At the end of 2008, Ryanair’s long-running battle with the European Commission about its operation at Charleroi Airport near Brussels took a new turn. In its judgment of 17 December 2008, the European Court of First Instance annulled the Commission’s Decision of 12 February 2004 in which it held, that the aid which Ryanair had received, in return for the establishment of its operations from Charleroi Airport, was incompatible with the common market.
Ryanair began operations from Charleroi Airport in 1997 and three years later it sought to establish its first continental base there. For that purpose, it entered into negotiations with the Walloon Region (the owner of the airport) and with Brussels South Charleroi Airport (‘BSCA’), a public sector company which manages and operates the airport. BSCA is controlled by the Walloon Region.
These negotiations led to two agreements, which were concluded in November 2001.
First, an agreement under which the Walloon Region undertook to grant Ryanair:
- a reduction in landing charges of around 50% compared to the normal regulatory level; and
- an indemnity in respect of any losses that Ryanair might suffer following any change in the level of airport charges or the opening hours of the airport.
Second, an agreement with BSCA, in which Ryanair undertook to base a certain number of aircraft at Charleroi Airport and to operate, over a period of fifteen years, at least three rotations per day per aircraft. In return, BSCA undertook to contribute to the costs incurred by Ryanair for the establishment of its base, namely:
- a payment of up to 250,000 Euros for hotel costs for staff;
- a payment of 768,000 Euros in respect of the costs of recruiting and training flight crew serving Charleroi airport;
- a payment of 160,000 Euros for each new route opened, up to a maximum of 3 routes;
- a payment of 4,000 Euros for the purchase of office equipment; and
- provision of various premises for technical or office use ‘at minimum or no cost’.
BSCA also undertook to charge Ryanair 1 Euro per passenger for ground handling in lieu of the published tariff of 10 Euros. Finally, the parties agreed to set up and contribute in the same proportions to a joint company for the promotion of both Ryanair’s activities and Charleroi Airport.
The agreement with BSCA provided that, should Ryanair substantially withdraw from the airport, Ryanair would reimburse all or part of the payments made by BSCA.
Neither agreement was notified to the European Commission.
Commission Decision 2004/393/EC
In its Decision of 12 February 2004, the European Commission analysed both agreements separately.
The Commission concluded that the agreement between the Walloon Region and Ryanair constituted an aid measure, and was incompatible with the common market (Article 87(1) of the EC Treaty).
It took the view that, since the fixing of landing charges fell within the Walloon Region’s legislative and regulatory powers, it did not constitute an economic activity. Therefore, the advantages it granted to Ryanair could not be assessed by reference to the private investor principle. This principle holds that whenever a private company receives assistance through public funds, such assistance will be considered State aid if a private investor would not, under normal commercial circumstances, have made such investment.
As the aid did not fall within one of the exemptions provided for in Article 87 (2) or (3) of the Treaty, it was declared incompatible with the common market.
Conversely, the Commission did apply the private investor test to the agreement with BSCA. However, it reached the conclusion that a private investor would not have concluded such an agreement. In particular, the Commission held that BSCA did not carry out a thorough analysis of all the hypotheses of the agreement with Ryanair. By acting in that way, BSCA took risks that a private investor would not have taken.
However, the aid for the opening of new routes granted by BSCA to Ryanair was, subject to conditions, declared compatible with the common market.
The Commission’s decision meant that Belgium was required to recover the illegal State aid paid to Ryanair.
Judgment of the Court
On 25 May 2004, Ryanair applied to the Court of First Instance (‘CFI’) for an annulment of the Commission’s Decision.
Ryanair criticised, inter alia, the classification of the measures as State aid and argued that the Commission failed to apply or misapplied the private investor principle.
The CFI first examined the argument that BSCA and the Walloon Region are essentially one single economic entity and therefore the private investor principle should have been applied to both.
The CFI found sufficient evidence of the economic and legal links that existed between the Walloon Region and BSCA which demonstrates the economic dependence of BSCA on the Walloon Region. The Commission’s approach of analysing the measures separately was therefore incorrect: “when applying the private investor test, [it is necessary] to envisage the commercial transaction as a whole in order to determine whether the public entity and the entity which is controlled by it, taken together, have acted as rational operators in a market economy”.
The second question examined by the CFI was whether, notwithstanding that the interests of the Walloon Region and BSCA were the same, the Commission was correct not to apply the private investor principle based on the fact that the Walloon Region acted as a legislative or regulatory authority. The private investor principle can indeed be applied when a State acts as an undertaking operating as a private investor but it cannot be applied when the State acts purely within the ambit of its public authority powers.
Referring to the Aéroports de Paris case, the CFI stated that the fixing of the amount of landing charges and the accompanying indemnity is an activity directly connected with the management of airport infrastructure, which is an economic activity. Consequently, and notwithstanding the weak link in this matter between the level of charges and the services rendered to passengers, the airport charges fixed by the Walloon Region must be regarded as remuneration for the provision of services at the airport.
The CFI concluded that “the mere fact that (…) the Walloon Region has regulatory powers in relation to fixing airport charges does not mean that a scheme reducing those charges ought not to be examined by reference to the private investor principle, since such a scheme could have been put in place by a private investor”.
In light of the above, the CFI held that the Commission’s Decision was vitiated by an error in law and so it was annulled.
Having decided not to appeal this judgment, the European Commission must now take a new decision in this case, taking the CFI’s judgment into account.
Although this is the first time that the CFI has made a ruling on the private investor principle in the aviation sector, many of the principles established can be found in Aéroports de Paris v Commission, including the fact that:
- an activity directly connected with the management of airport infrastructure is an economic activity; and
- the owner of a public airport may act as both regulator and private investor, and can be regarded as an entity exercising an economic activity. However, it is worth noting that in annulling the Commission Decision, the CFI rejected a form of analysis which, if upheld, could have effectively not only differentiated, but discriminated between public and private companies exercising economic activities.
The Ryanair judgment therefore confirms that incentives can be granted by airports to airlines, provided they comply with the private investor principle.