This short note deals with recent developments in State Aid law as it relates to infrastructure since a ground-breaking case last December, and to new developments in respect of airports in particular.

It will be recalled that the rules on State Aid in the Treaty for European Union (TFEU) are engaged where there is a transfer of state resources (grants, guarantees, loans, tax relief – the form is irrelevant) to the benefit of commercial activity1.Where the rules are breached, the aid will be repayable (with interest) by the recipient (which may not of course be at fault).

In the context of infrastructure construction generally, the dust is still settling after the judgment of the Court of Justice of the European Union in December 2012 in the Leipzig-Halle Airport case2. For the first time it was held that the public support of construction of infrastructure with a view to its subsequent (partial or complete) commercial use is an ‘economic activity’ and prima facie State Aid to the operator requiring exemption or approval. The principles apply, as the EU Commission has confirmed, to public support for any form of infrastructure ultimately put to any commercial use (hospital facilities, rail infrastructure or certain sports and leisure facilities for instance).

The case has led to new DCLG Guidance, and a relatively cautious approach over the past year (for example by way of precautionary and early EU notification for clearance) by both public and commercial bodies in respect of infrastructure projects of various kinds. The dynamic is obvious: if there is any doubt, companies want certainty regarding financing and in the realm of EU decision-making a promise from the UK Government department or other public body is insufficient (even a state guarantee would be void as vitiating the effectiveness of the EU State Aid rules).

It is beyond the scope of this short note to treat every sector affected: the State Aid rules are subject to exemptions of various kinds, from broadly framed rules on regional aid at specified percentages, to bespoke rules for certain activities (such as R&D or certain key transport projects). In many cases aid at the level proposed may benefit from automatic exemption. There also remains the scope for notification seeking approval in respect of current or future projects, and it is sometimes readily apparent that a proposal will not raise any concerns if properly notified to the Commission.

On the other hand, there has been a recent and increasing focus on State Aid to airports deserving of particular comment. As the Commission describes the industry developments since the year 2000:

“Traditionally, air transport has been a highly regulated industry, dominated by national flag carriers and state-owned airports. The liberalisation of air transport in the EU has removed commercial restrictions for airlines flying within the EU, such as restrictions on routes, the number of flights or fares. This has resulted in unprecedented industrial expansion and contributed to economic growth and job creation. It has also led to a differentiation in the business models of airlines and airports”

It is in this context that the Commission’s stance can be seen to be hardening, to prevent distortions of competition in the newly liberalised market. It is more than happenstance that Leipzig-Halle concerned State Aid by way of a state guarantee for new airport infrastructure. The focus on the aviation sector is further apparent from both the fact that it has some 60 open investigations into aid to airports and airlines throughout the EU, and that it has developed new (relatively stricter) Guidance relating to airport funding, to be released for the new year after consultation throughout the summer this year.

Under the Guidelines, airports handling more than 5 million passengers a year will not be allowed to receive any public aid to support infrastructure investments, while for smaller facilities new limits on funding will be imposed so that State Aid for airports with fewer than 1 million passengers a year cannot exceed 75% of ‘eligible costs’ and not more than 25% for airports with 3-5 million passengers annually. As regards ‘operating aid’, this will be permitted in certain circumstances for a limited transitional period (specific to the situation of each airport).

These levels of aid are lower than those set out in the 2005 Guidance, though these are effectively ‘benchmarks’: notified aid at higher levels may be approved by the Commission if there is a specific need (for example, regional transport needs).

Finally, the Commission aims to increase clarity by taking decisions in respect of its numerous ongoing investigations. It is to be hoped that to the extent not included  in the Guidance such decisions will clarify, amongst other issues: the assessment of the (partial) use of military aerodromes for civilian passenger use (an increasing phenomenon across the EU and an announced part of UK strategy) and the types of ‘discrimination’ between airlines that are legitimate, it already being recognised that absolute parity is not necessary, but differences need to be justified.