Ryanair wins State aid battle before the European Court of First Instance against the Commission’s Charleroi Airport decision – The Market Economy Investor Principle
The European Court of First Instance (CFI) recently annulled the Commission’s decision 2004/393/EC with regard to alleged advantages, granted by the Walloon Region and the Brussels South Charleroi airport, to the low cost airline Ryanair in connection with its establishment at that airport. The Commission did not properly apply the Market Economy Investor Principle (MEIP).
The background to the case dates back a few years, when the European Commission received complaints regarding aid granted to Ryanair in the context of its negotiations and agreements for the establishment of its first continental base at Charleroi.
The Commission’s formal investigation concerned two agreements. According to an agreement with the Walloon Region, Ryanair received a reduction of 50% on landing charges when compared to the regulatory level. It was also agreed that Ryanair would be compensated for loss of profit arising from any subsequent change in airport charges. According to another agreement with Charleroi airport, Ryanair would base between two and four aircraft at the airport and operate, over a period of 15 years, at least three rotations per day per aircraft. The airport undertook to invoice Ryanair an amount that was substantially less per passenger than the usual amount collected from other users for the provision of ground handling services.
The Commission’s decision
The Commission concluded that these agreements entailed incompatible State aid in favour of Ryanair and ordered recovery by the Belgian State. In its analysis the Commission considered the MEIP ie, the extent to which Ryanair would have been able to obtain the same deal from a private operator operating under the same conditions, in respect of both the Walloon Region and the airport.
The Commission rejected the application of the MEIP as regards the Walloon Region’s role in the first agreement and concluded that an advantage was conferred on Ryanair. It held that the fixing of landing charges did not constitute an economic activity to be assessed by reference to the MEIP principle. According to the Commission, the Region was acting in its capacity as a public authority and, therefore, such behaviour could not be compared to that of a private operator under normal market conditions. As regards the airport, the Commission held that it had not acted in accordance with the MEIP.
The Appeal and the CFI’s reasoning
Ryanair lodged an appeal before the CFI against the decision requesting its annulment, essentially disputing that an advantage was conferred on Ryanair. Ryanair challenged, inter alia, the classification of the various measures as State aid. Ryanair essentially relied on the Commission’s failure to correctly apply the MEIP as regards the airport and on its total failure to apply it to the measures, taken as a whole, adopted by the Walloon Region. Ryanair argued that the two entities, namely the Walloon Region and the airport, should have been regarded as a single entity acting in accordance with the MEIP and the arrangements with the two bodies should not have been examined separately.
The application of the MEIP test
The CFI in considering the “single entity” argument concluded that the Walloon Region is the owner of the airport infrastructure, and the airport, as a public undertaking controlled and influenced by the Region, is economically dependent on the latter. The Court also held that financial links existed between the two. Therefore, for the purposes of determining the application of the MEIP they constitute a single entity.
The CFI went on to further consider whether, provided this was the case, the Commission had correctly refused to apply the MEIP to those measures that were adopted by the Region on the basis of its role as a regulatory authority. It confirmed that the application of the principle is excluded if the State acts as a public authority.
To this effect the CFI investigated whether the measures adopted by the Region constituted an economic activity or not. Accordingly, it held that both the fixing of the landing charges and the accompanying indemnity were activities directly connected with the management of the airport infrastructure and constitute an economic activity, by reason of their nature, purpose and the rules to which they are subject. The airport charges fixed by the Walloon Region are a consideration for services rendered by the airport.
The fact, therefore, that such activities are carried out in the public sector is not sufficient reason to categorise them as an exercise of a public authority power. In addition, even if the Walloon Region has regulatory powers when fixing the airport charges, this does not imply that measures reducing charges should not be examined by reference to the MEIP, since private operators could have undertaken these measures also.
Accordingly, the Commission ought to have applied the MEIP and to have examined together the advantages granted by the Region and by the airport due to the economic links between the two.
The CFI judgement is important for all airlines and airports in providing guidance as regards the various relationships between the State, the airports and airlines and in clarifying what activities constitute economic activities. It confirms that the mere fact that an activity is carried out in the public sector does not mean that it relates to public authority power. The Court concludes that the fixing of landing charges and the accompanying indemnity is directly connected to the management of airport infrastructure and is a consideration for services rendered at the airport. Finally, relying on an analysis of the economic links between two entities, these may be considered as one and the same for the purposes of determining whether together they have acted as rational operators in a market economy.
The MEIP, based on the behaviour of a private investor, is often used as a yardstick in determining aid and in particular in holding whether a measure confers an economic advantage or not on undertakings, which they would not have obtained under normal market conditions. The Ryanair judgment confirms the importance of the MEIP.
The judgement is an excellent example of the correct application of the MEIP and will have a wider application in future State aid cases, in particular when relying on this principle to prove the existence or absence of an economic advantage. It confirms that it is necessary, for the proper application of the MEIP test, to examine the commercial transactions as a whole to determine whether the public entities and those that control it, taken together, have acted as a rational operator in the market economy. This is important news for State authorities who are relying on the MEIP to stimulate the economy, often in new and innovative ways.
Finally this latest Court decision may have significant implications on other pending Commission cases regarding State aid in small airports and the way the Commission will, in the future, undertake its State aid analysis in the context of analysing aid to airlines.