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ryanair loses european union subsidies fight

Following a complaint from the main airport in Brussels, the European Commission recently ruled that Europe’s most successful low cost airline, Ryanair, has unfairly benefited from illegal state aid given by a secondary Brussels airport and ordered the airline to repay around £3 million. The Irish airline has been told by the European Commission that a number of the incentives it currently receives to use Charleroi airport, amount to an illegal subsidy from the Walloon regional government. The decision of the European Commission reflects a recent court judgement in France which banned Strasbourg airport from giving subsidies to Ryanair.

The European Commission has considerable powers to monitor, control and restrict the forms and levels of financial assistance given by a Member State or through state resources. State aid is basically any gratuitous advantage or benefit provided by a public body such as the Walloon regional government and Charleroi Airport to any business. State aid therefore includes subsidies, grants and cash injections to private enterprises, such as Ryanair. State aids should be notified to the European Commission and authorised in advance (that is, they should not be implemented until the European Commission has issued a clearance decision). If aid is unlawfully paid by a state body, then the state is required to recover the unlawfully paid state aid plus interest from the recipient.

In order to assess whether illegal state aid had been paid, the European Commission also had to determine whether the measures taken in favour of Ryanair by the Walloon regional government and Charleroi Airport, a public undertaking controlled by the Walloon regional government, were compatible or not with the private market investor principle. According to this principle, assistance granted is not considered to be illegal if, at the time when an investment or a commercial contract is being considered, the public undertaking is in the same situation as a comparable private firm, guided by the same objectives of long-term profitability. The European Commission here concluded that no private operator in the same circumstances as Charleroi Airport would have granted the same advantages to Ryanair. Since the private market investor principle had not been adhered to in this case, the European Commission found that some of the advantages granted to Ryanair constituted illegal state aid which could distort competition in favour of Ryanair.

The European Commission ruled that certain forms of aid could not be authorised, in particular discounts on landing fees and reduced ground handling charges - benefits not given to other airlines using the same airport. The decision does allow Ryanair to keep some of the financial assistance already granted to it by the regional government - for example, money for marketing and publicity for the launch of new air routes. The European Commission found that Ryanair’s 15 year contract with Charleroi Airport was too long, though, and that Ryanair should only be given five years marketing and publicity support for the opening of new routes at regional airports. For assistance to be legal, financial support must be of limited duration (a maximum of five years in the case of point-to-point European routes), be public and transparent (the deal between Ryanair and Charleroi Airport was secret) and correspond to a maximum intensity of 50% of the net start-up costs incurred. The airport must have control over such costs and the assistance must be available in the future to any airline, using the airport.

This decision on the repayment of illegal state aid is designed to create a level playing field for all airlines in the European Union, in order to ensure fair competition. The European Commission also aims to guarantee that the advantages granted to any airline at a particular airport are not discriminatory and benefit from a greater degree of transparency than is currently the case. The European Commission stated that by promoting open competition between airlines flying to local airports its rulings could in the longer term lead to lower fares - Ryanair has near monopolies in many regional airports and made £165 million profit last year.

Ryanair’s Chief Executive, Michael O’Leary, has branded the European Commission ruling a disaster for discount airlines (the European Commission estimates that the decision could force Ryanair to increase ticket prices by six to eight euros for a return fare) and has vowed to fight the decision in court. The Walloon regional government has also indicated that it might appeal - Walloon has long been the poorest part of Belgium, but the Ryanair deal brings some two million passengers through Charleroi airport annually and is estimated to have given a much-needed £30 million annual boost to the local economy.

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Geraldine Tickle
Partner
geraldine.tickle@martjohn.com

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