whether or not the compensation for public services constitutes an advantage

within the meaning of Article 107 TFEU, the Court set out the following criteria in its

judgement in the Altmark case13

:

1.) the recipient undertaking must actually have public service obligations to discharge

and these obligations must be clearly defined (hereinafter Altmark 1);

2.) the parameters on the basis of which the compensation is calculated must be

established in advance in an objective and transparent manner (hereinafter Altmark 2);

3.) the compensation cannot exceed what is necessary to cover all or part of the costs

incurred in the discharge of public service obligations, taking into account the relevant

receipts and a reasonable profit for discharging those obligations (hereinafter Altmark 3);

4.) where the undertaking which is to discharge public service obligations, in a specific

case, is not chosen pursuant to a public procurement procedure which would allow for the

selection of the tenderer capable of providing those services at the least cost to the

community, the level of compensation needed must be determined on the basis of an

analysis of the costs which a typical undertaking, well run and adequately provided with

means of transport so as to be able to meet the necessary public service requirements,

would have incurred in discharging those obligations, taking into account the relevant

revenues and a reasonable profit for discharging the obligations (hereinafter Altmark 4).

(123) Altmark 4 provides that the compensation must be the minimum necessary for an efficient

undertaking in order to escape State aid qualification. This criterion is deemed to be

fulfilled if the recipients of the compensation have been chosen following a tender

procedure ensuring the provision of services at the least costs for the community or, failing

that, the compensation has been calculated by reference to the costs of an efficient

undertaking.

(124) In this case the beneficiary appears not having been chosen following a public tender

procedure. The State of Carinthia appears not having put out to tender the operation of

KLU but simply established the company operating it.

(125) Moreover, the Austrian authorities have not indicated to the Commission that the level of

compensation has been determined on the basis of an analysis of the costs which a typical

undertaking, well run and adequately provided with means so as to be able to meet the

necessary public service requirements, would have incurred in discharging those

obligations, taking into account the relevant revenues and a reasonable profit for

13 Case C-280/00 - Altmark Trans and Regierungspräsidium Magdeburg [2003] ECR I-7747.

discharging the obligations. The capital injections simply seem to cover the financial need

of KFBG without any analysis of the costs.

(126) Consequently, at this stage the Commission has no evidence to support the argument that

the beneficiary in fact provides airport services at the least cost to the community.

(127) Since the Altmark criteria are cumulative, it is sufficient at this stage for the Commission

to observe that the fourth criterion is not met in the present case. Therefore the Commission

concludes that the measure provides the recipients with an economic advantage.

Selectivity

(128) Article 107 (1) TFEU requires that a measure, in order to be defined as State aid, favours

"certain undertakings or the production of certain goods". In the case at issue, the

Commission notes that the advantages in question were granted to KFBG only. As the

public funding was directed at a single undertaking, it is selective within the meaning of

Article 107 (1) TFEU.

Distortion of competition and affectation of trade

(129) When aid granted by a Member State strengthens the position of an undertaking compared

with other undertakings competing in the internal market, the latter must be regarded as

affected by that aid. In accordance with settled case law14

, for a measure to distort

competition it is sufficient that the recipient of the aid competes with other undertakings on

markets open to competition.

(130) In the case at stake, Austria is of the opinion that there is no direct competition with other

airports and trade is not affected.

(131) KLU serves currently approximately 425,000 passengers per year. Thus, it a “small

regional airport” (so-called “category D” airport), for the purposes of the Community

Guidelines on financing of Airports and Start-up Aid to Airlines departing from Regional

Airports (hereafter. “2005 Aviation Guidelines” or “Guidelines”). According to paragraph

(40) of the Guidelines it cannot be excluded a priori that a category D airport does not

affect trade between the Member States. The size of the airport and its proximity to other

European airports (see above paragraph (12), in particular Ljubljana Airport, does not allow

to consider that trade between Member States is not liable to be affected. The Commission

notes in this context that KLU offers a bus shuttle service to Ljubljana which proves that it

attracts customers from the catchment area of Ljubljana. Also the business report of KLU

of 2010 notes: “Unter Berücksichtigung der begrenzten Marktgröße und der Dichte der

Verkehrsflughäfen im Einzugsgebiet des Flughafens Klagenfurt – immerhin sieben

Konkurrenzflughäfen in einem bevölkerungsschwachen und kleinen geographischen Raum

– ist ein massives Wachstum nicht prognostizierbar.“

(132) On the basis of what precedes the economic advantage which KFBG receives strengthens

its position vis-à-vis its competitors on the European market of providers of airport

services. Therefore, the public funding under examination distorts or threatens to distort

competition and affects trade between the Member States.

14 Case T-214/95 Het Vlaamse Gewest v Commission [1998] ECR II-717.

Conclusion

(133) For the reasons set out above the Commission takes the preliminary view that the

financing provided to KFBG amounts to State aid within the meaning of Article 107 (1)

TFEU.

7.2. The aid nature of the incentive scheme introduced in 2005 and its retroactive

application for Austrian Airlines


(134) In the case at hand the discounts have been introduced by KFBG.

(135) Until November 2008 KFBG was 20% owned by the City of Klagenfurt and 80 % by the

State of Carinthia. Today the latter's share is owned by KLH. KLH is ownerless but has

been established by law and its purpose is to serve the interest of Carinthia and it is

controlled by its Government. KFBG was and still is therefore a public undertaking

according to Article 2 (b) of Commission Directive 2006/111/EC.

(136) However, the Court has also ruled that, even if the State is in a position to control a public

undertaking and to exercise a dominant influence over its operations, actual exercise of that

control in a particular case cannot be automatically presumed. A public undertaking may

act with more or less independence, according to the degree of autonomy left to it by the

State. Therefore, the mere fact that a public undertaking is under State control is not

sufficient for measures taken by that undertaking, such as the capital injections in question,

to be considered imputable to the State. On that point, the Court indicated that the

imputability to the State of a measure taken by a public undertaking might be inferred from

a set of indicators arising from the circumstances of the case and the context in which that

measure was taken.15

(137) Such indicators can be the integration of the undertaking into the structures of the public

administration, the nature of its activities and the exercise of the latter on the market in

normal conditions of competition with private operators, the legal status of the undertaking

(in the sense of its being subject to public law or ordinary company law), the intensity of

the supervision exercised by the public authorities over the management of the undertaking,

or any other indicator showing, in the particular case, an involvement by the public

authorities in the adoption of a measure or the unlikelihood of their not being involved,

having regard also to the compass of the measure, its content or the conditions which it

contains16

.

(138) At the current stage the Commission has no detailed information on how the influence of

the State of Carinthia onto KFBG is carried out. The Commission therefore invites the

Austrian authorities to provide the articles of incorporation of KFBG and to explain to

which extent the control of the State has been exercised with regard to the incentive scheme

of KLU and also provide documentation to which extent the financing of KFBG was linked

to specific measures of KFBG. However, the Commission preliminarily concludes from the

15 Stardust Marine Judgment, paragraph 52 and 57.

16 Stardust Marine Judgment, paragraph 55 and 56.

publicly available information that the incentive scheme has been introduced and

maintained under the control of the State. Carinthia considers the Airport as a tool for its

tourism industry and flight connections and the attraction of airlines are a regular topic on

the political level of Carinthia. The control of the State is exercised directly in the

supervisory board of KFBG and indirectly via the supervisory board of KLH (see also

above paragraph 22).17

For the period before 2008 the control of the State was directly

exercised as a shareholder of KFBG.

(139) At this stage it seems that the State exercised control over the introduction and

maintenance of the incentive scheme through its representatives in the supervisory board.

Therefore, at this stage the Commission takes the preliminary view that the incentive

scheme is imputable to the public authorities and invites Austria to provide information to

clarify this aspect.

(140) With regard to the settlement with Austrian Airlines the Commission has only little

information on its background. At this stage the Commission has doubts that a settlement

with a major airline of KLU has been made without the consent of the shareholders or at

least the supervisory board. The Commission invites the Austrian authorities to provide

information on this aspect.

Notion of Undertaking and Economic Activity

(141) The airlines using the airport are undertakings in the sense of EU competition law.

Economic Advantage

(142) The Austrian authorities claim that the Airport has acted as a private investor when

introducing the incentive scheme.

(143) A market economy investor may grant discounts for commercial reasons, for instance if

they are of limited duration or do not discriminate between users of the airport

infrastructure, and if they do not jeopardize the economic viability of the airport, but

rather improve it. In any case rebates and discounts should reflect economy of scale or

other costs saving for the airport operator or be based on some economic rationale so that

it is economically convenient for the airport operator to grant them.18

(144) Moreover, discounts that lead to the result that the airport charges paid by the airlines are

lower than the cost of the underlying operation provided by the airport to the airlines

would make no sense from an economic point of view, in particular where the operator is

in financial difficulties, as they would only have the effects of increasing the losses of the

airport operator. Therefore, a market economy operator would normally not grant them

under normal market conditions. It follows that such discounts would provide an

advantage to the airlines which they would not obtain under normal market conditions.

(145) In order to assess whether the discounts have been granted according to market conditions

the Commission needs to test whether they were made in circumstances which would be

17 E.g. ÖVP Kärnten Press release, 24 November 2011: http://www.ots.at/presseaussendung/OTS_20111124_OTS0329/oevp-lps-rumpold-zu-flughafen-diskussion-zunaechst-sind-

die-geschaeftsfuehrung-und-der-aufsichtsrat-der-flughafen-bges-am-zug

18 Commission decision of 18 February 2011, State aid case NN 26/2009 - Greece – Ioannina airport development.

acceptable for an investor operating under normal market conditions having regard to the

information available and foreseeable developments at the date of signing the agreements.

(146) The Austrian authorities have provided the Commission with an ex ante and an ex post

cost-benefit analysis of the incentive scheme. These calculations come to the result that

the incentive scheme would be and finally also was profitable to the Airport.

(147) The Austrian authorities declare that the calculation has been made on a full cost basis.

However they did not provide any explanation on how they calculated the cost factor of

EUR 30.6 for the costs depending on the number of flights and of EUR 7.62 depending on

the number of passengers and why they calculated with 51% of the traffic handling costs.

(148) Based on the information available at this stage, it appears that the reduced charges did not

cover the costs that an airport operator incurs when discharging its services. The

Commission notes that the airport was loss making in ordinary activities in 2002 and from

2004 to 2009. The losses were covered by payments from the public shareholder.

(149) Consequently a market economy owner would have needed to consider whether a closing

of the airport was more favourable than a continuation of the activity. The Austrian

authorities are invited to provide information regarding the costs of the closing compared

with the costs of maintaining the activity.

(150) As regards the profitability of the airport, the Commission invites the Austrian authorities

to state for each year of the period 2005-2010 for KLU the total costs, broken down into

investment costs and operating costs, and further detail the investment costs, the

depreciation costs and the costs of the financing of fixed assets including the following:

the annual technical capacity by number of passengers and by number of

turnarounds of the airport for the period 2003-2011 taking into account capacity

restraints such as slots, security, environmental issues and others

the annual proportion of the airport capacity by passenger and by turnaround used in

the same period by each airline benefitting from the discounts.

The annual amount of investment costs supported by the airport during the same

period

The proportion of annual investment costs of the airport actually paid by each airline

benefitting from the discounts

The annual amount of operating costs supported by the airport during the same

period

The proportion of annual operating costs of the airport actually paid by each airline

benefitting from the discounts

(151) The Austrian authorities are further invited to state the net payments each airline

benefitting from the discounts per year for each year of services at KLU.

(152) The Commission invites the Austrian authorities to state for each year of the period 2003-

2010 the amount that each passenger of each airline benefitting from the discounts

generated at KLU as non-aeronautical income (e.g. by paying parking fees, shopping,

additional expenses). The Austrian authorities are also invited to explain the reasons for

discontinuing routes of the airlines and explain and detail whether there had been

negotiations prior to discontinuing routes. The Commission invites the Austrian

authorities to provide an overview of the number of passengers and the load factor for

each month per each route offered from KLU by each airline benefitting from the

discounts since the entering into force of the discounts.

(153) The Commission invites the Austrian authorities to provide further details whether all

airline users of the Airport infrastructure have the same open and non-discriminatory

access to it and pay the same fees for the same level of services as the other users.

(154) At the current stage, the Commission comes to the preliminary conclusion that the reduced

charges paid by the airlines benefitting from the discounts would not have been offered by a

market economy investor in the same way and under the same conditions as set out in the

incentive schemes.

(155) The Commission considers at this stage that such discounts have not been justified by an

objective reason that a market economy operator could have accepted. The Commission

considers therefore that the airlines benefitting from the discounts have received a selective

economic advantage.

(156) With regard to the settlement with Austrian airlines it appears that this settlement has been

made on the assumption that there might be a legal basis for an equal treatment of

Austrian airlines with regard to the application of the incentive scheme. As the the

incentive scheme appears to constitute illegal State aid, there appears to be no economic

reasonability of the settlement according to the market economy investor principle. The

Commission invites the Austrian authorities to provide the document of the settlement

agreement and any document explaining the background of its conclusion. At this stage

the Commission therefore considers that it can be considered as an economic advantage.


(157) When aid granted by a Member State strengthens the position of an undertaking compared

with other undertakings competing in intra-EU trade, the latter must be regarded as

affected by that aid19

. In accordance with settled case law20

, for a measure to distort

competition it is sufficient that the recipient of the aid competes with other undertakings

on markets open to competition.

(158) The reduction of airport fees reduces the normal operating costs of the airlines benefitting

from such reduction. Therefore the airlines are capable of strengthening their position on

the market. Moreover, the air transport sector is characterised by intense competition

between operators from different Member States, in particular since the entry into force of

19 Case 730/79, Philip Morris [1980] ECR I-2671, para 11.

20 Case T-214/95 Het Vlaamse Gewest v Commission [1998] ECR II-717, para 46.

the third stage of liberalisation of air transport ("third package") on 1 January 199321

. It

follows that the discounted fees affect trade between Member States and distort or

threaten to distort competition in the air transport sector.

Conclusion

(159) Under these conditions the Commission takes the preliminary view that the discounted

airport charges by the airlines amount to State aid within the meaning of Article 107 (1)

TFEU.

Possible exemption from notification obligation

(160) As far as the financing provided to KFBG was irrevocable committed prior to the

Commission decision, through legally binding acts by which the Austrian authorities

undertook to grant the aid, the question arises as to whether Austria has respected the

prohibition of Article 108 (3) TFEU.

(161) The Commission Decision of 28 November 2005 on the application of Article 86 (2) of

the EC Treaty [now Article 106 (2) TFEU] to State aid in the form of public service

compensation granted to certain undertakings entrusted with the operation of services of

general economic interest (hereinafter: "2005 SGEI Decision") exempts from prior

notification State aid in the form of public service compensation to airports for which the

annual traffic does not exceed 1 million passengers or if it is granted to airport operators

with an annual turnover before tax of less than 100 million during the two financial years

preceding that in which the service of general economic interest was assigned, and which

receive annual compensation of less than EUR 30 million. In order to benefit from this

exemption, public service compensation for the operation of SGEI must also comply with

the detailed conditions which are set out in Articles 4, 5 and 6 thereof.

(162) Article 4 of the 2005 SGEI Decision requires that the SGEI be entrusted to the

undertaking concerned by way of one or more official acts, setting out, inter alia, the nature

and duration of the public service obligations, the parameters for calculating, controlling

and reviewing the compensation, and the necessary arrangements for avoiding and repaying

any overcompensation.

(163) Article 5 of the 2005 SGEI Decision lays down that the amount of compensation has to be

limited to what is necessary to cover the costs incurred in discharging the public service

obligations, taking into account the relevant receipts and a reasonable profit.

(164) Finally, Article 6 of the 2005 SGEI Decision requires Member States to carry out regular

controls to ensure that undertakings are not receiving compensation in excess of the amount

determined in accordance with Article 5.

(165) The Austrian authorities submit that the operation of the Airport should be considered as

SGEI. However, no information has been provided to the Commission to demonstrate the

21 Regulation 1008/2008

fact that the areas served by Klagenfurt airport would be insufficiently connected to the rest

of the country if left to the market forces alone. In other words, the Austrian authorities

have not demonstrated that in the absence of the aid, the catchment area of airport would be

isolated from the rest of the country to an extent that would prejudge its social and

economic development. At the current stage, the Commission observes that the catchment

area of Klagenfurt airport could be in principle served also by other airports in its

proximity.

(166) As detailed above, Klagenfurt airport is located within a distance of 71 km from Ljubljana

airport. Following its decision making practice, the Commission considers that the apparent

overabundance of airports in certain regions may hinder the development of other airports.

Therefore, the Commission considers at this stage that the operation of Klagenfurt airport

cannot be declared an SGEI, and that any act imposing an SGEI on Klagenfurt airport

appears to contain a manifest error insofar as the operation of the airport has been defined

as SGEI without an effective need to ensure a proper connection of the catchment area of

Klagenfurt airport to the rest of the country. Even in case that also Ljubljana airport would

cease its operations, the Commission notes that a number of other airports continue to

service the catchment area.

(167) Moreover, the Austrian authorities explain that no formal act of entrustment has been

made but that the same aim was ensured on the basis of corporate law without further

specifying.

(168) The Commission considers that as no formal act of entrustment has been made the

conditions of the Decision are not met. Additionally it is not clear that eligible costs are

restricted to the core activities of the Airport. Moreover the necessary parameters for

compensation seem not having been set out.

(169) At this stage the Commission takes the preliminary view that the criteria laid down by the

2005 SGEI Decision are not complied with in the present case. Consequently, the

Commission considers at this stage that the operating subsidies paid yearly to the airport

were not exempted from the notification requirement, and therefore granted in violation of

Article 108 (3) TFEU.

(170) Furthermore, the Commission draws the attention of the Austrian authorities to the fact

that pursuant to Article (2) (e) of the Commission Decision 20 December 2011on the

application of Article 106(2) of the Treaty on the Functioning of the European Union to

State aid in the form of public service compensation granted to certain undertakings

entrusted with the operation of services of general economic interest (hereafter: "2012

SGEI decision"), airports are only exempted from notification if they have less than 200

000 passengers . Pursuant to Article 10 (a) of the 2012 SGEI decision, any aid scheme put

into effect before the entry into force of this Decision that was compatible with the internal

market and exempted from the notification requirement in accordance with Decision

2005/842/EC shall continue to be compatible with the internal market and exempt from the

notification requirement for a further period of two years as of the entry into force of the

2012 SGEI decision.

(171) Therefore, as of 31 January 2014, even if Klagenfurt airport was exempt from notification

under the 2005 SGEI decision, it would no longer be exempted from notification, except if

its passenger number was below 200 000.

7.3. The aid nature of the 2002 agreements with Ryanair and its subsidiary Leading

Verge.Com Ltd.


(172) The same reasoning as for the incentive scheme introduced by KFBG applies for the

Cooperation agreement between Ryanair and KFBG. The Marketing Agreement between

DMG a 100% subsidiary of KFBG and Leading Verge.Com Ltd a 100% subsidiary of

Ryanair was already foreseen in the Cooperation agreement, therefore the same reasoning

also applies for that contract. The cooperation with Ryanair was dealt with on the political

level of the Carinthian State Government as press reports show22

.

Notion of Undertaking and Economic Activity

(173) Ryanair is an undertaking in the sense of EU competition law.

Economic Advantage

(174) In order to verify whether Ryanair has benefited from an economic advantage induced by

concluding the agreements with KFBG and its subsidiary DMG, the Commission applies the

criterion of the “market economy investor principle”.

(175) According to the principles established in the case law the Commission has to compare

the conduct of KFBG and its subsidiary DMG to a market economy operator guided by

prospects of profitability.23

In accordance with settled case-law, it is necessary to assess

whether, in similar circumstances, a private airport operator would have entered into same

or similar commercial arrangements as KFBG, having regard in particular to the information

available and foreseeable developments at the date of those contributions.24

(176) The assessment should leave aside any positive repercussions on the economy of the

region in which the airport is located, since the Commission assesses whether the given

measure constitutes aid by considering whether "in similar circumstances a private

shareholder, having regard to the foreseeability of obtaining a return and leaving aside all

social, regional-policy and sectorial considerations, would have subscribed the capital in

question"25

(177) In order to be able to apply the private investor test the Commission has to place itself at the

time the agreements were signed. KFBG and DMG signed the agreements on 22 January

2002. The Commission must also base its assessment on the information and assumptions

which were at the disposal of KFBG when the Contract was signed.

22 http://www.ots.at/presseaussendung/OTS_20020628_OTS0005/lh-haider-britische-gaeste-sollen-verstaerkt-kaerntenurlaub-machen

23 Case C-305/89 Italy v Commission ("Alfa Romeo"), [1991] ECR I-1603, paragraph 20, Case T-296/97 Alitalia v Commission [2000] ECR II-3871, paragraph 84.

24 Ibidem, paragraph 70, see also Case C-261/89 Italy v Commission [1991] ECR I-4437, paragraph 8; Case C-42/93 Spain v Commission [1994] ECR I-4175, paragraph 13.

25 See 2005 Guidelines, paragraph 46.

(178) The Austrian authorities have provided the Commission with a cost-benefit analysis of the

cooperation with Ryanair from 2002 to 2005 taking into account the refunded turnaround

fees and the marketing fees. This analysis comes to the conclusion that the cooperation with

Ryanair was profitable. However, the Commission notes that it remains unclear which costs

were taken into account and why the cost factor depending on the number of passengers

was set at EUR […] and the cost factor depending on the number of flights was set at EUR

[…].

(179) The Commission therefore invites the Austrian authorities to explain whether the cost-

benefit analyse was made at the time of the decision and on what basis the decision to

conclude these agreements was made at that time and to explain which costs have been

taken into account in particular if the Airport has calculated with full costs or with

incremental costs.

(180) In the view of the above, the Commission considers at this stage that the agreements with

Ryanair were not concluded under normal market conditions as they do not cover full costs.

Therefore, it takes the preliminary view that Ryanair has received an economic advantage.

Selectivity

(181) Article 107 (1) TFEU requires that a measure, in order to be defined as State aid, favours

"certain undertakings or the production of certain goods". In the case at issue, the

Commission notes that the agreements concerns Ryanair only. Thus it is selective within

the meaning of Article 107 (1) TFEU.


(182) The same reasoning as for the incentive scheme applies.

Conclusion

(183) Under these conditions the Commission takes the preliminary view that the agreements

amount to State aid within the meaning of Article 107 (1) TFEU.

7.4. The aid nature of the 2006 agreements with Ryanair and its subsidiary Airport

Marketing Services (Jersey) Ltd.

(184) For the 2006 agreements essentially the same reasoning as for the 2002 agreements

applies with the difference that in 2006 already the incentive scheme applied. Also the

Marketing Services Agreement is concluded with another subsidiary of Ryanair, AMS, and

the content is different: While the previous marketing services consisted also and mainly in

the flight connections of Ryanair between KLU and STN, the obligation in the new

Marketing Services Agreement is purely advertisement related and consists in link on

Ryanair's website to a Corinthian tourism website and advertising e-mails from Ryanair.

(185) The Austrian authorities have not provided any documentation on the basis of which the

Commission could assess whether the market economy investor principle is fulfilled or not.

From the circumstances it appears that the Marketing Services Agreement is a mere vehicle

to grant further discounts onto the airport charges rather than to provide a contractual basis

for marketing activities: The Marketing Services Agreement was concluded "for an initial

term starting on the date of its signature for […]-a-week services operated from 19

December 2006 until […]" and according to the Oxera study the per passenger fees for

Ryanair would have been […] times higher in 2006/7 than in 2004/526

.

(186) Additionally, the Commission has serious doubts whether a market investor airport would

have commissioned marketing activities for the same price,, in particular as this marketing

also benefits to its provider Ryanair by attracting passengers to new destinations serviced

by Ryanair and not only to Carinthia. The Commission invites the Austrian authorities and

other interested parties to provide information on this question.



7.5. The aid nature of the financial contributions to TUIfly and Air Berlin

(188) Funds for marketing activities of the airlines came from the State of Carinthia, the City of

Klagenfurt and KFBG. The funds were transferred to KFBG. The funds were then used by

KFBG's subsidiary DMG for marketing arrangements with the airlines.

(189) From the limited information received from the Austrian authorities and from publicly

available information it appears that also Air Berlin and Hapag Lloyd/TUIfly have received

payments under marketing agreements. The Commission has doubts that these agreements

are anything else than further rebates on the airport charges. Therefore the same reasoning

as above applies.

(190) The Commission therefore invites Austria to provide documentation on the contracts

concluded with airlines which provide for payments of State owned entities to airlines

using KLU or granting them further rebates than foreseen in the incentive scheme. The

Commission further invites the Austrian authorities with any business plans, cost-benefit

analyses etc. available at the time those contracts were concluded as to give the

Commission the possibility to assess whether these contract are in line with the market

economy investor principle.



8. ASSESSMENT OF THE COMPATIBILITY OF THE AID

(192) The Commission must assess if the aid identified above can be found compatible with the

internal market. According to the case-law of the Court, it is up to the Member State to

invoke possible grounds of compatibility, and to demonstrate that the conditions for such

compatibility are met27

. To the extent that the aid is to be qualified as operating aid, the

Commission recalls that according to the case-law, such operating aid cannot be held to be

26 Oxera study on Klagenfurt Airport, table 2.4

27 C-364/90, Italy/Commission, point 20

compatible with the common market pursuant to Article 107 (3) (c) TFEU, inasmuch as, by

its very nature, it distorts competition in the sectors in which it is granted and is liable to

affect trading conditions to an extent contrary to the common interest, whilst nevertheless

being incapable of achieving any of the objectives of the exceptions laid down by that

provision.28

(193) Certain exemptions to the general rule of incompatibility set out in Article 107(1) TFEU

are provided in Article 107(3) TFEU, which stipulates that: "aid to facilitate the

development of certain economic activities or of certain economic areas, where such aid

does not adversely affect trading conditions to an extent contrary to the common interest",

may be considered to be compatible with the internal market.

8.1. The compatibility of the financing of KFBG

(194) The Austrian authorities argue that the capital injections are to cover the losses of the

Airport which are caused by investments in the airport infrastructure and for marketing

efforts to keep the Airport on the market.

(195) The Commission invites the Austrian authorities to clarify if also the contributions from

the Federal Ministries were used for that purpose and how the numbers provided (table 5

second part) correspond with those in the balance sheet.

Compatibility as compensation for a SGEI

(196) The Austrian authorities contend that the operation of the Airport constitutes a Service of

General Economic Interest. In this regard, the 2005 Airport Guidelines specify that certain

activities carried out by airports can constitute SGEI. In such a case, the public authority

imposes on the airport operator certain public service obligations and the latter may be

compensated for the additional costs deriving from their discharge. The 2005 Airport

Guidelines however specify that the overall management of an airport may only in

exceptional cases be considered a service of general economic interest. Such exceptional

circumstances would in particular relate to the isolation of the area concerned.29

It is also

specified that certain activities not clearly linked to the airports' basic activities cannot be

considered as public mission and consequently cannot be subsidised. On the basis of the

information available it seems that the costs of all the activities of Klagenfurt airport have

been subsidised. No specific provision to restrict eligible costs to the core activities of the

airports has been made as there is no formal act of entrustment. Already for this reason,

the Commission has at this stage doubts whether the operating aid can be declared

compatible as compensation for an SGEI.

(197) Furthermore, in accordance with point 63 of the 2005 Airport Guidelines, operating aid

may be declared compatible with the internal market on the basis of Article 106,

28Case T-459/93, Siemens v Commission [1995] ECR II-01675, paragraph 48.

29 See paragraph 34 of the 2005 Airport Guidelines.

paragraph 2, TFEU if they meet certain conditions which will ensure they are necessary to

operating a service of general economic interest and do not affect the development of

trade to an extent contrary to the interests of the EU. These conditions are laid down in

points 64 to 68 of the 2005 Guidelines. They are similar to those contained in the 2005

SGEI decision. For the reasons set out above, the Commission takes the preliminary view

that they are not met.

(198) The Commission draws the attention of the Austrian authorities and of interested third

parties to the fact that since 31 January 2012, the rules contained in points 63 to 68 of the

2005 Guidelines have been complemented by the 2012 SGEI Framework30

. Point 69 of

the 2012 SGEI Framework stipulates that these principles apply to all unlawful aid on

which the Commission takes a decision after the 31 January 2012, even if the aid was

granted before that date. Certain provisions do, however, not apply. The Austrian

authorities have not yet been able to take a view on these provisions, as they only entered

into force on 31 January 2012. The Commission therefore invites them to do so.

(199) The Commission furthermore draws the attention of the Austrian authorities and of

interested third parties to the fact that if the payments were exempt from notification on the

basis of the 2005 SGEI decision, but no longer so under the 2012 SGEI decision31

, they

shall remain compatible with the internal market and exempt from the notification

requirement for a further period of 2 years, i.e. until 31 January 2014 at the latest (2 years

since the entry into force of the 2012 SGEI Decision). For the period as of 31 January 2014,

in case the payments were not exempt from the notification obligation under the 2012

Decision, the compatibility of the compensation would have to be assessed on the basis of

points 64 to 68 of the 2005 Airport Guidelines and of the 2012 SGEI Framework. In that

case, the operating aid would be considered to be new aid as of 31 January 2014, and

therefore all provisions of the 2012 SGEI Framework would apply.

Compatibility on the basis of the 2005 Aviation Guidelines

(200) For the period before the 2005 Guidelines entered into force, i.e. the years 2000-2005 , the

Commission applies directly Article 107 (3)(c) TFEU for the compatibility of the measure

taking into account, in particular, of its past practice in this area. In this regard, the

Commission notes that on 19 January 2005 it adopted a decision relating to a framework

scheme for the construction and development of regional airports32

, in which it concluded

that the development and improvement of regional airports could give rise to issues of

State aid concern but that under certain conditions this could be declared compatible with

the Treaty. The 2005 guidelines take in these conditions and consolidate the practice of

the Commission in this regard. For this reason the Commission will make reference to the

2005 guidelines only as regards these two periods of time.

30 Communication from the Commission, European Union framework for State aid in the form of public service compensation, OJ C 8, 11.01.2012, p. 23-27.

31 Commission Decision of 20 December on the application of Article 106(2) of the Treaty on the Functioning of the European Union to State aid in the form of public service

compensation granted to certain undertakings entrusted with the operation of services of general economic interest, Official Journal L7, 11.01.2012, p. 3-10

32 State aid N644i/2002 Germany

(201) The 2005 Guidelines provide a framework for assessing whether infrastructure aid to

airport operators may be declared compatible pursuant to Article 107 (3) of the TFEU.

(202) The Austrian authorities have argued that the capital injections are partly aimed at the

financing of infrastructure investments. The Commission notes that the capital injections

are not specified and it is unclear to what extend they finance infrastructure investment, the

operation of the Airport or marketing activities. They simply seem to cover all losses

independently of their cause. Additionally it is excluded that such a mechanism triggers any

incentive effect with regard to an investment. The Austrian authorities also seem not to

expect that the airport will ever break-even but will need continuous operating aid from the

State. Moreover the operation seems to interfere with Ljubljana Airport which is only 71

km away. Consequently the Commission has doubts whether the criteria laid down in the

2005 Aviation Guidelines are complied with in the present case.

Compatibility on the basis of the Rescue and Restructuring Guidelines

(203) The annual contributions, which were paid to KFBG for the operation of the Airport,

might constitute rescue and/or restructuring aid.

(204) According to Section 2.2. of the Community Guidelines on State aid for rescuing and

restructuring firms in difficulty (hereinafter the Rescue and Restructuring Guidelines)33

rescue aid is by nature a temporary and reversible assistance. Its primary objective is to

make it possible to keep an ailing firm afloat for the time needed to work out a restructuring

or liquidation plan. Once a restructuring or liquidation plan for which aid has been

requested has been established and is being implemented, all further aid will be considered

as restructuring aid.

(205) In order to become an eligible beneficiary of aid under the Rescue and Restructuring

Guidelines a company must qualify as a firm in difficulty within the meaning of these

Guidelines34

. Under the Rescue and Restructuring Guidelines, the Commission regards a

firm as being in difficulty where it is unable, whether through its own resources or with the

funds it is able to obtain from its owner/shareholders or creditors, to stem losses which,

without outside intervention by the public authorities, will almost certainly condemn it to

going out of business in the short or medium term.

(206) According to the current information it seems probable that KFBG could be considered as

a firm in difficulty. According to the Austrian authorities KFBG was at loss-making since

2002.

(207) The Commission therefore invites the Austrian authorities to clarify this aspect and to

explain whether measures were taken according to the Rescue and Restructuring

Guidelines.

Conclusion

33 OJ C 244 of 1.10.2004, p. 2.

34 Points 9 to 13 Rescue and Restructuring Guidelines.

(208) At this stage the Commission takes a preliminary view that annual subsidies granted to

KFBG represent aid, reducing the airport operator's current expenditure. At this stage the

Commission has doubts on the compatibility of the aid.

8.2. The compatibility of the incentive scheme introduced in 2005 and its retroactive

application for Austrian Airlines and the agreements with Ryanair of 2002 and

2006 and financial contributions to TUIfly and Air Berlin

(209) In relation to the financing by the public authorities of the incentive scheme introduced in

2005, the 2006 agreements with Ryanair and the financial contributions to TUIfly and Air

Berlin the Commission must have regard to the 2005 Aviation Guidelines. For the

retroactive application of the incentive scheme for Austrian Airlines and for the agreements

with Ryanair of 2002 the Commission must directly apply the TFEU as these measures

were introduced before the 2005 Guidelines entered into force on 9.12.2005, and these

guidelines stipulate in their recital 85 that unlawful aid that started to be paid before that

date will be assessed on the basis of the rules applicable when the aid started to be paid.

(210) On the basis of Article 107(3)(c), the Commission can declare compatible aid granted to

air carriers with a valid operating licence issued by a Member State for new air routes

linking a regional airport in category C or D (or exceptionally category B) to another EU

airport when the route will ultimately be viable, if the amount of aid is strictly linked to the

additional start-up costs, is digressive and granted for a limited time and linked to the net

development of the number of passengers transported, non-discriminatory and transparent,

and provided the aid measure provides for a sanction mechanism in the event that the

carrier does not respect the commitments entered into.

(211) It therefore only follows the constant practice of the Commission that aid can be declared

compatible with the common market if:

it contributes to an objective of common interest, this is to say it finances new routes

connecting a regional airport of category C or D, or exceptionally B, with another EU

airport, when the route will ultimately be viable,

the amount of aid is necessary and proportional to the additional costs of launching the

route and has an incentive effect;

it is granted in a transparent and non-discriminatory manner

it provides for sanctions for non-implementation

it does not distort competition to an extent contrary to the common interest.

(212) With regard to the retroactive application of the incentive scheme on Austrian Airlines it

does not appear that a new route or another objective of common interest is financed. The

Commission also doubts that routes established by Ryanair from Klagenfurt could be

considered as viable as services have been interrupted in 2005.

(213) Start-up aid has to be limited in time, proportional to the goal to be achieved and

digressive in order to meet its objective, that is to persuade air carriers to set up new routes

from regional airports which will become economically viable in the medium-term, and

provide an incentive effect, that is to encourage air lines to establish links and increase their

efficiency. Neither the payments to Austrian Airlines nor those to Ryanair were digressive.

(214) The Commission furthermore considers that the Austrian authorities have not shown that

the intensity of the aid is necessary for making the new routes economically viable. Hence

the Commission has at this stage doubts as to the necessity and proportionality of the aid.

(215) With respect to the incentive effect, the Commission considers that due to the absence of a

digression of the aid, there is unlikely an incentive effect.

(216) The aid has to be granted in a transparent and non-discriminatory manner. The retroactive

application of the incentive scheme exclusively for Austrian Airlines appears to be

discriminatory. At this stage the Commission therefore has doubts as to whether this

criterion is met.

(217) The Commission also notes that there appear to be no sanctions foreseen in case of non-

implementation, so that it has doubts whether this criterion is met.

(218) Distortion of competition contrary to common interest: The Commission notes that the aid

might have negative effects on other airlines, which might have operated from Klagenfurt

airport and which were offered different fees.

(219) In view of these elements, the Commission has doubts as to whether the aid to Austrian

Airlines and Ryanair can be declared compatible with the common market.

(220) The Austrian authorities so far did not show that the aid fulfilled the requirements in order

to be compatible. According to the case-law of the Court, it is up to the Member State to

invoke possible grounds of compatibility, and to demonstrate that the conditions for such

compatibility are met.

(221) For the period after entering into force of the 2005 Guidelines, the Commission examines

the compatibility of the aid as a possible start-up aid under the 2005 Guidelines.

(222) The 2005 Guidelines take into account that small airports often have not the critical mass

of passengers to reach a break-even point and that as a consequence "airlines are not

always prepared, without appropriate incentives, to run the risk of opening routes from

unknown and untested airports", explains paragraph 74 of the 2005 Guidelines. For this

reason the Commission accepts that under a set number of conditions public aid can be

granted to create an incentive for "new routes or new schedules from regional airports and

to attract the passenger numbers which will enable them to break even within a limited

period".

(223) The Guidelines set out a number of conditions to be complied with in order for start-up

aid to be found compatible with the internal market under Article 107 (3) (c) TFEU. The

Commission invites the Austrian authorities to submit all the information necessary to

enable it to assess whether the measures in question can be considered as compatible with

the Guidelines. According to point 79 of the Guidelines:

(224) (a) …"the aid is paid to air carriers with a valid operating licence issued by a Member

State pursuant to Council Regulation (EEC) No 2407/9235

on licensing of air carriers".

(225) The Austrian authorities are invited to declare whether all air carriers receiving aid and

using the Airport have a valid operating licence.

(226) (b) "… the aid is paid for routes linking a regional airport in category C or D to another

EU airport."

(227) KLU is category D airport (“small regional airport”), with an annual passenger volume of

less than 1 million.

(228) (c) "… aid will apply only to the opening of new routes or new schedules, (as defined in

the 2005 Guidelines), which will lead to an increase in the net volume of passengers. This

aid must not encourage traffic simply to be transferred from one airline or company to

another. In particular, it must not lead to a relocation of traffic which is unjustified with

regard to the frequency and viability of existing services leaving from another airport in the

same city, the same conurbation or the same airport system, which serve the same or a

similar destination under the same criteria".

(229) With regard to the incentive scheme the passenger incentive is granted neither for new

routes nor for new schedules.

(230) With regard to the 2006 agreements with Ryanair and other airlines this criteria also does

not appear to be met. The Commission invites the Austrian authorities to provide the

relevant information.

(231) (d) "… the route receiving the aid must ultimately prove profitable, i.e. it must at least

cover its costs, without public funding. For this reason start-up aid must be digressive and

of limited duration.

(232) With regard to the incentive scheme this condition is not met for the passenger incentive.

In addition, as the incentive scheme is permanent, the profitability of the routes is not

ensured.

(233) With regard to the 2006 agreements with Ryanair and with other airlines it seems that this

condition is not met. The Commission invites the Austrian authorities to provide the

relevant information.

(234) (e) "…the amount of aid must be strictly linked to the additional start-up costs incurred

in launching the new route or frequency and which the air operator will not have to bear

once it is up and running".

(235) With regard to the incentive scheme this condition is not met for the passenger incentive,

as it is a permanent incentive. For the other two incentives it is not clear which costs are

covered by the aid. The Commission invites the Austrian authorities to provide the relevant

information.

35 Council Regulation (EEC) No 2407/92 of 23 July 1992 on licensing of air carriers (OJ L 240, 24.8.1992, p.8)

(236) With regard to the 2006 agreements with Ryanair and other airlines it appears that there is

no link to the start-up costs. The Commission invites the Austrian authorities to explain

which costs are covered by the aid.

(237) In view of the above, the Commission has doubts whether this condition has been

complied with.

(238) (f) "…digressive aid may be granted for a maximum period of three years. The amount of

aid in any one year may not exceed 50% of total eligible costs for that year and total aid

may not exceed an average of 30% of eligible costs.”

(239) With regard to the incentive scheme it is unclear which costs are covered by the charges.

In any event the passenger incentive is unlimited in time. The Commission invites the

Austrian authorities to provide the relevant information.

(240) With regard to the agreements with Ryanair and other airlines it appears that these are not

limited in time but extended without any restriction. It is also unclear which costs are

covered. The Commission invites the Austrian authorities to provide the relevant

information.

(241) The Commission as therefore doubts, whether this condition is complied with.

(242) (f), 3rd paragraph "In any event, the period during which start-up aid is granted to an

airline must be substantially less than the period during which the airline undertakes to

operate from the airport in question". Furthermore, the aid should be stopped once the

objectives in terms of passengers have been reached or when the line breaks even, even if

this is achieved before the end of the period initially foreseen".

(243) It appears that this criterion is not met by any of the aid granted to the airlines.

(244) (g) "…aid payments must be linked to the net development of the number of passengers

transported".

(245) It appears that this condition is only met by the passenger incentive.

(246) (h) "… any public body which plans to grant start-up aid to an airline for a new route,

whether or not via an airport, must make its plans public in good time and with adequate

publicity to enable all interested airlines to offer their services. The notification must in

particular include the description of the route as well as the objective criteria in terms of

the amount and the duration of the aid".

(247) With regard to the incentive scheme it appears to fulfil the requirement of publicity except

for the passenger incentive where only the maximum amount of aid is indicated. The

agreements with the airlines seem not having been published at all in advance.

(248) (i) "… when submitting its application, any airline which proposes a service to a public

body offering to grant start-up aid must provide a business plan showing, over a

substantial period, the viability of the route after the aid has expired. The public body

should also carry out an analysis of the impact of the new route on competing routes prior

to granting start-up aid."

(249) The Commission has doubts whether a business plan has been submitted to KFBG in any

of the cases and that KFBG has carried out the impact analysis.

(250) (j)"States must ensure that the list of routes receiving aid is published annually for each

airport, in each instance indicating the source of public funding, the recipient company, the

amount of aid paid and the number of passengers concerned".

(251) At the current stage, the Commission has no information whether KFBG publishes a

report listing all supported routes and indicating the origin of the government contribution,

the beneficiary, the amount of the aid and the number of passengers for each route.

(252) Therefore, the Commission has doubts whether this conditions is complied with.

(253) (k) "…where applicable, appeal procedures must be provided for at Member State level to

ensure that there is no discrimination in the granting of aid".

(254) At the current stage, the Commission has doubts whether the Austrian authorities have

provided for appeal procedures to deal with possible complaints. Therefore, the

Commission has doubts whether this condition is complied with.

(255) (l) "… penalty mechanisms must be implemented in the event that a carrier fails to keep to

the undertakings that it gave in relation to an airport when the aid was paid."

(256) At the current stage, the Commission has no information whether KFBG has implemented

penalty mechanisms. Therefore, the Commission has doubts whether this condition is

complied with.

(257) In addition, Point 80 of the 2005 Guidelines provides that "start-up aid cannot be

combined with other types of aid granted for the operation of a route, such as aid of a

social nature granted to certain categories of passengers and compensation for

discharging public services. In addition, such aid cannot be granted when access to a route

has been reserved for a single carrier under Article 4 of Regulation (EEC) No 2408/92, and

in particular paragraph 1(d) of that Article. Also, in accordance with the rules of

proportionality, such aid cannot be combined with other aid granted to cover the same

costs, including aid paid in another State."

(258) At the current stage the Commission has no information whether the aid can be combined

with other types of aid. Therefore, the Commission has doubts, whether this condition has

been complied with.

(259) In the view of the above, the Commission considers at this stage that not all conditions for

compatibility as set out in the 2005 Guidelines have been satisfied in the present case.

(260) Accordingly, the Commission has doubts whether the incentives and the funding granted

under the incentive scheme and the agreements with the airlines can be considered

compatible with the internal market pursuant to Article 107 (3) (c) TFEU.

(261) These measures do not appear to quantify for any other exception provided for by the

Treaty. Therefore, at the current stage the Commission cannot exclude that the incentive

scheme and the agreements with Ryanair and the other airlines involve illegal and

incompatible State aid.

9. DECISION

In the light of the foregoing considerations, the Commission, acting under the procedure laid

down in Article 108(2) of the Treaty on the Functioning of the European Union, requests Austria

to submit its comments and to provide all such information as may help to assess the aid/measure,

within one month of the date of receipt of this letter. Austria will submit a non-confidential

version of its comments and relevant information to the Commission.

The Commission requests your authorities to forward a copy of this letter to the potential

recipient of the aid immediately. In this context, Austria will ensure that information relating to

other companies, and covered by the obligation of professional secrecy within the meaning of the

Commission notice C(2003) 4582 of 1 December 2003 on the obligation of professional secrecy

in decisions on state aid, is not divulged to the companies concerned.

The Commission wishes to remind the United Kingdom of Great Britain and Northern Ireland

that Article 108 (3) of the EC Treaty has suspensory effect and would draw your attention to

Article 14 of Council Regulation (EC) No 659/1999, which provides that all unlawful aid may be

recovered from the recipient.

The Commission warns Austria that it will inform interested parties by publishing this letter and a

meaningful summary of it in the Official Journal of the European Union. It will also inform

interested parties in the EFTA countries which are signatories to the EEA Agreement,

by publication of a notice in the EEA Supplement to the Official Journal of the European Union

and will inform the EFTA Surveillance Authority by sending a copy of this letter. All such

interested parties will be invited to submit their comments within one month of the date of such

publication. Interested parties are also asked to submit a non-confidential version of their

comments.

If this letter contains confidential information which should not be published, please inform the

Commission within twenty working days of the date of receipt. In this context and in an effort to

establish a non-confidential version, Austria is invited to consult the companies listed in this

decision in order to ensure that the latter does not contain any information covered by the

obligation of professional secrecy within the meaning of the abovementioned notice. If the

Commission does not receive a reasoned request by that deadline, Austria will be deemed to

agree to publication of the full text of this letter. This request and the aforementioned information

requested by the Commission should be sent by registered letter or fax to the following address:

European Commission,

Directorate-General Competition

State Aid Greffe

B-1049 Bruxelles

Fax: +32 2 296 12 42

[email protected]

Yours faithfully,

For the Commission

Joaquín Almunia

Vice-President

mailto:[email protected]

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