**Case T-301/01**

**Alitalia – Linee aeree italiane SpA**

**v**

**Commission of the European Communities**

(State aid – Recapitalisation of Alitalia by the Italian authorities – Decision declaring the aid compatible with the common market – Decision taken following a judgment of the Court of First Instance annulling an earlier decision – Admissibility – Infringement of Article 233 EC – Infringement of Articles 87 EC and 88 EC – Conditions for authorising the aid – Obligation to state the reasons on which the decision is based)

Summary of the Judgment

1.      *Actions for annulment – Interest in bringing proceedings*

*(Art. 230, fourth para., EC)*

2.      *Acts of the institutions – Statement of reasons – Obligation – Scope*

*(Art. 253 EC)*

3.      *Actions for annulment – Judgment annulling a measure – Scope – Adoption of a new measure on the basis of earlier valid preparatory
measures – Lawfulness*

*(Art. 88(2) EC; Council Regulation No 659/1999, Art. 7(2) and (3))*

4.      *Actions for annulment – Judgment annulling a measure – Effects – Adoption of measures of compliance – Reasonable time*

*(Art. 233 EC)*

5.      *State aid – Administrative procedure – Right of the parties concerned to submit their comments*

*(Art. 88(2) EC; Council Regulation No 659/1999)*

6.      *State aid – Definition – Private investor test*

*(Art. 87(1) EC)*

7.      *Actions for annulment – Pleas in law – Manifest error of assessment – Error having no decisive effect on the outcome – Invalid
plea in law*

8.      *Actions for annulment – Pleas in law – Pleas that may be raised against a Commission decision on State aid*

*(Art. 230, fourth para., EC)*

9.      *State aid – Not allowed – Exceptions – Discretion of the Commission – Criteria for assessment – Effect of the guidelines adopted
by the Commission*

*(Art. 87(3) EC; Commission Notice 94/C 350/07)*

10.    *State aid – Not allowed – Exceptions – Aid which may be considered compatible with the common market – Examination of restructuring
measures planned by the undertaking benefiting from the aid*

*(Art. 87(3) EC)*

1.      For an applicant to be entitled to pursue an action seeking the annulment of a decision, he must retain a personal interest
in the annulment of the decision. That applies in the case of an undertaking which, even though it has received all the State
aid for restructuring allocated to it, seeks annulment of the Commission decision which established that the aid was compatible
with the common market and that decision formed the legal basis of a subsequent Commission decision authorising payment of
the final instalment of that aid. If the Court of First Instance were to annul the contested decision on the ground that it
classified the measure in question as State aid, such an annulment would have legal consequences for the subsequent decision,
which would have no legal basis.

(see paras 37, 40-42)

2.      The answer to the question whether a Community act fulfils the obligation laid down in Article 253 EC to state the reasons
on which it is based depends on the nature of the act in question and on the context in which it was adopted. Thus, where
an applicant was closely involved in the process by which the contested decision came about and is therefore aware of the
reasons for which the administration considered that its request should not be granted, the scope of the obligation to state
reasons will be defined by the context thus created by the party’s involvement in that process. In such circumstances, the
requirements of the applicable case-law are considerably relaxed.

Where the contested decision was adopted after an earlier decision which was annulled in a judgment setting out the facts,
the administrative procedure and the content of the annulled decision, account must be taken of the fact that the contested
decision was adopted in a context which was well known to the applicant.

(see paras 57, 69)

3.      The annulment of a Community act concluding an administrative proceeding which comprises several stages does not necessarily
entail the annulment of the entire procedure prior to the adoption of the contested act, regardless of the grounds, procedural
or substantive, of the judgment pronouncing the annulment.

Where, in spite of the fact that investigation measures have been taken allowing an exhaustive analysis to be made of the
compatibility of State aid, the analysis carried out by the Commission is incomplete, thus making the decision which concluded
that the aid was compatible unlawful, the procedure for replacing that decision can be resumed at that point by means of a
fresh analysis of the investigation measures. Moreover, it is not necessary for the entire procedure prior to the adoption
of a measure adopted in replacement of another to be repeated only where that measure was annulled on the ground of procedural
defects.

Furthermore, there is no obligation to publish a new notice in the Official Journal and to reopen the formal investigation
procedure in order to consult once more the financial investors and experts, since there is no provision in Regulation No 659/1999
on the application of Article 88 EC which requires a procedure to be reopened where adjustments are made to an initial restructuring
plan in the course of the formal investigation, even though such adjustments are envisaged in Article 7(2) and (3) of that
regulation.

(see paras 100-101, 103, 142-143)

4.      The obligation upon a Community institution to give effect to an annulment judgment delivered by the Community judicature
derives from Article 233 EC. Compliance calls for the adoption of a number of administrative measures and is not normally
possible immediately. The institution concerned is allowed a reasonable period within which to comply with a judgment annulling
one of its decisions. The question whether or not the period is reasonable depends on the nature of the measures to be taken
and the attendant circumstances.

Where a period of seven months elapses between the delivery of the judgment annulling a Commission decision classifying a
notified plan as State aid that is compatible with the common market, subject to certain conditions, and the adoption of a
new Commission decision, that period cannot be regarded as excessive, since it is necessary to give practical effect to the
annulment judgment, in particular by making, on the basis of the available information, a fresh application of the private
investor operating on market principles test – which requires in-depth financial analysis.

The undertaking receiving the aid cannot claim that the principle of the protection of legitimate expectations was infringed
on the sole basis that the Commission did not appeal the annulment judgment, since that judgment does not exclude the possibility
that the annulled decision may be remedied and the period available to the Commission to give practical effect to that judgment
is longer than the two-month period within which it must lodge its appeal against the judgment.

(see paras 155-156, 162)

5.      There is no provision in Regulation No 659/1999 on the application of Article 88 EC requiring the Commission to make available
again to the third parties concerned, who were ensured of the right to submit their comments with the publication of a notice
in the Official Journal of its decision to initiate the formal investigation procedure and were closely involved in the investigation
of the disputed aid which led to an initial decision which was annulled and replaced by a second decision, the same opportunity
in the investigation which led to the second decision, since the Commission was required to base its new analysis solely on
information which was available to it when it took its initial decision – information in respect of which the third parties
had already defined their position, so that it was unnecessary to consult them afresh.

(see para. 174)

6.      The Commission’s assessment of whether an investment satisfies the private investor test is a complex economic matter. In
adopting a measure entailing such a complex economic assessment, the Commission enjoys a wide discretion and any judicial
review of such a measure, even though it is generally thorough as far as the question of whether a measure falls within the
scope of Article 87(1) EC is concerned, is confined to establishing that the rules of procedure and the rules relating to
the duty to give reasons have been complied with, to verifying the accuracy of the facts relied on in making the contested
decision and that there has been no manifest error in the assessment of those facts or misuse of powers. In particular, it
is not for the Court to substitute its economic assessment for that made by the institution which adopted the decision.

(see para. 185)

7.      In an action for annulment, a plea based on a manifest error of assessment is inoperative and accordingly would not be sufficient
to warrant annulment of the contested decision if, in the particular circumstances of the case, it could not have had a decisive
effect on the outcome.

(see para. 307)

8.      In annulment proceedings brought by an undertaking in receipt of State aid against a decision that the aid is compatible with
the common market, subject to compliance with certain conditions, a plea directed against the conditions to which the compatibility
of the aid in question with the common market was made subject cannot be regarded as inadmissible on the ground that those
conditions are not attributable to the Commission, which has exclusive jurisdiction to find that aid is incompatible with
the common market.

It cannot be ruled out that an undertaking receiving aid may be able to challenge, before the Community judicature, the conditions
to which a decision adversely affecting it is made subject, where those conditions have been the subject of negotiations between
the Commission and the national authorities and even of undertakings given by those authorities.

(see paras 380-381, 383)

9.      The Commission may lay down for itself guiding principles for the exercise of its discretionary powers by way of documents
such as guidelines, provided that they contain directions on the approach to be followed by that institution and do not depart
from the Treaty rules. The aviation notice requires restructuring aid to be part of a programme aiming to restore the health
of the airline so that it can, within a reasonable period, be expected to operate viably. In accordance with paragraph 38(1)
and (2) and paragraph 41 of that notice, the Commission can authorise restructuring aid only in exceptional cases and under
very stringent conditions. It follows that, in a decision adopted on the basis of Article 87(3)(c) EC, the Commission can
impose any condition it deems necessary to ensure that the undertaking receiving the aid will be viable following its restructuring.
On the other hand, none of those provisions requires all the conditions imposed in that context to be necessary for ensuring
that the undertaking is restored to viability. On the contrary, it is apparent from that notice that the Commission must also
endeavour to limit, as far as reasonably practicable, distortions of competition and to ensure that the government refrains
from interfering in the management of the company for reasons other than those stemming from its ownership rights and that
the aid is used exclusively for the purposes of the restructuring programme and is not disproportionate to its needs.

(see paras 405-408)

10.    As far as State aid is concerned, while there can be no grounds for denying that the Commission is entitled to compare the
restructuring measures contemplated by the undertaking receiving aid with those adopted by other undertakings operating in
the same economic sector, the fact remains that the restructuring of a company must focus on its own specific problems, and
the experience of other companies, in different economic and political contexts and at other times, may be irrelevant.

(see para. 478)

JUDGMENT OF THE COURT OF FIRST INSTANCE (Fifth Chamber, Extended Composition)

9 July 2008 (*)

(State aid – Recapitalisation of Alitalia by the Italian authorities – Decision declaring the aid compatible with the common market – Decision taken following a judgment of the Court of First Instance annulling an earlier decision – Admissibility – Infringement of Article 233 EC – Infringement of Articles 87 EC and 88 EC – Conditions for authorising the aid – Obligation to state the reasons on which the decision is based)

In Case T‐301/01,

**Alitalia – Linee aeree italiane SpA,** established in Rome (Italy), represented by M. Siragusa, G.M. Roberti, G. Scassellati Sforzolini, F. Moretti and F. Sciaudone,
lawyers,

applicant,

v

**Commission of the European Communities,** represented by V. Di Bucci, acting as Agent, and A. Abate and G. Conte, lawyers,

defendant,

APPLICATION for annulment of Commission Decision 2001/723/EC of 18 July 2001 concerning the recapitalisation of the company
Alitalia (OJ 2001 L 271, p. 28),

THE COURT OF FIRST INSTANCE OF THE EUROPEAN COMMUNITIES (Fifth Chamber, Extended Composition),

composed of M. Vilaras, President, M.E. Martins Ribeiro, F. Dehousse, D. Šváby and K. Jürimäe, Judges,

Registrar: C. Kantza, Administrator,

having regard to the written procedure and further to the hearing on 24 October 2006,

gives the following

**Judgment**

**Background to the dispute**

1        Alitalia – Linee aeree italiane SpA (‘Alitalia’ or ‘the applicant’) is an airline in which approximately 90% of the capital
was held on 1 July 1996 by the Italian State finance company Istituto per la ricostruzione industriale SpA (‘IRI’), the rest
being held by private investors.

2        At the beginning of the 1990s, Alitalia suffered from undercapitalisation. During that period, it faced difficulties connected
with the Gulf War, the recession in the airline sector in 1992 and 1993 and increased competition resulting from the liberalisation
of the air transport market. As a result, the applicant was obliged to reduce its costs and improve its productivity but,
despite those efforts, it was unable to return to profitability.

3        In the light of that situation, the applicant adopted in July 1996 a restructuring plan for the period 1996 to 2000. That
plan, which the Italian authorities notified to the Commission by letter of 29 July 1996, consisted of a restructuring phase
and a development phase. The financial component of the plan provided for a capital injection totalling 2 750 billion Italian
lira (ITL) to be provided by IRI and to be paid in three instalments, the second instalment to be paid in May 1998 and the
third in May 1999.

4        On 9 October 1996, the Commission decided to initiate the procedure provided for in Article 88(2) EC to examine the increases
in capital envisaged in the plan (OJ 1996 C 346, p. 13). At various stages of the procedure, the Commission sought the advice
of independent consultants (‘the Commission’s consultants’).

5        The original plan underwent a number of changes in the course of the procedure. The final version was sent to the Commission
by the Italian authorities on 26 June 1997.

6        On 15 July 1997, the Commission adopted Decision 97/789/EC concerning the recapitalisation of the company Alitalia (OJ 1997
L 322, p. 44) (‘the 1997 decision’). The Commission considered that the injection of capital provided by IRI to Alitalia constituted
State aid compatible with the common market, provided that the Italian authorities fulfilled 10 undertakings listed in Article
1 of the 1997 decision.

7        In view of new undertakings given by the Italian authorities following breaches of the conditions laid down in the 1997 decision
which had come to light during the first six months after that decision had been adopted, the Commission did not raise any
objections in its decision of 3 June 1998 to the payment of the third instalment of the capital injection by IRI.

8        By application lodged at the Registry of the Court of First Instance on 26 November 1997, Alitalia brought an action for annulment
of the 1997 decision. In its judgment of 12 December 2000 in Case T‐296/97 *Alitalia* v *Commission* [2000] ECR II‐3871 (‘the *Alitalia I*judgmen*t*’), the Court granted Alitalia’s action for annulment of the 1997 decision in view of the Commission’s failure to state the
reasons for which it had used the same minimum rate of return (‘the minimum rate’) as that it had determined in Commission
Decision 96/278/EC of 31 January 1996 concerning the recapitalisation of the company Iberia (OJ 1996 L 104, p. 25) (‘the Iberia
decision’), manifest errors of assessment relating to the exclusion of the insolvency costs which IRI would have to bear in
the event of Alitalia going into liquidation from the calculation of the internal rate of return (‘the internal rate’) and
the failure to take account of the adjustments made to the restructuring plan in June 1997.

9        On 1 June 2001, at its request, the Commission’s consultants presented a report to it updating their previous analysis, which
had been carried out in the course of the procedure leading to the adoption of the 1997 decision, so as to take account of
the final version of the restructuring plan in calculating the minimum rate and the internal rate.

10      On 18 July 2001, the Commission adopted Decision 2001/723/EC concerning the recapitalisation of the company Alitalia (OJ 2001
L 271, p. 28) (‘the contested decision’).

**The contested decision**

11      Having stated in its legal assessment that Article 233 EC does not in this case require it to reopen the procedure which led
up to the 1997 decision or to repeat the entire procedure before adopting a new decision, the Commission devotes 20 recitals
(recitals 15 to 34 in the preamble to the contested decision) to an analysis of the criterion of the private investor.

12      With regard to the determination of the internal rate of the operation, the Commission is cognisant of the fact that the calculation
of anticipated revenue should include the insolvency costs which IRI would have to bear if Alitalia were to go into liquidation.
The Commission concludes its analysis by stating that the internal rate for IRI on its investment of ITL 2 750 billion in
Alitalia capital is either 25.2% or 26.1% for 1997, according to the taxation applicable taken into account (recital 23 in
the preamble to the contested decision).

13      With regard to calculating the minimum rate required by a private investor acting in accordance with market principles, on
the basis of the information in its possession, and in particular the report produced by its consultants, the Commission considers
the minimum rate to be around 30%, in view of the size of the sum involved and, more especially, the risks inherent in the
operation which, despite improvements to the plan in June 1997, remain very high. It states in that connection that the risks
inherent in the capital injection to Alitalia in July 1997 are at least as high as those involved in the capital injection
received by Iberia in January 1996. In recitals 30 and 31 in the preamble to the contested decision, the Commission explains
the ways in which the situation of those two undertakings is comparable, in spite of a number of specific differences.

14      In recital 33 in the preamble to the contested decision, the Commission concludes that the annual minimum rate which an investor
acting in accordance with market principles would require in such circumstances in order to give Alitalia a capital injection
of ITL 2 750 billion is higher than the internal rate for such an operation.

15      In its conclusion (recitals 35 to 37 in the preamble to the contested decision), the Commission considers that it has remedied
the two errors of assessment and the failure to present a clear statement of reasons established by the Court in the *Alitalia I*judgment. As to the remaining reasoning for the contested decision, the Commission refers to the relevant paragraphs of the
statement of reasons in the 1997 decision, which should, in its view, be deemed to form an integral part of the contested
decision without there being any need to reproduce them (recital 36 in the preamble to the contested decision).

16      On the basis of that reasoning, the Commission adopted the contested decision, the operative part of which is as follows:

‘*Article 1*

The aid granted by [the Italian Republic] to the company Alitalia ... in the form of a capital injection of ITL 2 750 billion,
payable in three instalments, intended to cover the restructuring of the company in accordance with the plan notified to the
Commission on 29 July 1996 and adjusted on 26 June 1997, is compatible with the common market and the [European Economic Area]
Agreement pursuant to Article 87(3)(c) [EC] and Article 61(3)(c) of the [European Economic Area] Agreement, subject to compliance
with the obligations and conditions laid down in Articles 1, 2 and 3 of [the 1997] decision, as quoted in recital 1 of this
Decision.

*Article 2*

The Commission has no objection to the payment of the second instalment of the capital injection to the company Alitalia ...

*Article 3*

This Decision is addressed to the Italian Republic.’

17      The 10 conditions referred to in Article 1 of the contested decision, which are set out in recital 1 in the preamble to that
decision, are as follows:

‘(1)      to adopt the behaviour of a normal shareholder towards Alitalia; to enable it to be managed in accordance with commercial
principles only and not to become involved in its management for reasons other than those strictly related to the Italian
State’s status as a shareholder;

(2)      not to grant Alitalia any further capital payment or any other aid in any form, including loan guarantees;

(3)      that, until 31 December 2000, the aid shall be used by Alitalia solely for the purposes of restructuring the company and not
for acquiring new shareholdings in other air carriers;

(4)      not to give Alitalia priority in any way over other Community companies, in particular as regards the allocation of traffic
rights (including those relating to third countries [outside] the European Economic Area), slot allocation, ground-handling
assistance and access to airport facilities where preferential treatment would be contrary to Community law. In particular,
the Italian authorities confirm that they will not apply any measure that is contrary to Community law and guarantee that:

(a)      they shall immediately start and by 31 December 1998 at the latest shall have completed the procedure of revising Agreement
No 4372 of 15 April 1992 ..., as approved by Decree of 16 April 1992, in order to bring the Agreement in[to] line with Community
regulations, in particular as regards the “right of priority”, “government interference”, “compatibility with the regulations
on the liberalisation of air transport” and “airport privileges”;

(b)      a de facto revision of the Agreement has already taken place with regard to the above points following the exchange of letters
with Alitalia on the basis of Article 50 of the Agreement, the exchange making it clear that the Agreement applies only if
it is compatible with Community law;

(c)      Alitalia renounces its right of priority pursuant to Article 3 of the above Agreement;

(d)      in coordinated or fully coordinated Italian airports, it will, before the start of the 1997-98 winter season, appoint a coordinator
who does not have any link whatsoever with Alitalia and acts completely independently of it;

(5)      [to guarantee] that, until 31 December 2000, the available capacity of aircraft operated by Alitalia or by other carriers
under agreements whereby Alitalia assumes the commercial risk for such capacity (wet leasing, block space, joint venture agreements,
etc.) shall not exceed the following limits:

(a)      the number of seats available shall not exceed 28 985, of which 26 350 will be for Alitalia’s own fleet;

(b)      the increase in the number of seat-kilometres available for each calendar year

–        within the European Economic Area excluding Italy, and

–        within Italy

shall not exceed 2.7%, on the understanding that no growth is to be authorised if the growth in the corresponding markets
remains lower than 2.7%. However, if the growth rate in the corresponding markets exceeds 5%, supply may be increased, above
2.7%, by the percentage of the increase beyond 5%;

(6)      [to ensure] that Alitalia shall have an analytical accounting system that makes it possible to determine, in the short term
and for each route, a profitability ratio defined as the ratio between the full revenue and the full costs (the full cost
being equivalent to the sum of the variable costs and fixed costs) for the particular route;

(7)      [to guarantee] that, until 31 December 2000, Alitalia shall refrain from offering fares lower than those offered by its competitors
for an equivalent service supplied on the routes which it operates;

(8)      [to guarantee] that Alitalia shall dispose of its shareholding in Mal[é]v by ... at the latest;

(9)      [to guarantee] that Alitalia shall continue with the full implementation of the restructuring plan notified to the Commission
on 29 July 1996 and adjusted on 26 June 1997, in particular as regards meeting the productivity, profitability and financial
restructuring objectives set out in paragraph VI;

(10)      to submit to the Commission, by the end of March 1998, March 1999, March 2000 and March 2001, an annual report on the progress
of the restructuring plan, Alitalia’s economic and financial situation, and the compliance with these requirements. The report
shall include a description (giving the particulars of co-contractors) of the commercial or operational cooperation agreements
concluded by Alitalia during the previous year. The Commission shall, if necessary, have the information given in each of
the reports checked by an independent consultant chosen by the Commission in agreement with the Italian Government.’

**Procedure**

18      By application lodged at the Registry of the Court of First Instance on 30 November 2001, Alitalia brought the present action.

19      On 13 February 2002, Alitalia also brought an action seeking to recover compensation in respect of damage suffered by it as
a result of the adoption of the 1997 decision and the contested decision. However, it withdrew that action and the case was
removed from the register by order of the President of the Third Chamber of the Court of First Instance of 8 April 2003 in
Case T‐35/02 *Alitalia* v *Commission* (not published in the ECR).

20      By letter of 19 June 2002, the Commission notified the Italian Republic of its decision concerning the State aid registered
under the numbers C 54/96 and N 318/02 relating, respectively, to the payment of the third instalment of aid for the restructuring
of Alitalia, approved by the Commission on 18 July 2001, and new recapitalisation of EUR 1.432 billion (‘the decision of 19 June
2002’). The decision of 19 June 2002 was amended by Decision C (2002) 3151 final of 27 August 2002 and was published in the
*Official Journal of the European Communities* on 4 October 2002 (OJ 2002 C 239, p. 2). By application lodged at the Registry of the Court of First Instance on 21 November
2002, Air One SpA, an Italian airline, sought annulment of the decision of 19 June 2002 (Case T‐344/02). Alitalia intervened
in those proceedings in support of the forms of order sought by the Commission.

21      By joint application of 5 September 2002, the parties requested that the present proceedings be stayed. The proceedings were
stayed until 30 November 2002 by order of the Court of 19 September 2002.

22      An amendment to the contested decision was published in the Official Journal on 8 April 2003 (OJ 2003 L 90, p. 54). First,
the last sentence of recital 20 in the preamble to the contested decision, which stated that Alitalia accepted the figure
of ITL 750 billion for the total insolvency costs, was removed. Secondly, in the last sentence of recital 22 in the preamble
to the contested decision, the figures for IRI’s participation in Alitalia on 31 December 2000 were amended.

23      By letter of 10 March 2004, the Court requested Alitalia to define its position on the assertion in the rejoinder lodged by
the Commission on 24 April 2003 that Alitalia no longer had any interest in proceeding with the action. Alitalia responded
to that request by letter of 1 April 2004.

24      Upon hearing the report of the Judge-Rapporteur, the Court decided to open the oral procedure and, by way of measures of organisation
of procedure under Article 64 of the Rules of Procedure of the Court of First Instance, put written questions to Alitalia
and to the Commission. The parties replied to those questions within the prescribed period.

25      The parties presented oral argument and their answers to the questions put by the Court at the hearing on 24 October 2006.

**Forms of order sought by the parties**

26      The applicant claims that the Court should:

–        annul the contested decision in its entirety;

–        in the alternative, annul Article 1 of the contested decision in so far as the Commission makes the compatibility of the disputed
capital injection subject to compliance with the conditions imposed in the 1997 decision;

–        order the Commission to pay the costs.

27      The Commission contends that the Court should:

–        dismiss the action;

–        order the applicant to pay the costs.

**Admissibility**

A –  *Arguments of the parties*

28      The Commission submits in its rejoinder that Alitalia no longer has any interest in the action.

29      First of all, the Commission contends that the recapitalisation of Alitalia was fully authorised and achieved since, in the
decision of 19 June 2002, it did not raise any objections to the payment of the third and final instalment of the aid. Alitalia
would therefore not gain any benefit at all from the annulment of the contested decision. On the contrary, such an annulment
would deprive the decision of 19 June 2002 of its legal basis.

30      Secondly, the Commission observes that the present action could not facilitate an action for damages, since Alitalia withdrew
the claim it brought for that purpose in Case T‐35/02.

31      Lastly, the Commission points out that an action, registered under number T‐344/02 and still pending before the Court, was
brought by Air One against the decision of 19 June 2002 and that Alitalia intervened in those proceedings in support of the
forms of order sought by the Commission. It therefore takes the view that, if Alitalia wishes to maintain the decision of
19 June 2002, it must accept the consequences with regard to the present action.

32      In its reply of 1 April 2004 to the questions put by the Court concerning the Commission’s claim that it no longer had an
interest in bringing proceedings, Alitalia submits that a judgment declaring that the contested capital injection was not
State aid would enable it to seek such aid in the future. By contrast, the contested decision deprived it of such a possibility,
since, in normal circumstances, it could not be granted any further aid. Moreover, the effect of such a judgment would be
that the payment of the third instalment of the contested capital injection should not have been subject to prior authorisation
by the Commission.

33      In addition, according to Alitalia, the judgment to be given by the Court in the present case will have an impact on Case
T‐344/02. If the contested capital injection were no longer to be classified as State aid, a number of Air One’s pleas in
law would be doomed to fail.

34      Lastly, Alitalia submits that the fact that it withdrew from Case T‐35/02 does not preclude it from bringing a new claim for
damages, since the limitation period for instituting such an action has not expired. In any event, a judgment annulling the
contested decision in the present case would strengthen its position in any new claim for damages that it might bring to obtain
compensation for the loss arising from the contested decision.

B –  *Findings of the Court*

35      For the purposes of considering the admissibility of this action, it must be observed that, according to settled case-law,
an action for annulment brought by a natural or legal person is not admissible unless the applicant has an interest in seeing
the contested measure annulled. That interest must be vested and present (see Case T‐141/03 *Sniace* v *Commission* [2005] ECR II‐1197, paragraph 25 and the case-law cited).

36      In order for such an interest to be present, the annulment of the measure must of itself be capable of having legal consequences
or, in accordance with a different form of words, the action must be liable, if successful, to procure an advantage for the
party who has brought it (see Case T‐310/00 *MCI* v *Commission* [2004] ECR II‐3253, paragraph 44 and the case-law cited).

37      The conditions governing the admissibility of an action must be judged, subject to the separate question of the loss of an
interest in bringing proceedings, at the time when the application is lodged (see Case T‐131/99 *Shaw and Falla* v *Commission* [2002] ECR II‐2023, paragraph 29 and the case-law cited). However, in the interest of the proper administration of justice,
that consideration relating to the time when the admissibility of the action is assessed cannot prevent the Court from finding
that there is no longer any need to adjudicate on the action in the event that an applicant who initially had a legal interest
in bringing proceedings has lost all personal interest in having the contested decision annulled on account of an event occurring
after that application was lodged. For an applicant to be entitled to pursue an action seeking the annulment of a decision,
he must retain a personal interest in the annulment of the contested decision (see the order in Case T‐28/02 *First Data and Others*v *Commission* [2005] ECR II‐4119, paragraphs 36 and 37 and the case-law cited).

38      Clearly, the Commission did not dispute Alitalia’s interest in bringing proceedings in its defence of 25 March 2002. Moreover,
the Court stated in the *Alitalia I*judgment (paragraph 74) as follows:

‘... [T]he fact that the Commission, in the [1997] decision, classified IRI’s investment in the applicant as State aid clearly
operated to the applicant’s detriment. It meant that the Commission was able, in the [1997] decision, to examine the compatibility
of the measure with the common market and to impose conditions directly affecting the applicant’s operations.’

39      In its rejoinder of 24 April 2003, the Commission submitted that Alitalia had lost any interest in bringing proceedings on
account of new circumstances which had arisen since that time. Those are, first, the decision of 19 June 2002, in so far as
the Commission elected, in particular, in that decision not to raise any objections to the payment of the third instalment
of aid to Alitalia and, secondly, the order of 8 April 2003 in Case T‐35/02 *Alitalia* v *Commission*, referred to in paragraph 19 above, by which the President of the Third Chamber of the Court ordered the removal of Case
T‐35/02 from the register, following Alitalia’s withdrawal.

40      In the decision of 19 June 2002, the Commission decided to ‘formally acknowledge payment of the second instalment of the aid
granted to [Alitalia], which was authorised by the 1997 decision and confirmed in 2001, and not to raise any objections to
the payment of the third instalment’. Alitalia therefore received all of the aid in question. It was no longer subject to
the obligations and conditions that were to be complied with during the period in which the plan was being implemented.

41      However, the effect of the contested decision, which continues to classify the contested capital injection as State aid, is
to make payment of the third instalment of aid subject to authorisation by the Commission. The contested decision therefore
forms the legal basis of the decision of 19 June 2002 in so far as the Commission did not, in that decision, raise any objections
to that third payment.

42      Accordingly, if the Court were to annul the contested decision on the ground that it classifies the contested capital injection
as State aid, such an annulment would have legal consequences for the decision of 19 June 2002, which would have no legal
basis.

43      The parties disagree as to the exact nature of those consequences.

44      According to Alitalia, if the contested decision were annulled, the decision of 19 June 2002 would be devoid of purpose as
regards the payment of the second and third instalments of the aid in question and the pleas put forward in that regard by
Air One in its action against the decision of 19 June 2002 in Case T-344/02 would be ineffective. Air One would therefore
no longer be able to challenge those payments.

45      For its part, the Commission argues that, if the contested decision were annulled, it would have to re-examine the new Alitalia
recapitalisation plan for 2002 to determine whether it constituted State aid.

46      Clearly, in both cases, in so far as it concerns the payments of aid in question, Air One’s action against the decision of
19 June 2002 could no longer succeed, since it would have no legal basis.

47      Alitalia therefore maintains an interest in bringing proceedings and there is no need to examine the other arguments submitted
in that regard.

**Substance**

48      Alitalia relies, essentially, on six pleas in law. The first plea alleges procedural defects, the second infringement of the
rights of defence, the third infringement of Article 233 EC on the ground that the contested decision does not comply with
the *Alitalia I*judgment, the fourth infringement and misapplication of Articles 87 EC and 88 EC in the application of the private investor
test, the fifth infringement of Article 87(3) EC in laying down the conditions for granting the aid, and the sixth infringement
of Article 253 EC. It is appropriate to consider first of all the sixth plea, alleging infringement of the obligation to state
reasons.

A –  *The plea alleging infringement of the obligation to state reasons*

49      This plea can be divided essentially into two parts, the first relating to the grounds of the conclusions in the contested
decision and the second to the conditions imposed in that decision.

1.     *Insufficient reasons given for the conclusions in the contested decision*

a)     Arguments of the parties

50      Drawing attention to the case-law on the obligation incumbent upon the Community institutions to give reasons for their acts,
particularly in matters of State aid, Alitalia argues that the contested decision cannot rely on the 1997 decision because
the Court of First Instance annulled that decision, which has retroactive effect. Consequently, the contested decision must
establish its own legitimacy independently.

51      It is not at all clear, in any event, how the Commission applied the criterion of the private investor operating on market
principles in the contested decision. As regards the minimum rate, the Commission simply makes a comparison with the situation
in the Iberia decision. In the contested decision, no reference is made to the fact that financial investors were consulted
on the final version of the restructuring plan. No account was taken of the final content of the programme. Alitalia refers,
in particular, to the acceleration of the plan to set up Alitalia Team SpA (a low-cost company), the ground-handling agreements,
the implementation of the fares initiatives and to redundancies – a whole number of features whose impact, in its view, could
have been assessed, since six months had passed since the beginning of the implementation of the plan.

52      As regards the internal rate, Alitalia submits that the contested decision is so lacking in transparency that the Court itself
will have to have recourse to additional information to be able to review whether the Commission’s arguments are well founded.
Insufficient indications were given for it to be possible to assess the calculation of the final value of Alitalia or that
of the insolvency costs which IRI would have to bear in the event of Alitalia going into liquidation.

53      Alitalia maintains that the Commission could have annexed the June 2001 report of its consultants to the contested decision
or incorporated the salient parts of that report into the body of the decision.

54      Alitalia concludes that the contested decision is seriously vitiated by a failure to state adequate reasons and thus infringes
Article 253 EC.

55      Throughout its written pleadings, the Commission disputes the claim that the statement of reasons in the contested decision
is inadequate. It adds that the pleas in law and arguments put forward by Alitalia demonstrate that the statement of reasons
fully served its purpose, namely by enabling the persons concerned to understand the manner in which the Commission has applied
the Treaty and, where necessary to defend their rights, while at the same time permitting the Community judicature to exercise
its power of review.

b)     Findings of the Court

56      According to settled case‐law, the question whether the statement of the grounds for a decision meets the requirements of
Article 253 EC must be assessed with regard not only to its wording but also to its context and all the legal rules governing
the matter in question. While the Commission, in the statement of reasons for a decision, is not required to address all the
issues of fact and law raised by interested parties during the administrative procedure, it must none the less take account
of all the circumstances and all the relevant factors of the case so as to enable the Court to review its lawfulness and make
clear to the Member States and the persons concerned the circumstances in which the Commission has applied the Treaty (see
Joined Cases T‐371/94 and T‐394/94 *British Airways and Others* v *Commission* [1998] ECR II‐2405, paragraph 94 and the case-law cited).

57      The answer to the question whether a Community measure fulfils the obligation laid down in Article 253 EC to state the reasons
on which it is based depends on the nature of the act in question and on the context in which it was adopted. Thus, where
the party concerned was closely involved in the process by which the contested decision came about and is therefore aware
of the reasons for which the administration considered that the request should not be granted, the scope of the obligation
to state reasons will be defined by the context thus created by the party’s involvement in that process. In such circumstances,
the requirements of the applicable case-law are considerably relaxed (see Case T‐504/93 *Tiercé Ladbroke* v *Commission*[1997] ECR II‐923, paragraph 52 and the case-law cited).

58      For the purpose of examining whether the obligation to state reasons was satisfied in the present context, it should be pointed
out that the procedure for reviewing State aid is a procedure initiated in respect of the Member State responsible for granting
the aid and that the parties concerned within the meaning of Article 88(2) EC, which include the recipient of the aid, cannot
themselves seek to debate the issues with the Commission in the same way as may that Member State (see Case T‐198/01 *Technische Glaswerke Ilmenau*v *Commission* [2004] ECR II‐2717, paragraph 61 and the case-law cited).

59      It is in the light of those principles that it is necessary to consider whether the statement of grounds for the contested
decision meets the requirements of Article 253 EC.

60      Clearly, the facts and considerations having decisive importance in the context of the contested decision which enable the
circumstances in which the Commission made a fresh application of the criterion of the private investor operating on market
principles, following the annulment by the Court of the 1997 decision, to be clearly ascertained are set out in the contested
decision itself (see, to that effect, Joined Cases T‐374/94, T‐375/94, T‐384/94 and T‐388/94 *European Night Services and Others* v *Commission* [1998] ECR II‐3141, paragraph 95).

61      As regards the grounds for the determination of the minimum rate, it is necessary to refer first of all to recitals 24 to
29 in the preamble to the contested decision, which set out the reasons relating to the specific situation of Alitalia which
justify setting the minimum rate at 30%. Before specifying the risks that are particular to the undertaking, recital 25 in
the preamble to the contested decision begins as follows:

‘In this case, on the basis of the information in its possession and, in particular, the consultants’ report, the Commission
considers the minimum rate to be around 30% in view of the size of the sum involved and, more especially, the risks inherent
in the operation. This rate of at least 30% allows for the possibility that the restructuring plan will not develop as planned
and that the actual return on the investment will, in the final analysis, be significantly less. Indeed, the rate cannot fail
to be higher than the cost of equity capital since the latter does not take account of all the risks associated with the company,
for, despite the improvements following adjustments to the restructuring plan in February and June 1997, as notified to the
Commission on 26 June 1997, Alitalia must still be considered a company with a very high specific risk. ...’

62      In recitals 30 and 31 in the preamble to the contested decision, the Commission also gives the reasons for the minimum rate
being fixed in the present case by comparison with the rate it established in the Iberia decision (see paragraphs 109 to 111
below).

63      Moreover, the contested decision contains a formal statement of the reasons as to the account taken of the final version of
the restructuring plan in assessing the minimum rate.

64      Recital 27 in the preamble to the contested decision states as follows:

‘The latest amendments made by the Italian authorities to the restructuring plan in June 1997, as notified to the Commission
on 26 June 1997, are not such as to invalidate the calculation of the [minimum] rate. In addition to the Italian authorities’
decision that Alitalia should bear employees’ early retirement costs, the amendments include taking faster action to cut company
expenditure by transferring Alitalia personnel to Alitalia Team more quickly than anticipated, reducing the total amount of
the capital injection from ITL 2 800 to ITL 2 750 billion, and releasing Alitalia’s shares in the Hungarian company, Mal[é]v,
and in six regional Italian airports. While they undoubtedly reduce the inherent risks of the operation and increase the rate
of return on the capital injection, these amendments are none the less not very significant and have far less impact than
the earlier amendments by the Italian authorities to the restructuring plan in February 1997. Indeed, the June 1997 amendments
have very little impact on the main results of the plan and on the expected share dividends ...’

65      The contested decision then sets out a table evaluating that impact. Reasons are therefore also given concerning that point
in the contested decision.

66      The reasons for the determination of the internal rate are to be found in recitals 19 to 23 in the preamble to the contested
decision, which set out the factors on which the Commission based its calculation, recital 20 covering the insolvency costs
and recital 22 the final value, in particular.

67      Moreover, Alitalia was closely involved in the procedure which led to the adoption of the 1997 decision, a procedure which
was not annulled by the Court (see paragraphs 96 to 101 below). Alitalia had access, in particular, to the second and third
reports of the Commission’s consultants, which it annexes to its application in this case.

68      Alitalia’s contention that the Commission could have annexed its consultants’ report of 1 June 2001 to the contested decision
is irrelevant in the present case for the purpose of substantiating its argument alleging a failure to state reasons. In so
far as it alleges infringement of the rights of defence, that contention will be examined in paragraphs 164 to 177 below.

69      Account must also be taken of the fact that the contested decision was adopted after the 1997 decision and after a judgment
of the Court annulling that decision, namely the *Alitalia I*judgment (see, to that effect, Case C‐56/93 *Belgium*v *Commission* [1996] ECR I‐723, paragraph 87). The *Alitalia I*judgment sets out the facts of the case (paragraphs 1 to 12), the administrative procedure which led to the adoption of the
1997 decision (paragraphs 13 to 35) and the content of the 1997 decision (paragraphs 36 to 48). The contested decision was
therefore adopted in a context which was well known to the applicant (see, to that effect, Case T‐17/02 *Olsen*v *Commission* [2005] ECR II‐2031, paragraph 97).

70      Consequently, the contested decision clearly contains sufficient reasoning as regards the factors referred to by Alitalia
in the first part of the plea, namely the determination of the minimum rate and the internal rate and, lastly, the manner
in which the criterion of the private investor operating on market principles was applied.

71      As to the remainder, in so far as Alitalia disputes the merits of the reasons given for the determination of the minimum rate
and the internal rate, reference should be made to paragraphs 178 to 370 below.

2.     *Failure to give adequate reasons in the contested decision for the conditions imposed in the 1997 decision*

a)     Arguments of the parties

72      Alitalia argues that the contested decision is not based on any adequate reasoning as regards the conditions under which the
contested capital injection was to be regarded as compatible with the common market. It adds that the Commission cannot contend
that the reasons given in 1997 remained valid in 2001, since the difference between the minimum rate and the internal rate
was no longer 10% but only 3.9%. There is no assessment of that factor in the contested decision. Alitalia states that it
does not challenge the conditions as they were imposed in the 1997 decision but claims that the Commission could not reimpose
those same conditions in connection with the contested decision without giving adequate reasons for so doing.

73      The Commission replies that it proceeded on the basis of stating reasons by reference to other documents, as is evidenced
by recitals 1 to 36 in the preamble to the contested decision. Moreover, the conditions are in fact undertakings given by
the Italian authorities and cannot be attributed to the Commission, so no reasons need be given in that regard. The Commission
adds that, although set out on the basis of references to other documents, the grounds for the contested decision did not
prevent Alitalia from understanding the essential basis of the decision.

b)     Findings of the Court

74      The conditions under which the contested capital injection was to be regarded as compatible with the common market, as set
out in the 1997 decision, are reproduced in recital 1 in the preamble to the contested decision. Moreover, as for grounds
of the decision, the Commission makes express reference, in recital 36 in the preamble to the contested decision, to ‘the
relevant paragraphs of the statement of reasons in the 1997 decision’.

75      Alitalia states that, obviously, it does not challenge the conditions as they were imposed in the 1997 decision but claims
that the Commission could not reimpose those same conditions in connection with the contested decision without giving adequate
reasons for so doing.

76      Clearly, therefore, the second part of this plea, which is raised in a general form by Alitalia, does not relate to the form,
which it does not dispute, but to the substance of the reasons given for imposing the same conditions in the contested decision
as those imposed in the 1997 decision. That part of the plea must therefore be examined in the context of paragraphs 399 to
418 below. Where necessary, that issue will be addressed in greater detail in the course of the examination of each of those
conditions in response to some specific criticisms of the statement of reasons formulated by Alitalia which are outside the
scope of this plea.

77      Alitalia has therefore failed to establish in this general plea that the statement of reasons for the contested decision is
inadequate and, accordingly, that plea must be rejected in its entirety.

B –  *The plea alleging infringement of Article 233 EC*

78      Alitalia alleges that the Commission infringed Article 233 EC both in the context of the first part of its first plea, on
the ground that it failed to initiate a new investigation procedure, and in the context of its third plea. It is appropriate
to consider those points together.

1.     *Arguments of the parties*

79      Alitalia submits that, as a consequence of a judgment annulling a decision, the defendant institution is required, by virtue
of Article 233 EC, to take the necessary measures to reverse the effects of the illegalities as found in the judgment. In
the case of an act that has already been executed, this may take the form of restoring the applicant to the position he was
in prior to that act.

80      According to Alitalia, it has been consistently held in case-law that the institution is required under Article 233 EC to
comply with the annulment judgment by having regard to both the operative part and the grounds of the judgment and by assessing
very carefully the effects of the annulment judgment on the earlier stages of the procedure. The institution may resume the
procedure from the point at which the defect which was criticised by the Court arose only if a formal or procedural defect
is involved. The institution is obliged to reopen the procedure *ab initio* where it does not have the information necessary to carry out a new assessment of the case that has been investigated.

81      In the present case, according to the applicant, the defects criticised by the Court in the *Alitalia I*judgment were substantive, so that the Commission was obliged to instigate a new investigation procedure.

82      In support of that contention, Alitalia claims, first of all, that the Court criticised the Commission’s substantive assessments
on two fundamental points, namely the failure to take account of the insolvency costs and of the final version of the restructuring
plan submitted in June 1997.

83      Moreover, according to Alitalia, the Commission should in any event have reopened the formal investigation procedure under
Article 88(2) EC because it did not have available to it a full and undisputed range of information and the assessment as
to whether the aid was compatible with the common market created serious difficulties which were not overcome during the preliminary
stage. Alitalia considers, in particular, that a new survey among institutional investors was necessary to determine the minimum
rate. In its view, in order to obtain new analytical data, the Commission should also have had recourse to new technical expertise
and engaged in a discussion of the issues with Alitalia and the Italian authorities.

84      The Commission also infringed Article 233 EC by clearly distorting the content of the *Alitalia I*judgment, with which the contested decision did not comply.

85      Thus, in the contested decision, the insolvency costs were assessed at ITL 750 billion whereas, according to the *Alitalia I*judgment, they were ITL 1 140 billion. That figure of ITL 750 billion was not the subject of any discussion, did not feature
in the 1997 decision and was not accepted by Alitalia.

86      As regards the final version of the restructuring plan, Alitalia submits that, in order to comply with the *Alitalia I*judgment, the Commission, in revising its calculations to take account of that version of the plan, was obliged to proceed
on the basis of the by then irrefutable assumption that that plan would enhance the viability of the contested operation and
reduce the inherent risks. Alitalia claims that the internal rate should consequently have been increased and the minimum
rate decreased. In Alitalia’s view, the Commission could not therefore have concluded that the final amendments to the plan
had ‘very little impact’ on the abovementioned parameters and left the calculations unaltered.

87      In particular, as regards the risks, the Commission did not quantify the impact of the final amendments to the restructuring
plan. The minimum rate therefore remained unchanged. Moreover, the Commission did not repeat the stages which had led it initially
to set that rate at 30%. Nor did it alter its assessment regarding the similarity between the respective situations of Alitalia
and Iberia or seek any further expert advice.

88      With regard to the internal rate, Alitalia observes that the rate of 26.1% which appears in recital 23 in the preamble to
the contested decision is the same as the rate obtained at the conclusion of the calculation annexed to the rejoinder by the
Commission in Case T‐296/97. That calculation was therefore simply ‘recycled’ in the contested decision and fails to take
account of all the elements in the final version of the restructuring plan.

89      Moreover, the comments of the Court on the failure to give adequate reasons for transposing the minimum rate applied in the
Iberia decision to Alitalia in the 1997 decision calls into question the very basis of the Commission’s reasoning. According
to Alitalia, in the *Alitalia I*judgment, the Court did not confine itself to criticising the 1997 decision on the ground that it was insufficiently reasoned.
It criticised the very fact that a comparison was made between Alitalia and Iberia. The Court found that there was a real
contradiction between, on the one hand, the Commission’s decision to adopt for Alitalia the same minimum rate applied in the
Iberia decision and, on the other hand, the assessments made by the Commission and its consultants of the less-serious risks
posed by Alitalia’s restructuring plan in comparison with the Iberia plan. Accordingly, the Court found that it was not appropriate
to fix the minimum rate applicable to Alitalia at 30% by reference to the rate applied to Iberia. The contested decision is
therefore, by implication, in conflict with the *Alitalia I*judgment and does not, as required under Article 233 EC, comply with it. In putting forward new reasons to support that disproportionate
minimum rate, the Commission thus created new grounds of justification which it had never presented in the course of the administrative
procedure and the Court must therefore reject them.

90      The Commission contends that Alitalia’s objections are based on a misunderstanding of the scope and effects of the *Alitalia I*judgment and of the obligations imposed on the Commission by Article 233 EC. The effect of the judgment delivered by the Court
was to annul only the final assessment carried out by the Commission and not the investigation procedure which led to the
adoption of the 1997 decision. The unlawfulness of the 1997 decision does not extend to the preparatory acts, with the effect
that the Commission could and indeed should have resumed the investigation procedure precisely from the point at which the
unlawful act had occurred, namely when the 1997 decision was definitively adopted.

91      In particular, the Court confined itself in the *Alitalia I*judgment to criticising a flaw in the reasoning and did not dispute that the situations of Alitalia and Iberia were comparable.
In addition, the decision in the contested decision to retain a minimum rate of 30% was based on Alitalia’s particular situation
and it is not the case that it was repeated purely by reference to the Iberia case.

92      It is apparent from recital 20 in the preamble to the contested decision that the insolvency costs were included in the calculation
of the internal rate. The Commission states that the table which it prepared in Case T‐296/97, which was annexed by Alitalia
to its application in the present case, already indicated that those costs had been included in the calculation of the internal
rate. The Commission explains that it believed that it was possible for it to deduce that Alitalia agreed with the sum of
ITL 750 billion from the fact that it had not disputed that figure in Case T‐296/97 and had, moreover, referred to it in its
pleadings. The Commission now notes that that is not the case while at the same time maintaining that it is irrelevant in
the present case, since it did not form the basis of the reasoning given in the contested decision. The Commission also states
that the reasons for which it set those costs at ITL 750 billion are set out in recital 20 in the preamble to the contested
decision and were presented in its consultants’ reports of 21 February and 18 June 1997, which are annexed by Alitalia to
its application.

93      The Commission claims that it re-examined the internal rate and the minimum rate in the light of the amendments to the final
version of the restructuring plan. It observes that the internal rate, which was set at 20% in the 1997 decision, was set
at 26.1% in the contested decision as a result of including the insolvency costs in the calculations. The Commission specified
the relevant components of the calculation in recitals 19 to 23 in the preamble to the contested decision.

94      The Commission goes on to state that the determination of the minimum rate depends, inter alia, on subjective factors, such
as the investor’s attitude towards risk, so that any consultation carried out subsequently would have been distorted by knowledge
of developments in the sector in general and the undertaking concerned in particular. Nevertheless, the Commission’s consultants
actually took the amendments to the final version of the restructuring plan into account and came to the view that the economic
and financial effects of those amendments were not such as to change the minimum rate, originally set at 30%.

95      The Commission also points out that setting a minimum rate that would be required by a private investor is a question of making
a forecast and not a subsequent assessment. It follows that the results for 1997 could not have been taken into account.

96      In any event, the Commission claims that, even if there is a substantive defect in the annulled act, it is possible to base
a new decision on a review procedure followed previously, where the facts to be assessed are exactly the same as those already
examined in the initial decision. It submits that it would have been unrealistic to carry out a new investigation involving
institutional investors in 2001 in order to determine retrospectively the minimum rate they would have considered appropriate
had their opinion been sought in 1997 in the light of the final amendments to the restructuring plan.

2.     *Findings of the Court*

97      Pursuant to Article 233 EC, the institution whose act has been declared void is required to take the necessary measures to
comply with the annulment judgment.

98      In order to comply with an annulment judgment and to implement it fully, the institutions are required to have regard not
only to the operative part of the judgment but also to the grounds which led to the judgment and constitute its essential
basis, in so far as they are necessary to determine the exact meaning of what is stated in the operative part. It is those
grounds which, on the one hand, identify the precise provision held to be illegal and, on the other hand, indicate the specific
reasons which underlie the finding of illegality contained in the operative part and which the institutions concerned must
take into account when replacing the annulled measure (Joined Cases 97/86, 99/86, 193/86 and 215/86 *Asteris and Others* v *Commission* [1988] ECR 2181, paragraph 27).

99      The procedure for replacing such a measure may thus be resumed at the very point at which the illegality occurred (see Case
C‐458/98 P *Industrie des poudres sphériques*v *Council* [2000] ECR I‐8147, paragraph 82 and the case-law cited).

100    According to established case-law, annulment of a Community measure does not necessarily affect the preparatory acts (Case
C‐415/96 *Spain* v *Commission* [1998] ECR I‐6993, paragraph 32; see also, to that effect, Case C‐331/88 *Fedesa and Others*[1990] ECR I-4023, paragraph 34). The annulment of an act concluding an administrative proceeding which comprises several
stages does not necessarily entail the annulment of the entire procedure prior to the adoption of the contested act, regardless
of the grounds, procedural or substantive, of the judgment pronouncing the annulment (see Case T‐2/95 *Industrie des poudres sphériques* v *Council* [1998] ECR II‐3939, paragraph 91 and the case-law cited).

101    Where, in spite of the fact that investigation measures have been taken allowing an exhaustive analysis to be made of the
compatibility of the aid, the analysis carried out by the Commission is incomplete, thus making the decision unlawful, the
procedure for replacing that decision can be resumed at that point by means of a fresh analysis of the investigation measures
(see, to that effect, *Spain* v *Commission*, paragraph 34).

102    Since the operative part of the *Alitalia I* judgment contains a decision of invalidity, it is in the light of those principles identified by the case-law that it is
necessary to determine whether, in the contested decision, the Commission took the necessary measures to comply with the judgment
and, as part of that analysis, to examine in particular whether the grounds of that judgment placed the Commission under an
obligation to resume the whole procedure from the beginning.

103    First of all, it must be noted that, contrary to Alitalia’s submissions, case-law does not dictate that it is not necessary
for the entire procedure prior to the adoption of a measure adopted in replacement of another to be repeated only where that
measure was annulled on the ground of procedural defects (Case T‐2/95 *Industrie des poudres sphériques* v *Council*, paragraph 91).

104    In the *Alitalia I*judgment, the Court clearly stated that ‘[t]he method which the Commission employed in the [1997] decision cannot be criticised
as such’ (paragraph 99). However, the Court annulled the 1997 decision on the ground that it was vitiated by ‘an error of
reasoning in so far as it adopt[ed] for IRI’s investment the same minimum rate as that determined in the Iberia decision’
(paragraph 137). It also annulled the 1997 decision on the ground that the Commission had made manifest errors of assessment
in considering, first of all, ‘on the basis of the reasons put forward in the [1997] decision, that the insolvency costs relating
to the loans granted by Cofiri [a company forming part of the IRI group] should be excluded from the calculation of the internal
rate’ (paragraph 150) and, secondly, ‘that the adjustments made to the restructuring plan in June 1997, which, on its own
admission, reduced the risks inherent in that plan and further increased the profitability of the undertaking, had no impact
on the calculation of the minimum rate and the internal rate and, accordingly, on the appraisal of whether IRI’s investment
satisfied the private investor test’ (paragraph 169).

105    It is necessary to examine the grounds which led the Court of First Instance to those conclusions in the *Alitalia I*judgment.

106    With regard, in the first place, to the failure to state adequate reasons for the setting of the minimum rate, it must be
noted that, before examining that plea, which was raised by the applicant, the Court considered and rejected the applicant’s
complaints concerning the factors on which the Commission and its consultants based their decision in setting the minimum
rate. In particular, the Court stated that ‘none of the matters put forward by the applicant [gave] any reason to doubt that
the experts consulted by [the Commission’s consultants] did not have the information necessary to assess the minimum rate
in the present case’ (paragraph 121).

107    In examining the failure to state adequate reasons, after setting out the considerations which led the Commission to fix the
minimum rate at 30% in the Iberia decision (paragraph 128), the Court stated that, throughout the administrative procedure,
the applicant had maintained that its situation was not comparable to Iberia’s situation, insisting, in particular, that the
elements of uncertainty that characterised the Iberia case did not apply in its case (paragraph 131). However, the Court found
that ‘the Commission did not explain in the [1997] decision why it considered it necessary to apply to IRI’s investment the
same minimum rate of 30% as it had adopted in the Iberia decision although the findings made in the [1997] decision [gave]
the impression, in particular, that a number of the risk factors which [had] led the Commission, in the Iberia decision, to
fix the minimum rate at that level, which was very high and far higher than market rates, were not present, or were present
to a lesser extent, in the Alitalia case’ (paragraph 136). The Court concluded from this that the 1997 decision was vitiated
by defective reasoning.

108    It is apparent from the examination of the first ground of annulment that it does not call into question the review procedure
which resulted in the fixing of the minimum rate at 30%. Nor, contrary to Alitalia’s submissions, did the Court consider that
the minimum rate could not have been fixed at 30% or invalidate any comparison between Iberia and Alitalia. It follows that
the first ground on which the Court annulled the 1997 decision did not preclude the possibility that the measure could be
remedied on the basis of available information if a more detailed statement of reasons were given.

109    In the contested decision, after describing at length, in recitals 25 to 29 in the preamble, the reasons, relating to the
specific situation of Alitalia, justifying the fixing of the minimum rate at 30% and stating, in recital 30, that that rate
was the same as that applied by the Commission in the Iberia decision, the Commission explains why it ‘considers that the
risks inherent in the capital injection to Alitalia in July 1997 are at least as high as those involved in the capital injection
received by Iberia in January 1996’. The Commission pursues the comparison further in recital 31 in the preamble to the contested
decision.

110    In that connection, with regard to the social situation of the two companies which was referred to by the Court in the *Alitalia I*judgment, the Commission now states that it is ‘[a]nother feature the two companies have in common, from an investor’s point
of view’. It claims that ‘[t]he investor would no doubt observe that, in both cases, both sides of industry have made commitments
to a certain extent to accepting improvements in productivity and reductions in production costs, but would consider more
importantly the social disputes experienced by both airlines in the years leading up to the capital injection as well as the
challenge facing both companies of transforming their business culture, adapting the characteristics of a public body that
has enjoyed a long period of monopoly to the new market conditions’ (recital 31 in the preamble to the contested decision).

111    Next, with regard to whether the Alitalia restructuring plan was realistic when compared with the uncertainty that characterised
the recapitalisation of Iberia, a difference which was also referred to by the Court in the *Alitalia I*judgment, the Commission explained, again in recital 31 in the preamble to the contested decision, that ‘a hypothetical investor
would see the risk factors involved in Iberia’s situation as being more than outweighed by the twofold uncertainty of Alitalia’s
situation with regard to the conditions of the company’s development at Malpensa airport (a key part of the plan) and with
regard to the effects of the liberalisation of Italy’s internal civil aviation market’. It points out, in that regard, that
‘[t]he Spanish internal civil aviation market was actually liberalised several years before the Italian internal market and
[that], in 1996, it [was] already possible to see its impact on Iberia, whilst in 1997 the effects of the liberalisation of
the Italian internal market on Alitalia [were] still very hard to identify’. The Commission adds that ‘Iberia has a privileged
position in the market for routes between Europe and Latin America, whilst Alitalia has no such advantage’.

112    In the light of the foregoing considerations, the Commission must be regarded as having complied with Article 233 EC, since
it provided an adequate statement of reasons in the contested decision.

113    In the second place, as regards the two manifest errors of assessment, the Court held, first of all, in the *Alitalia I*judgment that ‘in the [1997] decision the Commission state[d] that, for the purpose of calculating the internal rate, ... it
[was] not necessary to include ... the costs which IRI [would] have to bear in the event of Alitalia’s bankruptcy’ (paragraph
142). It then set out the reasons given by the Commission for excluding the insolvency costs (paragraph 144) before going
on to reject them, and added that the Commission’s reasoning concerning the insolvency costs was circular (paragraphs 146
to 149). The Court concluded from this that ‘the Commission [had] made a manifest error of assessment in considering, on the
basis of the reasons put forward in the [1997] decision, that the insolvency costs relating to the loans granted by Cofiri
should be excluded from the calculation of the internal rate’ (paragraph 150). The Court then rejected the applicant’s argument
that the internal rate was incorrectly calculated because the Commission obliged it to assume the cost of the early retirement
of 700 of its staff (paragraphs 152 to 156).

114    It is clear that in the *Alitalia I*judgment, without calling into question the review procedure or the accuracy of the basic data collected in the course of
that procedure, in particular that relating to the insolvency costs, the Court declared the failure to take account of the
insolvency costs in calculating the internal rate unlawful.

115    That error in the selection and final processing of the available information could have been remedied by including those
costs in the calculation of the internal rate. The Commission was therefore correct in stating, in recital 20 in the preamble
to the contested decision, that such costs ought to be included in the present instance.

116    The Commission estimated the total insolvency costs at approximately ITL 750 billion, a figure which Alitalia cannot claim
to have become aware of for the first time in the contested decision, without having had the opportunity to discuss it. In
fact, as early as the report of 21 February 1997 (annexed by Alitalia to the application and considered by the Court as an
integral part of the reasons for the 1997 decision), the Commission’s consultants’ conclusion of their analysis of the insolvency
costs was that those costs should not exceed ITL 750 billion, rather than the figure of ITL 1 140 billion put forward by Alitalia.

117    It is clear, as is acknowledged by Alitalia itself, that in the *Alitalia I*judgment the Court did not rule on whether that figure of ITL 750 billion was justified. Nor, however, did it endorse the
figure of ITL 1 140 billion proposed by Alitalia in support of its first action (paragraph 138). It cannot therefore be deduced
from the *Alitalia I*judgment that, in order to comply with the grounds of the judgment, the Commission was required to take account of a particular
figure for the insolvency costs.

118    Moreover, the assertion in recital 20 in the preamble to the contested decision that Alitalia accepted the figure of ITL 750 billion
was removed from the contested decision by way of amendment (see paragraph 22 above).

119    Furthermore, in the *Alitalia I*judgment (paragraph 150), the Court found that the Commission had made a manifest error of assessment ‘on the basis of the
reasons put forward in the [1997] decision’. In other words, the Court did not rule out the possibility that the Commission
could rely on more appropriate grounds.

120    The Court also stated that ‘in an action for annulment, it is not for [it] to reassess the internal rate for the investment
and to determine whether that rate, on the assumption that the insolvency costs should have been included in its calculation,
is still lower than the minimum rate’ (paragraph 151). The Court did not therefore rule out the possibility either that the
internal rate might be lower than the minimum rate.

121    In view of the foregoing considerations, the Commission therefore complied with Article 233 EC in the contested decision by
including the insolvency costs in the calculation of the internal rate without resuming the review procedure *ab initio*.

122    Lastly, as regards the account taken of the final adjustments made to the restructuring plan in June 1997, the Court examined,
first of all, in the *Alitalia I*judgment, the chronology of events (paragraphs 158 to 161). It then set out the Commission’s arguments that the final adjustments
to the restructuring plan could not have had a decisive impact (paragraph 163). It rejected those submissions on the ground
that they related to events which had occurred after the adoption of the 1997 decision (paragraph 164). Finally, the Court
stated that, as described by the Commission, the minimum rate was directly proportionate to the risk inherent in the investment
and the internal rate, according to the Commission, expressed the underlying internal rate of return. However, the Court added
that ‘the Commission itself stated in the [1997] decision that the final improvements to the restructuring plan in June 1997
reduce[d] the risks inherent in the restructuring plan and further increase[d] the profitability of the capital injection’.
The Court concluded that ‘[it was] apparent, therefore, that those final amendments [were] of such a kind as to cause the
internal rate to rise (increased profitability) and the minimum rate to fall (reduced risks)’ (paragraph 167). Accordingly,
the Court considered that the Commission should have reassessed the minimum rate and the internal rate on the basis of the
final version of the restructuring plan in order to be able to make an accurate assessment of whether IRI’s investment satisfied
the private investor test (paragraph 168). The Court concluded that ‘the Commission made a manifest error of assessment in
considering that the adjustments made to the restructuring plan in June 1997, which, on its own admission, reduced the risks
inherent in that plan and further increased the profitability of the undertaking, had no impact on the calculation of the
minimum rate and the internal rate and, accordingly, on the appraisal of whether IRI’s investment satisfied the private investor
test’ (paragraph 169).

123    It follows from the above that, in the *Alitalia I*judgment, the Court found that the error of assessment had occurred at the last stage of the decision-making process, after
the final improvements had been made to the restructuring plan. The Court does not call into question the review procedure,
in particular as regards the collection and inspection of the data on those final improvements. Nor does it rule on the minimum
rate or the internal rate calculated in the previous reports of the Commission’s consultants. Contrary to the argument put
forward by Alitalia, the Court does not give any indication of what those rates should be. On the contrary, it states that
it is not for the Court, in an action for annulment, ‘to reassess the minimum rate and the internal rate for the investment
or to decide whether a private investor would have made the investment which IRI proposed to make at the time when the [1997]
decision was adopted’ (paragraph 170).

124    The obligation imposed on the Commission by the *Alitalia I*judgment was therefore to take account of the final version of the restructuring plan in calculating the minimum rate and
the internal rate. It is therefore necessary to determine whether the Commission complied with that obligation.

125    As regards the fixing of the minimum rate, it is apparent from recital 27 in the preamble to the contested decision that the
Commission took account of the amendments to the plan relating to the fact that Alitalia bore the costs of the early retirement
programme, that it took faster action to cut expenditure on personnel by transferring Alitalia personnel to Alitalia Team
more quickly than anticipated, that it reduced the amount of the capital injection from ITL 2 800 billion to ITL 2 750 billion
and that Alitalia’s shares in the Hungarian company, Malév, and in six regional Italian airports were released.

126    The Commission also provided figures demonstrating the impact of those amendments in recital 27 in the preamble to the contested
decision.

127    However, in recitals 25 to 28 in the preamble to the contested decision, the Commission set out a number of factors which,
in its view, increased the risks of the operation and thus neutralised the effects of the adjustments in question.

128    As regards the fixing of the internal rate, Alitalia suggests that the rate of 26.1% which appears in recital 23 in the preamble
to the contested decision is simply a repetition of the rate already fixed previously by the Commission. The Commission did
not therefore, in its view, reassess that rate in the light of the final version of the restructuring plan, as it was, however,
required to do pursuant to the *Alitalia I*judgment.

129    In the 1997 decision, the Commission fixed the internal rate as being close to 20% (point VII, paragraph 8). The rate of 26.1%
is therefore not a repetition of the rate taken into account in the first procedure which concluded with the *Alitalia I*judgment.

130    It is apparent from the *Alitalia I*judgment that the Commission had asserted ‘in its rejoinder that that rate, recalculated on the basis of the final version
of the plan, [was] no more than 26.1%, even including the insolvency costs’ (paragraph 163). A table was annexed to that document.
The Court did not take that percentage into account for the simple reason that, according to the case-law, ‘[i]n order to
assess the legality of the contested decision, the Court takes into consideration only the matters which the Commission had
at its disposal when it adopted the contested decision’ and that ‘[a]ny argument of the Commission relating to events which
occurred after the adoption of the [1997] decision [was] therefore [to] be disregarded’ (paragraph 164).

131    It follows that, at the stage of the rejoinder in Case T‐296/97, the Commission had already recalculated that rate on the
basis of the final version of the plan, fixing it at 26.1%, but that the Court, without examining it, had rejected the possibility
of taking it into account, since it did not appear in the 1997 decision. It cannot be deduced from the *Alitalia I*judgment that that rate of 26.1% did not take account of the final version of the restructuring plan.

132    There was therefore nothing to prevent the Commission from referring in the present proceedings to the table which it had
drawn up for the purpose of Case T‐296/97 and which was annexed by Alitalia to the application in these proceedings. However,
the Commission considered it appropriate to approach the consultants whose assistance it had sought before the adoption of
the 1997 decision to ask them, in particular, ‘to calculate either the internal rate of return on the capital injection or
the appropriate minimum rate taking account of the terms of the [Alitalia] judgment [I]’ (recital 10 in the preamble to the
contested decision).

133    In their report of 1 June 2001, annexed to the defence, the Commission’s consultants state that the cash flow forecasts annexed
to the rejoinder in Case T‐296/97 correspond to those provided by Alitalia in the final version of the June 1997 plan, with
the exception of the final value of the company at the end of the year 2000, for reasons linked to the company’s growth rate
after that year and the different value attributed to the ‘standard’ cash flow for 2000. Moreover, the negative cash flow
resulting from underwriting the increases in capital anticipated for June 1997 (ITL 1 000 billion), March 1998 (ITL 500 billion)
and March 1999 (ITL 250 billion) were updated using the risk-free rate. In addition, two possibilities were envisaged with
regard to the amount of IRI’s contribution, namely 79% or 86%.

134    The Commission also explains, in recitals 19 to 23 in the preamble to the contested decision, how it arrived at the internal
rate of 25.2% or 26.1%, according to the taxation applicable. It explains, inter alia, in recital 22, the method used for
determining the value of Alitalia at the end of 2000.

135    It follows that neither the Commission’s consultants nor the Commission itself were content simply to reproduce their earlier
calculations.

136    Moreover, it is apparent from the report of 1 June 2001 that the Commission’s consultants took account of the reduction in
the increase in capital, the release of other shares, the acceleration of the restructuring of Alitalia and the fact that
it bore the costs of the early retirement programme. They provided figures illustrating the effects of those new circumstances
on the principal economic data of the plan.

137    Furthermore, the Commission could not take account of information that was not available to it when the 1997 decision was
adopted (see, to that effect, Case C‐482/99 *France* v *Commission* [2002] ECR I‐4397, paragraph 71). It was therefore required not to take account of the period during which the plan was implemented,
between the 1997 decision and the contested decision.

138    In conclusion, the Commission also complied with Article 233 EC as regards the abovementioned ground on which the 1997 decision
was annulled in the *Alitalia I*judgment.

139    In accordance with the case‐law cited in paragraphs 98 to 101 and 137 above, since the situation to be assessed was the same
as that assessed in the 1997 decision and the Court did not criticise the review procedure, it was possible for the Commission
to resume that procedure at the stage at which the Court found that a failure to state adequate reasons and errors of assessment
had occurred. In order for it to comply with Article 233 EC and the operative part and grounds of the *Alitalia I*judgment, it was sufficient for the Commission to state adequate reasons for its choice of the same minimum rate as that it
had applied in the Iberia decision, to include the insolvency costs in the calculation of internal rate and to take account
of the final version of the restructuring plan in calculating the minimum rate and the internal rate.

140    None of the arguments put forward by Alitalia calls that conclusion into question.

141    In fact, as regards, first of all, the argument that the Commission should have reopened the formal investigation procedure
since it did not have available to it full uncontested information, the Commission opened the formal investigation procedure
under Article 88(2) EC on 9 October 1996 and that procedure was concluded with the 1997 decision.

142    Since the 1997 decision was annulled by the Court of First Instance, the procedure for replacing such a measure could therefore
be resumed at the very point at which the illegality had occurred. Following the Court’s annulment of the 1997 decision, the
Commission was not required to recommence the procedure by going back further than the precise point at which that illegality
had occurred (see paragraph 99 above). In the present case, the illegalities censured by the Court do not go back as far as
the opening of the procedure.

143    Next, with regard to the claim that it was necessary, after the amendments made to the restructuring plan by the 26 June 1997
version, to publish a new notice in the Official Journal and to reopen the formal investigation procedure in order to consult
once more the financial investors and experts, there is no provision in Council Regulation (EC) No 659/1999 of 22 March 1999
laying down detailed rules for the application of Article [88 EC] (OJ 1999 L 83, p. 1) requiring a procedure to be reopened
where adjustments are made to the initial plan in the course of the formal investigation, even though such adjustments are
envisaged in Article 7(2) and (3) of Regulation No 659/1999.

144    Moreover, it is clear from the *Alitalia I*judgment, in particular paragraphs 123, 133, 143 and 163 to 167, that the Court criticised the Commission for failing to give
adequate reasons for or to take account of information available to it of which it was aware. Since it had available to it
the information necessary for the fresh analysis required by the Court and, in particular, the final improvements made to
the restructuring plan in June 1997 (paragraph 167), the Commission was not under an obligation to start the investigation
of the case afresh or even to supplement it by consulting once more the investors and experts or by resorting to new technical
expertise.

145    Contrary to what Alitalia submits, it is apparent from the document produced by the Commission at the request of the Court
setting out the tasks entrusted to its consultants after the annulment of the 1997 decision that the Commission did not instruct
them to gather new information but to supplement and update their earlier report by including the insolvency costs in the
calculation of the internal rate and taking account of any effects of the adjustments to the plan in the final version of
June 1997 in calculating the internal rate and the minimum rate. The description of the tasks entrusted to the Commission’s
consultants also specifies that the consultants had already carried out the bulk of the work when they contributed to the
preparation of the rejoinder lodged by the Commission on 13 July 1999 in Case T-296/97.

146    Moreover, it would in any event be contrary to case-law to oblige the Commission to reopen the procedure in order to seek
items of information relating to the period after the 1997 decision had been adopted. In fact, in order to examine whether
or not the State has adopted the conduct of a prudent investor operating in a market economy, it is necessary to place oneself
in the context of the period during which the financial support measures were taken in order to assess the economic rationality
of the State’s conduct, and thus to refrain from any assessment based on a later situation (see paragraph 137 above).

147    It follows that the first part of the first plea, alleging procedural defects, and the third plea, alleging that the contested
decision did not comply with the *Alitalia I*judgment, are unfounded.

C –  *The plea alleging infringement of the obligation to adopt a decision within a period of two months, laid down in Article 4(5)
of Regulation No 659/1999*

1.     *Arguments of the parties*

148    In the second part of its first plea, Alitalia submits that, after the annulment of its earlier decision in the *Alitalia I*judgment, the Commission had two months within which to adopt a decision, pursuant to Article 4(5) of Regulation No 659/1999.
In its view, the Commission did not comply with that obligation.

149    Alitalia adds that it would undermine the principle of legal certainty if an institution were permitted freely to choose the
period for complying with a judgment annulling a decision adopted concerning State aid. That applies a fortiori since the
Commission did not avail itself of the right to lodge an appeal against the *Alitalia I*judgment before the Court of Justice and therefore that judgment had become final, so that Alitalia was able to regard its
legal situation as being definitively clarified.

150    The Commission’s failure to take any steps between the notification of the *Alitalia I* judgment and the adoption of the contested decision also entailed an implicit decision that the disputed aid was compatible
with the common market under Article 4(6) of Regulation No 659/1999.

151    In its reply, Alitalia adds that, even if the Commission were not under an obligation to reopen the formal procedure for investigating
the contested operation and Article 7(6) of Regulation No 659/1999 therefore applied, the overall length of the procedure
was in any event excessive. It in fact took the Commission almost 19 months from the date of notification of the plan to grant
aid in order to reach a final decision in the present case. A little more than seven months also elapsed between the delivery
of the *Alitalia I*judgment and the adoption of the contested decision. Such a period is unreasonable, since the Commission did no more than
reassess the results of the investigation procedure and took no active steps during the first four months.

152    For the Commission, the premiss on which the second part of the first plea is based is clearly incorrect. The *Alitalia I*judgment did not take the procedure back to the preliminary stage but to the conclusion of the formal investigation procedure.
It follows that the Commission was not bound by the mandatory two-month time-limit laid down in Article 4(5) of Regulation
No 659/1999 but to the non-mandatory time-limit of 18 months imposed in Article 7(6). In the present case, the total period
of just over 16 months which was required for the adoption of the contested decision is therefore less than that mandatory
period.

153    Moreover, the case-law recognises that an institution whose measure has been annulled should be allowed a reasonable period
within which to give effect to the annulment judgment. The period available to the Commission in the present case cannot therefore
be deduced automatically from Article 7(6) of Regulation No 659/1999. On the contrary, it is necessary to take account of
the nature and the extent of the measures necessary for the adoption of a new decision.

154    According to the Commission, Alitalia’s argument in the reply alleging that a ‘reasonable period’ had elapsed is a new plea.
Since it was raised belatedly, it is inadmissible and, what is more, unfounded.

2.     *Findings of the Court*

155    The obligation of a Community institution to give effect to an annulment judgment delivered by the Community judicature derives
from Article 233 EC. It has been recognised by the Court of Justice that compliance calls for the adoption of a number of
administrative measures and is not normally possible immediately: the institution is allowed a reasonable period within which
to comply with a judgment annulling one of its decisions. The question whether or not the period was reasonable depends on
the nature of the measures to be taken and the attendant circumstances (see Case T‐73/95 *Oliveira* v *Commission* [1997] ECR II‐381, paragraph 41 and the case‐law cited).

156    In the present case, a little over seven months elapsed between the delivery of the *Alitalia I*judgment and the adoption of the contested decision. That period cannot be regarded as excessive for the purpose of giving
practical effect to the *Alitalia I*judgment, in particular by making, on the basis of the available information, a fresh application of the private investor
operating on market principles test – which requires in-depth financial analysis.

157    Moreover, for the purpose of monitoring new aid which the Member States intend to grant, Article 88 EC distinguishes between
the preliminary investigation stage and the formal investigation procedure. The preliminary investigation stage provided for
in Article 88(3) EC is intended merely to allow the Commission a sufficient period of time for reflection and investigation
so that it can form a prima facie opinion on the draft aid plans notified to it, thus enabling it to conclude that the aid
plans do not constitute aid, that they are compatible with the common market or that the existing doubts as to their compatibility
make it necessary for an in-depth investigation to be carried out (Case 120/73 *Lorenz* [1973] ECR 1471, paragraph 3, and Case C‐204/97 *Portugal* v *Commission* [2001] ECR I‐3175, paragraph 34). Having regard to the interest of Member States in being informed of the position quickly,
the preliminary investigation stage must, in principle, be regarded as an urgent matter and is accordingly subject to a mandatory
two-month period that runs from the receipt by the Commission of complete notification (*Lorenz*, paragraph 4, and Case C‐334/99 *Germany*v *Commission* [2003] ECR I‐1139, paragraphs 49 and 50).

158    The formal investigation procedure provided for in the first subparagraph of Article 88(2) EC is essential where the Commission
is unable to satisfy itself after the preliminary investigation stage that a plan does not constitute aid or that, despite
constituting aid, it is compatible with the common market. The aim of the procedure is therefore to enable the Commission
to be fully informed of all the facts of the case by carrying out all the requisite consultations, as it is under a duty to
do, before reaching its final decision, as well as to protect the rights of potentially interested third parties by allowing
them to make their views known (Case T‐171/02 *Regione autonoma della Sardegna*v *Commission* [2005] ECR II‐2123, paragraph 32).

159    In the present case, the Court considered that, after the annulment of the 1997 decision, the Commission was not required
to repeat the whole procedure from the beginning by going back beyond the precise point at which the illegality sanctioned
by the Court had occurred, that is, the final stage of the formal investigation procedure (see paragraphs 97 to 144 above).

160    Since the entry into force of Regulation No 659/1999 on 16 April 1999, the formal investigation procedure has been subject
to an indicative period of 18 months, which runs from the date on which the procedure was initiated. As the period of 18 months
provided for in Article 7(6) of Regulation No 659/1999 is indicative only, it is necessary to consider whether, in the present
case, it is apparent from the progress of the formal investigation procedure that the Commission failed to take a reasonable
amount of time or acted too slowly (see, to that effect, *Regione autonoma della Saredgna*v *Commission*, paragraphs 56 and 57).

161    The Commission decided to initiate the procedure laid down in Article 88(2) EC on 9 October 1996 and adopted the 1997 decision
on 15 July 1997. After the Court annulled that decision in the *Alitalia I*judgment, delivered on 12 December 2000, the Commission adopted the contested decision on 18 July 2001. It follows that the
formal investigation had taken a little over nine months before the annulment judgment and was resumed a little over seven
months after that judgment was delivered. Therefore, the overall duration of the formal investigation did not exceed the period
laid down in Regulation No 659/1999.

162    Moreover, Alitalia cannot claim that the principle of the protection of legitimate expectations was infringed on the sole
basis that the *Alitalia I*judgment was not appealed. In fact, that judgment did not exclude the possibility that the contested decision could be remedied.
Furthermore, the period available to the Commission to give practical effect to that judgment was longer than the two-month
period within which it would have had to lodge its appeal against the judgment.

163    In conclusion, the second part of the first plea alleging procedural defects must also be rejected.

D –  *The plea alleging infringement of the rights of defence*

1.     *Arguments of the parties*

164    Alitalia complains that the contested decision is unlawful in so far as the Commission seriously infringed its rights of defence.
The Court of Justice has placed express emphasis on the importance of the rights of defence in matters of State aid and acknowledged,
in particular, that the recipients of State aid may rely on the protection of those rights.

165    Alitalia submits that, in any event, the recipient of aid must have the right to submit comments.

166    However, in spite of requests made to that end, it was not given the opportunity to express its opinion either on whether
it was appropriate to adopt a new decision after the annulment of the 1997 decision or on the content of such a decision.
There was no exchange of arguments with the Italian authorities or Alitalia on the report of the Commission’s consultants.
However, respect for all procedural safeguards was all the more necessary since the Commission was not obliged to resume the
position which it had adopted in the 1997 decision.

167    The Commission deduces from the fact that the administrative procedure in matters of State aid is initiated only in relation
to the Member State concerned that only Member States can rely on actual rights of defence.

168    In any event, Alitalia’s right to submit comments had been guaranteed since 1996 by the publication of the decision to initiate
the formal investigation procedure. Following the publication of that decision, Alitalia did in fact state its point of view.
Its action for the annulment of the 1997 decision also enabled it to defend its arguments. Since the purpose of the investigation
procedure remained the same after the *Alitalia I*judgment and the facts on which it relies in the contested decision are exactly the same as those relied on in the 1997 decision,
the Commission submits that it was not necessary to invite Alitalia to submit its comments once again.

2.     *Findings of the Court*

169    According to settled case-law, respect for the rights of defence is, in all proceedings initiated against a person which are
liable to culminate in a measure adversely affecting that person, a fundamental principle of Community law which must be guaranteed
even in the absence of specific rules. That principle requires that the person concerned be afforded the opportunity during
the administrative procedure to make known in an effective manner his views on the truth and relevance of the facts, charges
and circumstances relied on by the Commission (see Joined Cases T‐228/99 and T‐233/99 *Westdeutsche Landesbank Girozentrale and Land Nordrhein-Westfalen*v *Commission* [2003] ECR II‐435, paragraph 121 and the case‐law cited).

170    The administrative procedure regarding aid is initiated only against the Member State concerned. Undertakings that receive
aid and the local authorities within that State which grant the aid are considered, in the same way as competitors of the
recipients of the aid, only to be ‘interested parties’ in this procedure (see *Westdeutsche Landesbank Girozentrale and Land Nordrhein-Westfalen* v *Commission*, paragraph 122 and the case-law cited).

171    Moreover, it is settled case-law that, in the context of an examination under Article 88(2) EC, the Commission is required
to give notice to the parties concerned to submit their comments. With regard to that duty, the Court of Justice has ruled
that the publication of a notice in the Official Journal is an appropriate means of notifying the persons concerned that the
procedure is to be initiated, while also pointing out that the sole aim of this communication is to obtain from persons concerned
all information required for the guidance of the Commission with regard to its future action (see *Westdeutsche Landesbank Girozentrale* *and Land Nordrhein-Westfalen* v *Commission*, paragraphs 123 and 124 and the case-law cited).

172    This case-law confers on the parties concerned the role of information sources for the Commission in the administrative procedure
instituted under Article 88(2) EC. It follows that, far from enjoying the same rights of defence as those which individuals
against whom a procedure has been instituted are recognised as having, the parties concerned have only the right to be involved
in the administrative procedure to the extent appropriate in the light of the circumstances of the case (see *Westdeutsche Landesbank Girozentrale* *and Land Nordrhein-Westfalen* v *Commission*, paragraph 125 and the case‐law cited).

173    Since Alitalia does not enjoy the same rights of defence as those which individuals against whom a procedure has been instituted
are recognised as having, it is necessary to determine whether, on the basis of such case‐law, it was involved in the administrative
procedure to the extent appropriate in the light of the circumstances of the case.

174    It is apparent from the Court’s findings in the *Alitalia I*judgment that the Italian authorities and Alitalia were closely involved in the investigation of the disputed aid before the
adoption of the 1997 decision, which was replaced by the contested decision after the former had been annulled. Moreover,
the Commission was required to base its new analysis solely on information which was available to it at that time (see paragraph
137 above) – information in respect of which both the Italian Republic and Alitalia had already defined their position, so
that it was unnecessary to consult them afresh. Finally, with the publication of a notice in the Official Journal of 16 November
1996 (OJ 1996 C 346, p. 13), the third parties concerned were ensured the right to submit their comments and there is no provision
in Regulation No 659/1999 requiring that that opportunity be made available to them again where the original plan has been
amended during the investigation procedure.

175    With regard in particular to the argument concerning the report of the Commission’s consultants of 1 June 2001, even though
it must be concluded in the circumstances of the case that some form of obligation arose to consult the Italian authorities
on that report, it cannot be inferred from the *Westdeutsche Landesbank Girozentrale and Land Nordrhein-Westfalen*v *Commission* case‐law that the same obligations should be extended to the third parties concerned. The latters’ role is essentially that
of a source of information and they do not enjoy the same rights of defence as those which individuals against whom a procedure
has been instituted are recognised as having (see paragraph 172 above).

176    In any event, as is apparent from paragraph 145 above, since the very limited task entrusted to its consultants by the Commission
was simply to update their previous report by taking account of the grounds of the *Alitalia I*judgment, its purpose was ‘only [to provide] the Commission with technical assistance’ (recital 10 in the preamble to the
contested decision) in its analysis and assessment of the information available to it, as could have been provided by a Commission
department. In the parts of the contested decision devoted to the legal assessment of the contested capital injection, there
is no express reference to the report of 1 June 2001. That report cannot therefore be regarded as a vital document as regards
the grounds of the contested decision.

177    On the basis of all the above considerations, the second plea must be rejected.

E –  *The plea alleging infringement and misapplication of Articles 87 EC and 88 EC*

178    Alitalia submits that the errors made by the Commission in the contested decision relate, for the most part, essentially to
the correction of the errors identified by the Court in the *Alitalia I*judgment. After making a number of preliminary observations on the private investor test, it disputes the determination of
the minimum rate and that of the internal rate.

1.     *Determination of the minimum rate*

179    Alitalia challenges the application in its case of the minimum rate used in the Iberia decision, the failure to take account
of the final version of the restructuring plan and the use of incorrect premisses.

a)     The application of the minimum rate used in the Iberia decision to Alitalia

Arguments of the parties

180    Alitalia complains that the Commission failed to carry out a detailed comparison of its situation with that of Iberia, to
which the Commission refers in order to justify the minimum rate of 30%. It contends that the arguments set out by the Commission
in recitals 30 and 31 in the preamble to the contested decision had already been rejected by the Court in the *Alitalia I*judgment.

181    Alitalia also maintains that those arguments are incorrect. Alitalia and Iberia are not companies of comparable scale. The
capital injections are substantially the same in both cases only because the Commission failed to take account of a recapitalisation
which the Spanish company benefited from. It is manifestly incorrect to state that the greater the increase in capital, the
higher the risk. To state that the two companies operate in a market which is not at the geographical centre of Europe is
to disregard the geographical location of the north and centre of Italy. Iberia did not secure real agreements with the unions
to improve the level of unit costs but simply enjoyed a limited short-term agreement, whereas Alitalia already had an innovative
long‐term agreement which also provided for a share‐ownership scheme for employees to ensure wider employee participation.
The liberalisation of the Spanish civil aviation market was a threat to Iberia, in so far as the ground-handling services
it provided to other companies was liberalised, whereas the liberalisation of the Italian civil aviation market gave Alitalia
the opportunity to develop a self-handling project in that sector. The projects for Malpensa airport (Italy) were not the
central components of the economic and financial projections of the contested plan. Alitalia also fails to understand in what
way the fact that it did not enjoy a privileged position on certain routes could constitute a risk factor liable to have an
effect on the minimum rate. The social situation of Iberia, which experienced continuous strikes, is different from that of
Alitalia. The effects of the liberalisation of the Italian civil aviation market were properly taken into account in the contested
plan without undue optimism. By contrast, it would be incorrect to claim that it was already possible fully to assess the
effects of the liberalisation of the Spanish market on Iberia’s market share when the Commission took the Iberia decision.

182    Finally, the reference to Continental Airlines, Air Partners and Air Canada in recital 32 in the preamble to the contested
decision is totally irrelevant.

183    For its part, the Commission contends that Iberia and Alitalia are comparable to the extent that they are both medium-sized
companies and have a similar value. Next, Alitalia suffered above all from the disadvantage of not having a prime market,
comparable to that represented by Latin America for Iberia. Moreover, in terms of labour relations, Alitalia’s position is
more sensitive than that of Iberia. In addition, in the case of Alitalia, it is necessary to take account of the uncertainty
connected with the liberalisation of the Italian market that was imminent in 1997.

184    Lastly, the Commission disputes the fallacious use which Alitalia makes of the case involving investment by Air Canada and
Air Partners in Continental Airlines.

Findings of the Court

185    First of all, the Commission’s assessment of whether an investment satisfies the private investor test is a complex economic
matter. In adopting a measure entailing such a complex economic assessment, the Commission enjoys a wide discretion and any
judicial review of such a measure, even though it is generally thorough as far as the question of whether a measure falls
within the scope of Article 87(1) EC is concerned, is confined to establishing that the rules of procedure and the rules relating
to the duty to give reasons have been complied with, to verifying the accuracy of the facts relied on in making the contested
decision and that there has been no manifest error in the assessment of those facts or misuse of powers. In particular, it
is not for the Court to substitute its economic assessment for that made by the institution which adopted the decision (see
*Alitalia I*judgment, paragraph 105 and the case‐law cited).

186    In the second place, it is apparent from the analysis set out in paragraphs 106 to 112 above that, in the *Alitalia I*judgment, the Court did not challenge the principle itself of a comparison being made between Alitalia and Iberia but simply
stated that the reasoning was defective in that regard. Alitalia is therefore incorrect in claiming that the Court had already
rejected the factors for comparison set out in recitals 30 and 31 in the preamble to the contested decision.

187    It is in the light of those considerations that it is necessary to consider the arguments put forward by the parties.

188    In the first place, in recital 30 in the preamble to the contested decision, the Commission sets out a series of respects
in which both Alitalia and Iberia may be compared. Both companies have a turnover of approximately EUR 4 billion, they operate
in the same sector of the economy in a context of ongoing liberalisation within the Community, their internal market is not
at the geographical centre of Europe and they recorded systematic losses throughout the years prior to the capital injection
from which they both benefited. Furthermore, at the time of the capital injection, both Iberia and Alitalia were in dire financial
straits characterised by high indebtedness and a virtually zero level of capital assets. In recital 31 in the preamble to
the contested decision, the Commission adds that another feature the two companies have in common, from an investor’s point
of view, is their social situation.

189    However, Alitalia disputes several of those points.

190    First of all, with regard to Alitalia’s argument that certain figures cannot be compared, it is clear that Iberia and Alitalia
are, as the latter acknowledges, medium-scale undertakings when compared with large and small airlines. In its reply to a
written question from the Court on this subject, the Commission provided a number of tables produced by the Association of
European Airlines (AEA). It emerges from these that, in terms of turnover, seat-kilometres available and the number of passenger-kilometres
transported, Alitalia and Iberia are in the same medium-scale category.

191    Moreover, at the hearing, the parties did not dispute the consolidated turnover for Alitalia and Iberia put forward by the
Commission and confirmed that those were figures which lent themselves to comparison; formal note was taken of this in the
minutes of the hearing.

192    Secondly, with regard to Alitalia’s disputing the claim that the two companies operate in a market which is not at the geographical
centre of Europe, that argument is based essentially on the assertion that the centre-north of Italy cannot be regarded as
a market outside the centre of Europe. The Italian internal market covers all of Italy and not just the north of the country
and therefore a comparison cannot be made by comparing the north of Italy with the whole of Spain from a geographical point
of view.

193    Furthermore, it cannot be disputed that Spain and Italy are in a comparable geographical location within Europe, their internal
market not being in central Europe.

194    Thirdly, the contention that the social situation of the two undertakings is similar is unfounded. Alitalia does not deny
that there were ‘social disputes experienced by both airlines in the years leading up to the capital injection’ (recital 31
in the preamble to the contested decision). The two undertakings therefore had a comparable history in that regard, which
could influence an investor, as the Commission observes in the contested decision. As regards the future, while Alitalia draws
attention to its long‐term union agreement, it does so in order to contrast this not with Iberia’s failure to act but with
its ‘limited short-term agreement’. Since that difference essentially relates to the duration of action taken with a view
to the future, it cannot be concluded that it was manifestly incorrect to consider that ‘another feature the two companies
have in common, from an investor’s point of view, is their social situation’.

195    Secondly, in recitals 30 and 31 in the preamble to the contested decision, the Commission highlights features by which the
two companies can be distinguished in terms of risk, while at the same time indicating that some of these are counterbalanced
by other factors.

196    It is apparent, first of all, from recital 30 in the preamble to the contested decision that there is a significant difference
between the amounts of the capital injections in question, namely EUR 1.42 billion for Alitalia and EUR 0.522 billion for
Iberia, which, according to the Commission, increased the risk associated with the Alitalia recapitalisation plan.

197    In this connection, while it is accepted, as Alitalia acknowledges, that Iberia obtained two capital injections – one in 1992
and the other in 1995 – in the Iberia decision, the Commission gave a decision on only the second of these, which was for
EUR 0.522 billion, fixing the minimum rate at 30% for that operation alone. In the present case, however, the figure in question
is EUR 1.42 billion. It cannot therefore be regarded as being manifestly incorrect to state that, in the case of Alitalia,
the operation entailed prima facie a greater risk for the investor.

198    It is apparent, secondly, from recital 31 in the preamble to the contested decision that Iberia’s productivity is lower than
Alitalia’s and that Iberia faces uncertainties inherent in the effects of the liberalisation of the ground-handling market
in Spain. Nevertheless, Iberia enjoys a privileged position in the market on routes between Europe and Latin America. For
its part, Alitalia suffers from a twofold uncertainty relating to its development at Malpensa airport and the liberalisation
of the Italian civil aviation market.

199    Alitalia states, however, that it fails to understand in what way the fact that it does not enjoy a privileged position on
certain routes can constitute a risk factor.

200    In that regard, first of all, such a claim clearly cannot form the basis of a plea alleging a manifest error of assessment
and is, moreover, inconsistent with the Commission’s assertions in the contested decision. Alitalia has neither disputed that
it does not enjoy a privileged position on certain routes nor denied that Iberia enjoys a privileged position on the routes
in question. Secondly, the Commission has explained in its written pleadings that, with regard to Latin America, Iberia had
a market for which it had developed a solid commercial strategy and, accordingly, its future was much less prey to uncertainty,
or, in other words, to a risk factor. To consider that the privileged position of an airline on certain routes may procure
for it an advantage which reduces the risk factor for that company is not manifestly incorrect.

201    Next, the Commission does not deny that the liberalisation of the ground-handling market in Spain had some effect on Iberia
but points out that ground-handling operations accounted for only 13% of its turnover, a proportion which is even lower if
the whole group is taken into account (recital 31 in the preamble to the contested decision). Alitalia does not dispute that
percentage. No manifest error of assessment can therefore be said to have been made in that regard.

202    As regards the liberalisation of the Italian civil aviation market, it should be noted that Alitalia does not dispute the
effects but states that it took account of these in its plan. That fact alone cannot eliminate the risks inherent in such
a liberalisation from an investor’s point of view nor, therefore, preclude it from being taken into account for the purpose
of determining the minimum rate. It must also be noted that the liberalisation of the Spanish civil aviation market began
before that of the Italian market. The Commission is therefore correct to state that it was already in a position to gauge
the effects of that liberalisation on Iberia, whereas the effects on Alitalia of the opening of the Italian internal market
were still very uncertain in 1997.

203    Finally, as regards the arguments relating to Malpensa airport, after denying it in its application, Alitalia admitted in
its reply that the Malpensa hub formed a vital part of its strategy for the development of the company.

204    Moreover, it is apparent from the *Alitalia I*judgment that ‘[t]he development phase was chiefly based on bringing the Malpensa hub into service as from 1998’ (paragraph
12). Furthermore, the Malpensa hub is one of the ‘key elements of the plan’ mentioned in an Alitalia document to which that
judgment refers (paragraph 120).

205    It cannot therefore be disputed that the development of the Malpensa hub constituted a vital part of the Alitalia restructuring
plan. The fact that Alitalia was able to show in its accounts the benefits of the development of that hub only for the last
two years of the plan cannot, from the investors’ point of view, eliminate the risk inherent in that operation or therefore
preclude it from being taken into account for the purpose of determining the minimum rate. Nor can it be disputed that that
risk was particular to Alitalia and did not affect Iberia.

206    In conclusion, the above analysis has not brought to light any manifest error of assessment on the part of the Commission
in comparing the situation of Alitalia with that of Iberia. The Commission was entitled, without making any manifest error,
to adopt in the present case a minimum rate of 30%, which was the same as that applied in the Iberia case, because the situations
of the two airlines were comparable. In any event, in the reasons given for fixing the minimum rate at 30%, the comparison
of the two companies is presented simply as an ancillary or confirmatory point.

207    It should also be added, in response to Alitalia’s objection to the reference made by the Commission in recital 32 in the
preamble to the contested decision to Continental Airlines, that, in the comparison which it made with the situation of that
American company, the Commission took account of a period up to November 1998. The Commission therefore made use of information
which was not available to it when it adopted the 1997 decision. The Commission, however, must not make any assessment based
on a subsequent situation (see paragraph 137 above).

208    The reference made in recital 32 in the preamble to the contested decision to the American company Continental Airlines must
therefore be regarded as irrelevant and there is no need to examine Alitalia’s submissions on that point. The fact that ancillary
and purely confirmatory reference is irrelevant cannot, however, adversely affect the Commission’s reasoning or the legality
of the contested decision.

b)     Failure to take proper account of the effect of the final version of the plan in calculating the minimum rate

Arguments of the parties

209    Alitalia observes that the Commission acknowledges, in recital 27 in the preamble to the contested decision, that the final
adjustments made to the restructuring plan in June 1997 ‘reduce[d] the inherent risks of the operation’. According to Alitalia,
that finding should have led the Commission to adopt a lower minimum rate than that fixed previously.

210    Alitalia adds that, in order to assess the risk of an investment in an undertaking and the resulting minimum rate, analysts
take into account its financial exposure as against its capital and reserves. In order to translate that equation into a meaningful
indicator of financial risk, it is, however, essential to compare its particular ratio of debt to equity (gearing) with the
average debt-equity ratio of comparable undertakings. Since the gearing ratio of Alitalia was comparable to that of its major
competitors, it cannot, contrary to what the Commission stated in recital 28 in the preamble to the contested decision, be
one of the factors which may entail a higher minimum rate than that normally applicable for an investment in that sector.

211    The Commission contends that it is irrelevant to compare the gearing ratio of Alitalia at the end of the restructuring plan,
in 2000, with that of other companies, as Alitalia did.

212    The Commission submits that, in recital 28 in the preamble to the contested decision, it underlines the fact that the final
adjustments to the plan had no effect on the gearing level or the weight to be attached to it in the context of all the factors
as a whole that are taken into consideration by the private investor when deciding whether or not to invest.

Findings of the Court

213    The Commission states in recital 27 in the preamble to the contested decision that the final version of the Alitalia restructuring
plan reduced the inherent risks of the operation and increased the rate of return on the capital injection. However, it took
the view that the adjustments to the plan were ‘none the less not very significant and [had] far less impact than the earlier
amendments by the Italian authorities to the restructuring plan in February 1997’.

214    It must be noted (see paragraphs 125 to 136 above and recitals 10 and 27 in the preamble to the contested decision) that the
Commission provided figures demonstrating the impact of those amendments and that, on that occasion, it repeated the calculations
carried out by its consultants in their report of 1 June 2001, which is annexed to the defence. Alitalia fails to make any
specific substantive complaint about those calculations.

215    In recital 28 in the preamble to the contested decision, the Commission pursues its argument as follows:

‘In this respect, it is worth adding that in 2000 Alitalia’s indebtedness, and the ratio of debt to equity (gearing ratio),
is not significantly different. This, however, is precisely the data which an investor would see as crucially important when
assessing the risks he would be incurring by financing the operation. The changes made to the restructuring plan in June 1997
thus have a virtually negligible impact on any assessment made by an investor guided purely by commercial criteria, considering
that the inherent risks of the operation, as described above, continue to exist.’

216    It is apparent from the replies to the written questions from the Court that Alitalia does not dispute the fact that, in the
final version of the plan, the gearing ratio had not undergone a significant change but it contends that no such change was
necessary, since its gearing ratio was in line with the average for the sector.

217    The Commission did not therefore make a manifest error of assessment in finding that the gearing ratio for 2000 was not significantly
different. The fact that Alitalia’s gearing ratio was, as it claims, average for the sector does not in any way undermine
that finding.

218    Consequently, Alitalia has not established that the Commission failed to take proper account of the effects of the final version
of the restructuring plan for the purpose of determining the minimum rate.

c)     Taking account of erroneous premisses in calculating the minimum rate

Arguments of the parties

219    Alitalia considers that the minimum rate should be fixed on the basis of the cost of the undertaking’s own resources, that
is to say, on the basis of the anticipated return for investing risk capital in that undertaking. That return is itself determined
by a formula reflecting the general risk inherent in investing and the particular risk inherent in investing in a particular
undertaking.

220    Alitalia fails to understand how the Commission can, on the one hand, assess the cost of its equity capital at 14% and, on
the other hand, arrive at a minimum rate of 30%. Alitalia is of the view that an assessment of the cost of the equity capital
at 14%, evaluated in accordance with the capital asset pricing model (CAPM), already takes account of the risks factors for
the air transport sector as well as the specific risk factor inherent in the undertaking. It is apparent from the report of
the Commission’s consultants of 18 June 1997 that they had arrived at that percentage on the basis of a particularly high
‘coefficient β’ of 1.23, representing the correlation between the variability of the market return and that of the return
of the company in question, as listed on the Stock Exchange, which already reflects a value judgment as regards the risk presented
by the contested investment.

221    Alitalia takes issue with the various risk factors enumerated by the Commission in recitals 25 and 26 in the preamble to the
contested decision.

222    Alitalia then submits that it registered positive operating results during the period preceding the plan but that it has not
had net positive results for a number of years because of an imbalance between its own resources and those of third parties,
an imbalance which the restructuring plan was intended in particular to address. Moreover, during the first half of 1997,
Alitalia registered a better operating profit than that projected in the plan. Finally, IRI was in a special situation as
a holding company which was already a shareholder of the company, which, for the purpose of evaluating the investment, gave
it greater knowledge of and a greater capacity for understanding the company.

223    In response to the Commission’s assertion that the hypotheses regarding the future development of the company’s productivity,
operating expenditure, seat occupancy levels and unit earnings on which the plan is based are rather optimistic, Alitalia
states that the Commission’s consultants accepted the projections in the company’s plan and did not put forward other data
capable of rebutting them. The Commission even acknowledged that the plan, as improved and adapted in January 1997, was realistic.

224    As regards the role to be played by the Malpensa hub in the anticipated recovery, Alitalia submits that it had a very minor
role in the plan, even though the project in question was undoubtedly very important for the company. It states that the impact
of putting that hub into operation would be felt only after 2000 and that it had not been included in the calculation of the
final value as a matter of prudence. As regards the distance between Malpensa and Milan (Italy), it is comparable to that
between other European airports and the cities they serve, such as Gatwick or Stansted (United Kingdom), Munich (Germany)
and Oslo (Norway). The same applies to the time it takes to reach Malpensa airport from Milan.

225    With regard to the liberalisation of the Italian internal market, Alitalia contends that the plan took due account of the
fact that Alitalia would lose greater market share than all other European air carriers by anticipating a 23% drop in its
average yield. Moreover, Alitalia argues that it is irrelevant for the Commission to argue that the Italian internal market
was in fact liberalised only at the end of 1995 and that there was a great deal of uncertainty as to how Alitalia would be
able to face up to the competition.

226    Alitalia claims that its unit operating costs were in line with those of its main competitors. In its view, in the contested
decision, the Commission adopted a different position from that it had adopted in that regard in the 1997 decision because
it carried out an ex post examination of the developments in the company’s results.

227    Finally, with regard to the serious social difficulties experienced by Alitalia in 1995 and 1996, the applicant states that
the change brought about in its business culture was given concrete expression in the union agreements signed in 1996. No
strike took place during the whole of the investigation stage.

228    The Commission submits that the determination of the minimum rate is, in the present case, an operation which must be viewed
from a historical perspective, based on a prospective assessment taking into account the psychological and subjective degree
of the propensity or aversion to risk in a particular sector which is as interdependent as the air transport sector. In its
view, the calculation of the minimum rate must take account of the risks inherent in the project in question.

229    The cost of equity capital, estimated at 14% according to the CAPM, is irrelevant for the purpose of the minimum rate and,
instead, is a matter to be taken into consideration in calculating the internal rate. The coefficient β was used only for
the purpose of calculating IRI’s total participation in Alitalia on 31 December 2000. That coefficient represents the particular
risk of the undertaking in the context of the Stock Exchange and was of no particular importance since Alitalia was not sufficiently
quoted.

230    The Commission maintains that Alitalia’s results for the first half of 1997 are irrelevant, since they were not known at the
time when the 1997 decision was adopted.

231    Alitalia’s argument seeking to demonstrate that the effect of the Malpensa hub was only minor is in total contradiction to
the expectations expressed by that company in the first version of the restructuring plan. The Commission also disputes the
arguments claiming that the Malpensa hub can be compared to Gatwick, Stansted, Munich and Oslo airports.

232    According to the Commission, the liberalisation of the Italian internal market was particularly important for Alitalia as
the Italian Republic was the only large Member State in the Community to have made the maximum possible use of the opportunities
offered by Council Regulation (EEC) No 2408/92 of 23 July 1992 on access for Community air carriers to intra‐Community air
routes (OJ 1992 L 240, p. 8) to protect its market for the exclusive benefit of its national airline. Consequently, in 1997,
at the time of the liberalisation and the end of its monopoly, the risk of serious repercussions for Alitalia could not be
ruled out. Moreover, of the three examples given by Alitalia, only the case of the Kingdom of Spain is pertinent, since the
United Kingdom of Great Britain and Northern Ireland and the Federal Republic of Germany had liberalised their markets at
a very different period from the reference period of 1992 to1995 chosen by Alitalia.

233    The Commission states that the unit operating costs referred to in the fourth indent of recital 26 in the preamble to the
contested decision relate to the period 1996 to1997 and not 2000, the year when the plan was completed. That being the case,
it states that it is indisputable that Alitalia’s unit costs were 12% greater than the average among its European competitors.

234    Lastly, the Commission submits that the fact that there were no strikes is not conclusive. In fact, the minimum rate would
have been considerably higher than 30% if there had been strikes during the investigation procedure.

Findings of the Court

235    Alitalia makes a number of complaints concerning the method used to calculate the minimum rate and disputes the choice of
risks taken into account by the Commission in determining that rate.

–       Method of calculating the minimum rate

236    In the *Alitalia I*judgment (paragraphs 98 and 99), the Court observed that, in order to determine whether IRI’s investment satisfied the private
investor test and, therefore, to assess whether the investment contained components of State aid within the meaning of Article
87(1) EC, the Commission was guided by the principles set out in its notice on the application of Articles [87 EC] and [88
EC] and Article 61 of the European Economic Area Agreement (EEA) to State aid in the aviation sector (OJ 1994 C 350, p. 5)
(‘the aviation notice’). In the 1997 decision (point VII), the Commission compared the amount of IRI’s investment with the
value of expected future cash flows from the project, discounted at the minimum rate which a private investor would require.
It concluded that, in that case, the internal rate was still below the minimum rate and that, accordingly, the investment
did not satisfy the private investor test. The Court added that the method which the Commission employed in the 1997 decision
could not be criticised as such.

237    In recital 25 in the preamble to the contested decision, the Commission states that ‘[i]n this case, on the basis of the information
in its possession and, in particular, the consultants’ report, [it] considers the minimum rate to be around 30% in view of
the size of the sum involved and, more especially, the risks inherent in the operation’. It adds that ‘[t]his rate of at least
30% allows for the possibility that the restructuring plan will not develop as planned and that the actual return on the investment
will, in the final analysis, be significantly less’. It goes on to state that ‘[i]ndeed, the rate cannot fail to be higher
than the cost of equity capital since the latter does not take account of all the risks associated with the company’.

238    As regards Alitalia’s complaint concerning the ratio of one-to-two between the rate of 14% fixed for the cost of its equity
capital and the minimum rate, it is abundantly clear from the contested decision that the Commission took account of Alitalia’s
equity capital, calculated using the CAPM, first of all, to assess the value of IRI’s participation in Alitalia in December
2000 (recital 22 in the preamble to the contested decision) and, next, to determine, on the basis of those data, the internal
rate (recital 23 in the preamble to the contested decision) and not the minimum rate.

239    A reading of the second and third reports of the Commission’s consultants, annexed to the application, also confirms that
the rate of 14% was calculated in order to evaluate one of the factors to be taken into account in determining the internal
rate.

240    Since the rate of 14% is used for the purpose of calculating the internal rate and not the minimum rate, Alitalia is incorrect
in challenging the use of that rate in its criticism of the determination of the minimum rate of 30% and in highlighting the
ratio between those two rates of one‐to‐two.

241    Moreover, in recital 22 in the preamble to the contested decision and in its pleadings, the Commission states that the cost
of equity capital, calculated using the coefficient β for Alitalia, takes account of the risks inherent in the situation of
the company as a whole, in particular in the context of the Stock Exchange, as well as the risks pertaining to the sector
concerned. The Commission contends that, since Alitalia was not sufficiently quoted in the period 1996 to1997, the figure
of 14% and the coefficient β for Alitalia calculated in 2000 is the result of a necessarily theoretical operation, based on
the coefficient β for other comparable airlines. It stresses that the coefficient β thus calculated cannot reflect the specific
risk of Alitalia during the years 1996 and1997 and that the weighted average cost of capital defined in this way ‘does not
take Alitalia’s specific risk situation into account’ (recital 22 in the preamble to the contested decision).

242    The minimum rate takes account of ‘the size of the sum involved and, more especially, the risks inherent in the operation’
(recital 25 in the preamble to the contested decision). The Commission’s method is therefore consistent, especially since
Alitalia itself states the determination of the minimum rate is the result not of the application of a mathematical formula,
but of an empirical approach which does not lose sight of the financial and investment objectives of an investor comparable
to a public investor (see also recital 24 in the preamble to the contested decision).

243    Finally, the Commission did not make a manifest error of assessment in taking the view that the particular position of IRI,
as a holding company which was already a shareholder in Alitalia, did not give it, for the purpose of evaluating its investment,
greater knowledge of and a greater capacity for understanding the company. In fact, IRI is an investment holding company that
is wholly-owned by the Italian State. The reference parameters for calculating the minimum rate are not those of the State
but those used by the market. Moreover, since it was already a shareholder in Alitalia, IRI could have had an interest in
overstating the value of the company. It follows that it cannot be assumed that IRI’s shareholding in Alitalia necessarily
placed it in a better position to assess the minimum rate that would be required by a private investor acting in accordance
with market principles.

244    Accordingly, Alitalia’s complaints concerning the method of calculating the minimum rate employed by the Commission are unfounded.

–       Risks taken into account by the Commission

245    Since Alitalia disputes the risks taken into account by the Commission in determining the minimum rate in the contested decision,
it is necessary to examine them individually.

246    First of all, Alitalia does not dispute, as such, the Commission’s assertion that, traditionally, margins in the air transport
sector are limited, with extreme variations in profits and losses (the first indent of recital 25 in the preamble to the contested
decision). Rather, its argument is that the risk factors inherent in that sector of activities have already been taken into
account from a different aspect.

247    It must be noted, first, that, in the contested decision, account is taken of those risk factors, by the use of the coefficient
β in the CAPM formula, only for the purpose of determining one of the elements of the internal rate, namely the final value
at the end of 2000 (recital 22 in the preamble to the contested decision). Moreover, the coefficient β does not specifically
express the risk inherent in the sector concerned. As Alitalia acknowledges, it makes it possible to measure the correlation
between the variability of the market return and that of the return of the undertaking to which the evaluation relates.

248    Furthermore, the determination of the minimum rate cannot be regarded from the same perspective as that of the internal rate,
which is, instead, based on the application of a mathematical formula. The minimum rate that would be required by a private
investor acting in accordance with market principles in order to engage in such a financial operation must be evaluated in
an empirical and prospective manner, in view, in particular, of the risks inherent in such an operation (see paragraph 242
above). In those circumstances, among the specific risks inherent in the operation in question, a private investor would be
entitled to take account of the fact that the operation is to be carried out in the air transport sector, in which, traditionally,
margins are limited, with extreme variations in profits and losses.

249    The Commission did not therefore make a manifest error of assessment in referring to that risk in recital 25 in the preamble
to the contested decision.

250    Secondly, it is clear that Alitalia did not dispute that its accounts showed no significant profits (second indent of recital
25 in the preamble to the contested decision). The fact that one of the objectives of the contested plan was to remedy its
undercapitalisation does not in any way alter the fact that Alitalia was in a dire financial situation, which was a risk liable
to be taken into account by a private investor before subscribing to any increase in capital.

251    That finding cannot be affected by the fact that, during the first half of 1997, Alitalia registered a better operating profit
than that projected in the restructuring plan. Even if it were possible on the basis of those figures to forecast future profits
under the plan, those figures became known, in any event, after the risk assessment had been carried out for the purpose of
the 1997 decision and could not therefore have been taken into account (see paragraph 137 above).

252    The estimate of the results for the first quarter of 1997, which showed a stronger recovery than anticipated, was based on
unrevised provisional figures, which Alitalia did not challenge. The fact that the data in question were unreliable, in conjunction
with the extreme brevity of the period in question, entitled the Commission to take the view that those data did not affect
its assessment of the risk associated with the fact that Alitalia’s accounts had shown no significant profits since the end
of the 1980s, in spite of the improvement in its situation from 1994.

253    Thirdly, as regards the Commission’s assertion that the hypotheses regarding the future development of the company’s productivity,
operating expenditure, seat occupancy levels and unit earnings on which the plan is based are rather optimistic (first indent
of recital 26 in the preamble to the contested decision), it should be noted that the report of the Commission’s consultants
of 18 June 1997, which is annexed to the application, mentions, on the one hand, certain changes made to the previous plan
and states that the revised plan is more prudent than the original one. However, on the other hand, that report highlights
the fact that the plan still retains optimistic elements and that it may be difficult to attain some of its objectives. The
elements which it specifies are precisely those set out in the first indent of recital 26 in the preamble to the contested
decision, which is why that decision refers to ‘rather optimistic’ hypotheses.

254    Moreover, in the additional report, annexed to the report of 18 June 1997, the Commission’s consultants evaluated the overall
viability of the restructuring plan and the adequacy of the contested capital injection. They explained that, in their earlier
reports, they had analysed the main features of the plan in order to assess the rate of return which a potential investor
would reasonably require to invest in Alitalia. The Commission’s consultants added that, in that context, the elements which
they considered ‘optimistic’ had been used to assess the rate of return required by a private investor. However, they went
on to say that those elements did not mean that the plan was not viable.

255    It follows that Alitalia cannot dispute the fact that rather optimistic hypotheses were used in its restructuring plan by
relying on the fact that, in that supplementary report, the Commission’s consultants had concluded that the restructuring
plan was, on the whole, viable. Indeed, that supplementary report and the main report of 18 June 1997 specifically refer to
those optimistic elements.

256    In any event, the fact that certain particular hypotheses were considered generous or optimistic cannot be regarded as being
contradictory in itself with an assessment that the restructuring plan was viable on the whole.

257    Lastly, contrary to Alitalia’s assertions, in the checks which they carried out to monitor the progress of the plan, the Commission
and its consultants did not always find that productivity and operating costs objectives had been met. It is apparent in particular
from the extract from the report prepared by the Commission’s consultants in July 1999, annexed by Alitalia to the reply,
that the operating costs were higher than forecast in the plan and that, while in some cases better than in 1997, the productivity
objectives had not been attained.

258    In any event, Alitalia’s argument and the data produced in support thereof must be rejected in so far as they are based on
ex post factors.

259    The Commission did not therefore make a manifest error of assessment in including, among the additional risk factors which
a private investor could take into account, the fact that the hypotheses regarding the future development of the company’s
productivity, operating expenditure, seat occupancy levels and unit earnings on which the plan was based were rather optimistic.

260    Fourthly, as regards the risks associated with the fact that the specific potential of the new airport at Malpensa and the
details of how the hub would be put into service were in fact still largely unknown (second indent of recital 26 in the preamble
to the contested decision), reference must be made to paragraphs 203 and 204 above, from which it is apparent that Malpensa
airport formed a vital part of the restructuring plan. Accordingly, the Commission did not make a manifest error of assessment
in stating that the anticipated recovery was dependent to a large extent on the opening of the Malpensa airport after 1998.

261    Alitalia did not challenge the Commission’s assertion that, although the new Malpensa airport would offer far more slots than
were then available at Linate (Italy) airport, which was already completely saturated, the slots would also be available to
Alitalia’s competitors. However, an increase in competition constitutes a risk for Alitalia.

262    As regards the comparison in terms of distance with other European airports, the distance between Munich airport and the centre
of Munich, namely 37 km, is not comparable to the distance between Malpensa airport and the centre of Milan, regardless of
whether the Commission’s figure of 55 km is accepted or that put forward by Alitalia, that is, 48 km. As for the other three
airports in question, that distance may be regarded as comparable. Malpensa is therefore one of the airports which is furthest
from the city it serves. However, a number of objections have to be made to the comparison made by Alitalia relating to the
size of the airports in question and their place within the airport system at issue. First, Oslo airport is not the same size
as that of Milan and, secondly, Gatwick and Stansted airports are not the main airports for London (United Kingdom), unlike
Malpensa airport, which was intended to fulfil that role for Milan. The risk associated with distance could therefore be regarded
as greater in the case of Malpensa.

263    In any event, the fundamental risk inherent in opening Malpensa airport after 1998 is summarised in the last sentence of the
second indent of recital 26 in the preamble to the contested decision, as follows:

‘The specific potential of the new airport and the details of how the hub will be put into service are in fact still largely
unknown.’

264    Alitalia does not dispute this. The Commission did not therefore make a manifest error of assessment in considering that the
putting into service of the Malpensa hub was an additional risk factor which a private investor may have taken into account.

265    Fifthly, with regard to the liberalisation of the Italian internal market (third indent of recital 26 in the preamble to the
contested decision), it is not disputed that that occurred only at the end of 1995.

266    In its arguments seeking to justify the 26% yield which it employed in its plan, Alitalia uses the United Kingdom, Germany
and Spain as points of comparison.

267    However, during the reference period, neither the United Kingdom nor Germany was in a comparable situation to that of Italy.
Those two countries had in fact opened their internal market in the 1980s – one at the beginning and the other at the end.
Subsequently, they fully liberalised their market at Community level, the former in 1993 and the latter in 1997, according
to the information provided by Alitalia. That situation cannot be compared to that of Italy, which proceeded with the liberalisation
of both markets – internal and Community – almost simultaneously, in 1996 and 1997 respectively, thus obliging Alitalia to
face new competition on both fronts at the same time. That situation therefore increased the risks inherent in the operation
from a private investor’s point of view.

268    Accordingly, the Commission did not make a manifest error of assessment in mentioning, among the risk factors which a private
investor might take into account, the liberalisation of the Italian internal market at the end of 1995 and the uncertainty
as to how Alitalia, which up to that point had enjoyed a monopoly, would be able to face the competition.

269    Sixthly, as regards the Commission’s claim that Alitalia’s unit costs continue to be higher than those of its main competitors
in Europe (fourth indent of recital 26 in the preamble to the contested decision), it should be noted that that wording does
not rule out the possibility of an improvement in the situation. On the contrary, the use of the verb ‘to continue’ would,
in fact, suggest this.

270    The Commission confirms that it based its assessment on the figures provided to it in 1996. Alitalia observes that those figures
relate, in fact, to 1994 and that its costs subsequently improved. To demonstrate that improvement, it annexes to its reply
statistical data from an AEA publication.

271    It should be recalled that the Commission was required to use the data available at the time when the 1997 decision was adopted
(see paragraph 137 above). However, the statistical data produced by Alitalia are from a confidential AEA publication, the
copy of which on the Court file does not bear an official date, although the date of 26 June 1998 has been written by hand.
The Commission claims that that publication came out only at the end of 1997 and was produced for the first time by Alitalia
at the reply stage in the present proceedings. Alitalia has therefore failed to establish that the Commission was or could
have been aware of those data when the 1997 decision was adopted.

272    The Commission cannot therefore be criticised for having based its decision on data available to it at the time when the 1997
decision was adopted or for adhering to the fact that Alitalia’s unit costs remained 12% higher than those of competing undertakings,
as stated in the 1997 decision.

273    Seventhly, with regard to the contention that the company was affected by serious social disputes in 1995 and 1996 and, more
generally, that the change in ‘business culture’ was likely to be hard to manage (fifth indent of recital 26 in the preamble
to the contested decision), the first point is clearly not in dispute and could have led a private investor to regard the
changes that would be necessary as a risk, in spite of the conclusion of union agreements, which could not dispel all the
uncertainty as to the staff’s reaction to such measures.

274    It must be concluded at the end of this examination of the risks invoked by the Commission in support of its decision to fix
the minimum rate at 30% that it did not make any manifest error of assessment.

275    The plea alleging infringement and misapplication of Articles 87 EC and 88 EC in determining the minimum rate must therefore
be rejected.

2.     *Determination of the internal rate*

276    In this context, Alitalia disputes the amount of the insolvency costs included by the Commission in the calculation of the
internal rate, the fact that it assessed the internal rate on the basis of the final version of the plan, the parameters used
by the Commission and the effect of the conversion of loans into capital on the calculation of the internal rate.

a)     The amount of insolvency costs

277    The question of the inclusion of the insolvency costs has already been addressed in paragraphs 113 to 121 above, but only
from the angle of infringement of Article 233 EC in the light of the *Alitalia I*judgment. In this context, the issue is to determine whether, in its assessment, the Commission proceeded on the basis of
incorrect facts or made manifest errors of assessment.

Arguments of the parties

278    Alitalia points out, first of all, that, contrary to the Commission’s assertion in recital 20 in the preamble to the contested
decision, it never accepted the Commission’s figure of ITL 750 billion.

279    Alitalia observes that the first instalment of the capital injection enabled it to repay ITL 900 billion in short-term loans
to IRI, which would not have been repaid if the company had been bankrupt. That figure of ITL 900 billion represents the minimum
and not the maximum insolvency costs which it was thus possible to avoid. In the light of the fact that ITL 900 billion was
repaid, the assessment of the insolvency costs at ITL 750 billion is incomprehensible and unsupported.

280    More specifically, Alitalia explains how it arrived at the figure of ITL 1 140 billion for the cost to IRI in the event of
the company going into liquidation, a figure which, in its view, is the average of the minimum and maximum insolvency costs.
Alitalia claims that the insolvency costs in the contested decision should therefore be increased by ITL 236 billion, which
would increase the internal rate by more than 4%.

281    Alitalia does not accept that it overestimated the risk, in the short term, of losses in respect of advance payments for the
acquisition of the fleet of aircraft. In its view, advance payments on equipment are not recoverable in the event of insolvency.

282    Alitalia also denies that it underestimated the sales value of the fleet. In that case, its assessment was based on the sales
values indicated in industry guides, which, in its opinion, should be discounted by between 25 and 45%, according to whether
the sale is made on the basis of an ongoing concern or as a result of compulsory sale. The value of aircraft sold in units
of more than two or three should, it argues, be reduced by at least 12% and the valuations must be tailored to each type of
aircraft. Finally, as the percentage discount cannot be greater than 10 to 15% of the wholesale as compared with the retail
price, to which must be added the 20% stipulated by the Commission, giving a total of 30 to 35%, Alitalia also submits that
the Commission does not adduce any evidence in support of its assertions.

283    Alitalia also disputes that it overestimated the liquidation costs. In its estimate of those costs at approximately 10% of
the disposable value, Alitalia took account of the period of time that would be required for the proceedings to be concluded
and the costs of the insolvency proceedings. As regards those costs, it states that it is impossible for it to challenge the
sum deemed to be appropriate by the Commission, since that sum is not stated and its estimate, according to the report of
the Commission’s consultants of 18 June 1997, is based on the latter’s own experience.

284    Lastly, Alitalia refers to the fact that its liquidation would have had negative consequences for IRI’s financial position
by having a damaging effect on the valuation of Alitalia’s debt and would have given rise to higher insolvency costs. Prudently,
however, it fails to quantify that effect.

285    All in all, Alitalia states that, by taking into account insolvency costs averaging ITL 1 140 billion, the return on the investment
would have been 33%.

286    The Commission notes that Alitalia did not accept the fact that it took the sum of ITL 750 billion into account and at the
same time explains how it arrived at that figure.

287    The Commission explains that the reasons which led it to arrive at that figure are set out in recital 20 in the preamble to
the contested decision and in its consultants’ reports of 21 February and 18 June 1997. It states that the table which it
prepared in the course of the procedure which led to the *Alitalia I*judgment and which is annexed by Alitalia to the application already included the insolvency costs in the calculation of the
internal rate.

288    The Commission also takes issue with Alitalia’s assertion that it systematically used extreme values in determining the internal
rate. It provides examples of parameters advantageous to Alitalia which it used in that calculation.

289    The Commission points out that any error which, if corrected, would not raise the internal rate above the minimum rate of
30% would have no effect on the legality of the contested decision. The Commission demonstrates, by means of various tables,
the differences between its assessment and that of Alitalia and attributes these to the valuation attributed to the fleet
which guarantees the loans and that attributed to the repayment of unsecured creditors upon the winding-up of the company.

290    Next, the Commission considers that the fact that the first instalment of the capital injection was used to repay loans of
ITL 900 billion does not justify an assessment of the insolvency costs in the same amount.

291    The Commission disputes Alitalia’s evaluation in a number of respects. It provides a table setting out the differences between
the parties as regards the evaluation of sums to be repaid to creditors and states that those differences relate to the headings
‘Advance payments on equipment’, ‘Fleet’, ‘Debts’ and ‘Insolvency costs’.

292    The Commission is of the view that advance payments on equipment are fully recoverable. In fact, contractual provisions under
which aircraft supply contracts may be terminated do not preclude the reimbursement of advance payments. Moreover, it would
not have been justified, in the light of the information available at the relevant time, to proceed on the assumption that
such credits would be totally lost or to exclude the possibility that the contracts might be sold to other companies.

293    As regards the value of the fleet in the event of insolvency, the Commission states that the valuation must be based on the
1996 values and not those for 1999 or 2000, as Alitalia incorrectly claims. The Commission states that it proceeded on the
basis of the detailed estimate in the June 1997 report of its consultants, according to which the market value of the aircraft
would be discounted at the rate of between 10 and 20%. In order to verify its estimate, the Commission’s consultants used,
with the assistance of an expert in the sector, a guide used in the industry, which gives the prices of passenger aircraft
in considerable detail. The percentage discount cannot be greater than a reduction of 20% by comparison with the wholesale
price, which would already be reduced by 8% or 9% by comparison with the retail price.

294    The Commission assesses the insolvency costs at between ITL 64 and 92 billion, whereas Alitalia considers them to be between
ITL 287 and 427 billion. The Commission submits that, for the purpose of properly assessing those costs, a distinction can
be made under Italian law between two insolvency schemes, namely voluntary liquidation and the collective insolvency procedure.
Voluntary liquidation is carried out by an external liquidator, whose costs are 1% of the assets recovered, to which is added
the cost of the liquidator’s remuneration, corresponding to 0.75% of the final value of the liabilities, such figures being
taken from the scales of charges of Italian expert accountants. Under the collective insolvency procedure, it is the liquidator
or the judicial auditor who receives up to 0.9% of the assets recovered, to which is added a maximum remuneration of 0.37%
of the liabilities as assessed (Articles 1 and 2 of Ministerial Decree No 570 of 20 July 1992). In both cases, it is then
necessary to examine the fees incurred by experts so that the value upon realisation of the assets which are the subject of
the liquidation can be assessed. Those fees are calculated in accordance with the fee scales of the various professional associations
to which the experts belong. In the case of Alitalia, reference must be made to the fee scales for engineers and architects,
which, in cases of this kind, levy a charge of 0.5% on each asset valued. According to the Commission, by applying the maximum
fees for the liquidator and for the expert, the insolvency costs thus amount to 2.2% of the total liquidated assets in the
case of liquidation or 1.49% of the total liquidated assets under the collective insolvency procedure.

295    As regards the taking into account of the time factor in calculating the insolvency costs, the Commission contends that it
is incorrect to state that a period of six years would have been necessary to complete the liquidation of all Alitalia’s assets.
That figure is the result of applying statistical averages – which, moreover, have only a marginal bearing on limited companies
and large industrial groups – to an operator which is fundamentally different, such as a large national company. But, even
if that average period of six years were taken into account, it would be untrue to say and impossible to demonstrate that
the total sum realised under the procedure would be received all at once, at the end of the procedure, since the creditors
can be paid in stages as the liquidation of the assets progresses. It is therefore impossible to assess the effect of the
time factor in an accurate or convincing manner. Moreover, if account were to be taken of a loss on the loans on account of
the time factor, such a loss would have to be attributed not to the nominal value of the loans themselves but to their discounted
value, which would be significantly lower.

296    Lastly, the Commission observes that the impact of the liquidation of Alitalia on IRI would be negligible. The only exposure
to the insolvency costs would be the debts guaranteed by IRI of ITL 41 billion. That figure represents barely 0.16% of the
IRI group’s indebtedness, which cannot in any way be compared with the capital injection of ITL 2 750 billion and, accordingly,
would have no effect on the overall assessment of the IRI group.

Findings of the Court

297    First of all, it should be noted that, on 8 April 2003, the Commission published an amendment to the contested decision, in
which it took formal notice of the fact that Alitalia had not accepted the assessment of the insolvency costs in the sum of
ITL 750 billion (see paragraph 22 above).

298    The reasons for that figure are to be found in recital 20 in the preamble to the contested decision and in the report of the
Commission’s consultants of 18 June 1997, referred to in the same recital, to which Alitalia had access (see paragraphs 66
and 67 above). Those reasons were subsequently stated in the Commission’s written pleadings, in particular in the defence.
It cannot therefore be maintained that reasons were not given for that figure of ITL 750 billion.

299    However, Alitalia disputes the assessment of the insolvency costs in the sum of ITL 750 billion, in the same way as the Commission
disputes the figure of ITL 1 140 billion put forward by Alitalia for those costs. The difference between them relates essentially
to the manner in which account should be taken of the repayment of ITL 900 billion in short‐term loans, the recovery of advance
payments for the purchase of new aircraft, the value of the fleet in the event of insolvency and the evaluation of the insolvency
costs.

300    First of all, with regard to the issue between the parties as to whether the ITL 900 billion in loans repaid with the aid
of the first instalment of the capital injection constitutes the maximum or the minimum insolvency costs that could have been
avoided, it is irrelevant for the purpose of determining whether the figure deemed to be appropriate for all the insolvency
costs by the Commission is justified. Moreover, none of the evidence adduced by the parties justifies the claim that the sum
repaid of ITL 900 billion should be regarded in itself as the maximum or minimum extent of the insolvency costs that could
have been avoided.

301    Secondly, as regards the question whether the advance payments made for the purchase of new aircraft are recoverable, as Alitalia
acknowledged, when it adopted the 1997 decision the Commission was not aware of the memorandum of understanding between the
aircraft manufacturer McDonnell Douglas and Alitalia, which stipulated that Alitalia had withdrawn from the purchase of five
aircraft and McDonnell Douglas had retained the advance payment of 500 000 US dollars (USD) per aircraft. The Commission could
not therefore have taken account of that fact.

302    Furthermore, even if that example were to be taken into account in the Court’s examination of the practice in that area, Alitalia
could in any event find no justification for drawing any inference whatsoever, as regards other orders, from its inability
to recover the advance payments for those five aircraft, especially as it acknowledges itself the highly personal nature of
that memorandum of understanding.

303    Alitalia also relies on the fact that, ‘generally’, the contracts for the purchase of aircraft which it concluded did not
provide for the repayment of any advance sums. However, it has failed to adduce any evidence of this.

304    In fact, the termination for insolvency clause in the asset purchase agreement concluded between Airbus Industrie and Alitalia
in 1989, and annexed to the application, does not exclude repayment of advance payments. It does not give an express definition
of the vendor’s rights in the event of the purchaser’s insolvency. Even more to the point, it does not provide that any advance
payment is to be repaid in full to the purchaser. In any event, a single contract is not sufficient to establish a general
practice.

305    Alitalia has therefore failed to establish that, when the 1997 decision was adopted, there was an established practice whereby
all advance payments made in respect of the purchase of new aircraft were forfeited. Accordingly, the Commission cannot be
regarded as having made a manifest error of assessment in not basing its calculations on the fact that all such advance payments
are not recoverable in full.

306    Moreover, in response to a written question from the Court, Alitalia, while stating that it was absolutely impossible to recover
those advance payments, did not consider it appropriate to address the issue of what effect a partial recovery of those payments
might have on the amount of the insolvency costs and the calculation of the internal rate. It is apparent from the simulation
exercise carried out by the Commission in its response to the written question from the Court that recovery of up to 50% of
the advance payments would have no effect on the internal rate and non-recovery or recovery limited to 25% would increase
the rate by 1%.

307    It follows that, even if the principle that the advance payments were recoverable in full were to be regarded as incorrect,
such an error would have no impact on the Commission’s final finding that the internal rate is lower than the minimum rate.
That error has no bearing on the issue and could not be sufficient to warrant the annulment of the contested decision, since,
in the particular circumstances of the case, it could not have had a decisive effect on the outcome (see, to that effect,
Case T‐126/99 *Graphischer Maschinenbau* v *Commission*[2002] ECR II‐2427, paragraph 49 and the case‐law cited).

308    Thirdly, with regard to the sales value of the fleet, referring to its consultants’ report of 18 June 1997, the Commission
states, in recital 20 in the preamble to the contested decision, that the figure put forward by the Italian authorities is
an underestimation.

309    In that report, it is stated that:

‘Alitalia, in assessing the current market value of its used aircraft, reduced the current value indicated in aircraft catalogues,
applying a discount ranging between 25 and 45%. Lower discount rates (10-20%) might be more reasonable, if one also considers
that Alitalia, in its calculation, includes, in addition to the discounts, the financial effects of a one-year selling process.’

310    It is also apparent from the defence that, in order to verify the initial assessment carried out in 1997, the Commission’s
consultants, assisted by an expert in the field, used a price list from a guide used in the industry which sets out in detail
the prices of passenger aircraft. That guide sets out the following criterion:

‘Fleet values are discounted from wholesale price (average price paid by dealers or airlines for four or more aircraft) at
one half of one per cent times number of aircraft in fleet not to exceed 20 per cent discount.’

311    It is clear that Alitalia does not provide any evidence in support of its reliance on a discount of between 25 and 45%. It
states that the industry guides indicate percentage discounts for the simultaneous sale of two or more aircraft but do not
make any provision for cases involving exceptional sales. Its case is therefore exceptional and requires a particularly high
discount, which it establishes itself without producing any documentation in support of its contentions. It is true that Alitalia
refers to statements made in a speech by Mr B., Chairman of International Aircraft Remarketing LLC, at a conference in 2001.

312    However, in addition to the fact that the latter’s assessment, which dates from 2001 and not the period in question, is of
a rather personal nature, the discount he referred to in his speech, that is a discount of between 15 and 30%, is closer on
average to that employed by the Commission (20%) than that argued for by Alitalia (an average of 35%).

313    The Commission did not therefore make a manifest error of assessment in applying a discount of 20% to the sale price indicated
in industry guides, in which account is taken of the type of aircraft and whether it is of modern or old design.

314    Moreover, Alitalia contradicts itself when it states, on the one hand, that it is necessary to include an additional discount
for combined sales of a large number of aircraft of the same kind and, on the other hand, that such a large fleet cannot be
sold overnight and the calculations must take account of the time factor.

315    As regards Alitalia’s argument that court orders for sale can give rise to significant discounts and that the example to the
contrary cited by the Commission has no probative value on account of the fact that the type of aircraft in question was very
much sought after, it can, at best, be concluded from the issue as debated between the parties that, for the same type of
aircraft, even one that is very sought after, the price obtained on sale in the course of insolvency proceedings may be slightly
lower or slightly higher than the prices indicated in industry guides.

316    However, it is apparent from the table produced in this connection by Alitalia in its reply that the sale price obtained in
insolvency proceedings is, in any event, higher than the wholesale price indicated in the industry guide, which is given there
by way of comparison. The Commission bases its calculations on the wholesale price and a maximum discount of 20% is applied
to that price (see paragraph 310 above). The two examples put forward by Alitalia therefore support the Commission’s argument
that the resale price for aircraft in insolvency cases does not necessarily lead to significant reductions. The examples cited
by Alitalia do not, in any event, support its argument in favour of a discount of between 25 and 45% (or an average of 35%).

317    Finally, the Commission correctly stated that the value of the fleet to be taken into account is the resale price that prevailed
at the time of the 1997 decision.

318    Alitalia has therefore failed to demonstrate that, by applying a 20% discount to the wholesale resale price for aircraft indicated
in industry guides in order to assess the value of its fleet, the Commission made a manifest error of assessment.

319    Fourthly, the Commission also criticises the Italian authorities for having overestimated the insolvency costs, referred to
in recital 20 in the preamble to the contested decision. Moreover, the report of the Commission’s consultants of 18 June 1997,
to which it refers, states as follows:

‘Alitalia determined the liquidation costs (essentially the compensation of the official receiver and the expenses he [is]
supposed to [incur]) as a percentage (10%) of the realised assets. According to the official professional fees and to our
experience, the mentioned amount appears too high.’

320    First of all, it should be pointed out that, contrary to Alitalia’s assertions, in the reasons given for the insolvency costs,
neither the Commission nor its consultants confined themselves to referring to their personal experience but also indicated
the professional fee scales prevailing at the relevant time.

321    It is apparent from the defence that the calculation of the insolvency costs is essentially based on those professional fee
scales and that very little weight is attached to personal experience. In fact, the Commission used the official fee scales
of the professional association of expert accountants for the external liquidator and those applying under Ministerial Decree
No 570 of 20 July 1992 for the trustee in bankruptcy and the fee scales for engineers and architects for the expert, which
it applied to the total assets in the estimated insolvency statements of 31 March 1996, provided by Alitalia. In that calculation,
the Commission used the maximum rates applicable for the liquidator, the trustee in bankruptcy and the expert. Alitalia was
thus in possession of the information necessary to challenge the Commission’s evaluation of the insolvency costs. It cannot
therefore claim that no adequate reasons were given in that regard.

322    Furthermore, Alitalia did not contest the use of the fee scales of the Italian professional associations. It maintains that
the insolvency costs should not be confined to the calculation carried out by the Commission but should take account of the
time required to conclude the liquidation procedure and the experience acquired in that field by IRI within its group.

323    As regards whether the time factor should be taken into account, while it is true that a procedure of that nature can take
six years, the insolvency costs cannot be said to be evenly spread out throughout that period, with the realisation of the
assets taking place only at the end of that period.

324    In any event, Alitalia has failed to explain in what way or to what extent the time factor is relevant for the purpose of
the 10% insolvency costs it applies. In fact, in the reply, Alitalia recalculated all the insolvency costs by discounting
the debts which, in its view, were recoverable. Consequently, in addition to the fact that that new estimate of the insolvency
costs must be rejected as it was raised for the first time at the reply stage, it does not deal specifically with the costs
of the liquidation.

325    As regards the examples put forward by Alitalia in referring to the experience acquired by IRI within its group, the Commission,
unchallenged by Alitalia, submits that those examples relate to voluntary liquidation, not bankruptcy. The figures in question
therefore have no significance.

326    In any event, Alitalia does not give any precise indication as to the method or the calculations used which led it to assess
the insolvency costs at 10% of the assets. Nor has it adduced any evidence capable of establishing that the Commission made
a manifest error of assessment in its evaluation of the insolvency costs.

327    It follows from all the above considerations that the Commission did not make a manifest error of assessment in evaluating
the insolvency costs at ITL 750 billion.

b)     Assessment of the internal rate on the basis of the final version of the restructuring plan

Arguments of the parties

328    Alitalia submits that by stating, in recital 27 in the preamble to the contested decision, that the amendments to the plan
in June 1997 had very little impact on the main results of the plan and on the expected share dividends, the Commission totally
fails to have regard to the fact that the setting-up of the low‐cost company, Alitalia Team, had been accelerated and the
main projects for the discontinuity and optimisation of costs were under way, which had the effect of reducing the risk relating
to the attainment of the plan’s efficiency targets.

329    As a preliminary point, Alitalia criticises, as constituting an error of assessment, the fact that the Commission used the
rate of 79% to represent IRI’s holding in the capital of the company. On the basis of the legislation in force at the time,
it argues that that percentage should have been 86%.

330    Alitalia observes that the factors which explain the Commission’s calculation of the internal rate in the contested decision
are set out only in recital 22 in the preamble, which, however, provides extremely insubstantial information, from which it
is not possible, in any case, fully to understand the operations carried out. The few parameters indicated in the contested
decision are the same as those which appear in the table annexed to the rejoinder in the action brought against the 1997 decision.

331    Alitalia claims that the Commission should explain how it arrived at the rate of 26.1% on the basis of both the original and
new versions of the plan.

332    In reply, the Commission states that the strategies formulated in the final version of the plan improved its prospects but
could not of themselves constitute proof that it would actually be fully achieved. The content of the new plan had only a
limited effect on the assessment of the internal rate.

333    According to the Commission, its calculation was based on two alternative parameters, namely that IRI’s holding in Alitalia
amounted to 79% or 86%, because of the uncertainty which prevailed in July 1997 as to the applicable tax legislation. However,
for the purpose of calculating the internal rate, it used the more favourable of the two (86%) and arrived at the conclusion
that the internal rate was, at most, 26.1%.

334    The Commission points out that there is an unfortunate material error in recital 22 in the preamble to the contested decision
as to the value of IRI’s holding in Alitalia in December 2000, which was not ITL 4 206 billion or ITL 4 330 billion but ITL 4 179
billion or ITL 4 550 billion. The Commission calculated the internal rate at 25.2% or 26.1% on the basis of the correct figures,
however.

335    As regards the method of calculation which enabled it to reach that conclusion, the Commission refers to the explanatory table
in the defence.

Findings of the Court

336    With regard to the arguments alleging a failure to take account of the final version of the restructuring plan, reference
should be made to paragraphs 124 to 138 above.

337    As to the correction of the material error pointed out by the Commission, reference should be made to paragraph 22 above.

338    The details of the parameters and method used by the Commission in calculating the internal rate will be examined in connection
with the next part of the plea now under consideration (paragraphs 352 to 361 below).

339    Alitalia’s complaint that the rate of 79% rather than 86% was used to represent IRI’s participation in Alitalia capital is
not convincing. It is apparent from recital 23 in the preamble to the contested decision that the internal rate is 25.2% or
26.1% according to which of the two hypotheses is taken into account and not on the basis of the figure of 79% alone. Accordingly,
the rate of 86% is in any event taken into account by the Commission in the contested decision. In those circumstances, even
if the higher figure resulting from the application of the rate of 86% is taken, the internal rate remains lower than the
minimum rate.

340    Finally, in so far as Alitalia’s arguments seek to rely on an absence of reasons or inadequate reasoning, the Court has already
held that Alitalia cannot rely on a failure to state reasons as regards the calculation of the internal rate (see paragraph
66 above). As to the substance, it is possible to understand, on the basis of recitals 19 to 23 in the preamble to the contested
decision, the method and the basic data used by the Commission to calculate the internal rate. The first two reports of the
Commission’s consultants, which formed an integral part of the 1997 decision and to which the contested decision refers, provide
the details.

341    Moreover, the *Alitalia I* judgment (paragraph 163) referred to the fact that the Commission asserted in its rejoinder that the internal rate, recalculated
on the basis of the final version of the plan, is no more than 26.1%, even including the insolvency costs. The Court referred
in that connection to the rejoinder and to an annex to the rejoinder lodged in the proceedings in Case T‐296/97. Alitalia
confirms in the application in the present proceedings that it had access to that document and annexes it to the application.

342    Furthermore, in response to the arguments put forward by Alitalia in the application, the Commission provides still further
additional information on the parameters which it used to calculate the internal rate. It follows that Alitalia cannot claim
that it does not have available to it the information necessary to challenge the Commission’s determination of the internal
rate.

c)     The objection that some of the parameters used by the Commission are incorrect

Arguments of the parties

343    In the first place, on the assumption that the calculation of the internal rate on which the contested decision is based is
the same as that annexed by the Commission to its rejoinder in Case T‐296/97, Alitalia submits that the calculation of the
value of the company is flawed, since it takes account of the gross operating margin (‘GOM’) indicated in the penultimate
version of the plan and not that in the final version, namely ITL 1 485 billion.

344    In the second place, Alitalia contends that, in calculating the instalments of the capital injection anticipated for 1996
and 1997, the Commission was not entitled to use the risk-free rate of 6.6%. The calculation of the internal rate should not
provide for cash flow to be discounted but should envisage that it will be reinvested at the internal rate. To proceed on
the assumption of risk-free discounting amounts to contending that the investor is under a legal obligation to pay over the
capital injection in any event, for contractual reasons, and that the investor could be relied on to be able to make the payment
to an extent that makes him comparable to a central bank in a country with a sound economy. In the present case, however,
IRI was not obliged to pay the capital regardless of how the investment developed. Moreover, Alitalia states that, as an undertaking,
IRI’s cost of debt capital was higher than the risk‐free rate.

345    In the third place, Alitalia submits that the plan made provision for contingency costs, representing 30% of the income, in
order to provide for any delays in implementing the plan. However, it considers that the calculation of the cash flow for
the reference year should not include such amounts, since the plans had progressed beyond the stage those provisions were
intended to cover. There is a contradiction in the Commission’s reasoning which, on the one hand, does not reduce the expected
rate of return, even in the light of the final version of the plan which contains important contingency provisions, and persists
in setting it at 30%, and, on the other hand, refuses to take account, in calculating the value of Alitalia, of the fact that
contingency provisions should be reduced over time.

346    In the fourth place, Alitalia contends that the growth rate of 4.5% for the long-term cash flow used by the Commission operates
to the disadvantage of the final value of the company on 31 December 2000. The Commission arrived at that rate by using, in
particular, two key parameters, namely the yield variation and the air transport multiplier, the values for which are lower
than those laid down in external sources. The Commission failed to take account of the positive effect which Malpensa airport
would have on Alitalia traffic. Alitalia maintains that growth in the air transport sector has not yet reached its peak in
Europe. It argues that, even if the situation in the United States were taken as a reference, the growth forecast for passenger
traffic in the North American market is in the region of 6.6%. According to Alitalia, it was therefore reasonable to anticipate
nominal growth of 6.5%, that is, real growth of 3.9%, during the first five years, and then for those figures to stabilise
at, respectively, 4.5% and 1.95%.

347    According to Alitalia, by simply correcting the last three factors, the internal rate rises to 42.3%, even if the insolvency
costs are maintained at ITL 750 billion.

348    The Commission maintains that the value of the company was based on a GOM of ITL 1 485 billion. It sets out in the defence
the calculations which led it to assess the internal rate at 26.1%.

349    It submits that the use of the method of discounting future aid instalments at the risk‐free rate of 6.6% is justified by
the very nature of cash flows. The increase in equity capital to which IRI had already subscribed represented a cost for Alitalia,
the nature of which was totally unambiguous and for which the terms of payment could be considered only in terms of ‘costs-opportunity’.
Moreover, Alitalia’s claim that it would reduce the remaining capital instalments to 61.9% does not represent an accurate
evaluation of the investment project because it would attribute to the payments remaining to be made by IRI a much lower value
than they had in reality.

350    As for the contingency measures, the Commission states that, in the final version of the plan, provision was made for ITL 47 billion,
which, when compared with the GOM of ITL 1 485 billion, gives them a limited effect of 3.2%. Moreover, it states that provision
should have been made for a contingency, equally for a normal year, on account of the ambitious nature of the recovery plan,
the high number of projects, the precarious position which the company was in and the general trends in the sector. Alitalia’s
argument is tantamount to claiming that it would have met all its objectives in 2000 and therefore no contingencies would
have been necessary.

351    The Commission also maintains that prudence is required in setting the cash flow growth rate. The European aviation sector
is approaching maturity so that a significant increase in growth can no longer be anticipated. According to some writers,
the growth factor, or ‘factor G’, is simply the anticipated rate of inflation. In the particular case of Alitalia, the application
of the Fischer equation, taking into account the effects of inflation, estimated at 2.5%, gives a real growth rate of 1.95%.
The Commission also refers to Guatri’s treatise on the valuation of companies, according to which it emerges from a large
body of international data, in particular from the United States, that factor G is generally between 0 and 5%, values between
1 and 3% being the most common. The Commission also points out an error in the formula used by Alitalia to calculate the final
value in that it forgot to multiply the numerator by (1 + G), in accordance with the Gordon formula.

Findings of the Court

352    First of all, as regards the GOM, it is clear that the calculations which led the Commission to set the internal rate at 26.1%,
the percentage figure which appears in the defence, do indeed take account of the figure of ITL 1 485 billion, which is the
figure in the final version of the restructuring plan. The Commission also produces in the rejoinder calculations from which
it is apparent that, if it were based on the GOM of the penultimate version of the plan, that is, ITL 1 462 billion, the internal
rate would be 24.6%. Alitalia is therefore incorrect in claiming that the wrong GOM was taken into account.

353    Secondly, as regards the application of the risk‐free rate of 6.6% in the calculation for discounting the future aid instalments,
at the time in question IRI had already subscribed to an increase in Alitalia capital and did so regardless of whether the
situation had a positive or negative outcome and the results of its investment. For Alitalia, no uncertainty therefore attached
to that capital injection. Since great reliance could be placed on the investor to make the payment, cash flow between IRI
and Alitalia was not comparable to other cash flows which were subject to uncertainty as to whether the restructuring plan
would be accomplished. In such circumstances, the application of the disputed risk‐free rate is justified. Consequently, the
Commission did not make a manifest error of assessment in using the risk‐free rate for the purpose of calculating the discount
on the instalments of capital from IRI.

354    Thirdly, with regard to Alitalia’s arguments concerning contingency provisions, it refers, essentially, first of all, to the
need for account to be taken of the progress of the plan and, secondly, to the dual use made of this, since that risk was
also taken into account in calculating the minimum rate. As to the first of those factors, it should be recalled that, in
order to assess the internal rate, the Commission had to base its decision on the information available to it at the time
when the 1997 decision was adopted (see paragraph 137 above). It could not therefore take account of the way in which the
plan subsequently developed or of any subsequent reduction of risk, even if there had been such a reduction. As to the second
factor, the fact that the general risk represented by the investment for a private investor is taken into account in calculating
the minimum rate cannot, of itself, preclude the inclusion in the calculation of the internal rate of contingencies which
may be justified in the circumstances. Given the context in which the operation took place and, in particular, the company’s
debt, the scale of the restructuring plan and the trends in the sector in 1997, the Commission did not make a manifest error
of assessment in making provision for ITL 47 billion by way of contingencies.

355    Fourthly, Alitalia’s challenge of the cash flow growth rate is not convincing either. In support of its contention that a
growth rate of 6.5% can reasonably be anticipated (or real growth of 3.9%), Alitalia simply relies on the 1996 annual report
of the International Air Transport Association (IATA) – which it does not produce – according to which annual passenger traffic
growth of 6.6% is forecast for the North American market, and the 2001 report – which it does not produce either – according
to which the growth in turnover for American airlines between 1996 and 2000 was 3.7% per annum. Alitalia’s challenge of the
yield variation and the air transport multiplier applied by the Commission is based on a study carried out by Boeing.

356    In the report of 18 June 1997, the Commission’s consultants examined the values taken into account by Alitalia for those two
factors and explained, for each of them, their choice:

‘On the basis of our analysis, we determined the GNP multiplier in 1.4. This value is consistent with the US Dept of Transportation
analysis on the US market for the period 1980-1995.

The most important reasons behind our decision are the following:

–        higher values (UBS, Boeing) refer to the world-wide market;

–        Alitalia’s most relevant markets (domestic and international) can be considered, after the US one, amongst the more mature,
with lower prospective growth rates;

–        as a consequence, in the long term, the US market multiplier (which has recently reduced) seems to be more realistic.

With reference to the real yield growth rate adopted by Alitalia on the basis of the Boeing studies, some considerations can
be made:

–        in the long term, a study from McDonnell Douglas foresees an average decline of 1.47%;

–        both the mentioned studies (McDonnell Douglas, Boeing) were prepared by aircraft manufacturers; therefore they can be considered
optimistic;

–        the estimates were prepared referring to the world-wide market, while the Alitalia market has to be considered much more competitive
than the average;

–        AEA historical data appear to be lower than those from Boeing and the forecasts for the period 1996-2000 are more prudent.

On the basis of the above and our experience, it appears that the negative trend of the yield could be worse.’

357    Moreover, the Commission supports its choice of a real growth rate of 1.95% by referring to Guatri’s treatise on the valuation
of companies, according to which it emerges from a large body of international data, in particular from the United States,
that the growth factor is generally between 0 and 5%. The Commission then reproduces a table from the same source, which shows
that the average values are between 1 and 3%. The Commission’s choice cannot therefore be regarded as extreme.

358    It was undoubtedly difficult to assess, on the basis of the information available in July 1997, the effect of the development
of Malpensa airport on Alitalia’s growth rate. The prudence which the Commission displayed in those circumstances cannot constitute
a manifest error of assessment (see paragraphs 260 to 264 above). Furthermore, the opening-up of the Italian aviation market
to competition gave rise to a number of uncertainties such as to cast doubt on whether Alitalia would grow at a greater rate
than the rest of the sector. At the very least, such a hypothesis could not be taken for granted.

359    In view of all the foregoing considerations and the wide discretion enjoyed by the Commission in this complex economic field,
the Commission did not make a manifest error of assessment in setting the cash flow growth rate at 4.5% (or real growth of
1.95%).

360    Finally, it should be observed that Alitalia appears to acknowledge in its reply the error pointed out by the Commission in
the formula it used to calculate the final value.

361    The above analysis has not therefore disclosed any manifest error of assessment in the parameters used by the Commission to
calculate the internal rate.

d)     The effect of the conversion of loans into capital on the calculation of the internal rate

Arguments of the parties

362    According to Alitalia, as the majority of the capital injection of ITL 1 000 billion was used to repay to IRI loans totalling
ITL 900 billion and must be regarded as a conversion of loans into capital, the capital increase which IRI envisaged providing
was in reality only ITL 1 850 billion.

363    If that amount is taken into account, the internal rate becomes 28.7%. If the GOM of ITL 1 462 billion incorrectly applied
by the Commission is rectified, the internal rate rises to 30.1%. Moreover, the minimum rate should have been revised downwards,
since the provision of funds was limited.

364    The Commission replies that, in any event, the internal rate would still be lower than the minimum rate, since it would be
28.7%. The Commission disputes Alitalia’s argument that, if the conversion operation had not been effected, the whole of the
capital would have been lost in the insolvency procedure. Indeed, according to the Commission’s projections, the conversion
would have made it possible to pay unsecured creditors at the rate of 30%.

365    The Commission also maintains that the injection of ITL 2 750 billion capital into Alitalia and the repayment of the Cofiri
loans were two separate transactions. In the present case, the total amount of the investment is ITL 2 750 billion, consisting
of ITL 1 850 billion in the form of a capital contribution and ITL 900 billion in the form of a conversion of loans into capital.

Findings of the Court

366    In the *Alitalia I*judgment (paragraph 145), the Court stated that ‘[i]t is not disputed that the main part of the capital injection of ITL 1 000 billion
made in 1996 was used to repay to IRI loans amounting to approximately ITL 900 billion and that that operation can be regarded
as a conversion of loans into capital’.

367    However, while the parties agree on classifying the operation as a conversion of loans into capital, they disagree on the
effects this has. According to Alitalia, the amount of loans repaid must simply be deducted from the amount of IRI’s anticipated
capital injection.

368    It cannot be disputed that the repayment of the loans and the contested capital injection constitute two separate operations,
which cannot therefore be treated as equivalent, even though, from an arithmetical point of view, the sum injected is roughly
the same as the sum repaid. The conversion of loans into capital changes the nature of the asset held and the effects which
flow from this for the holder. Loans bear interest at a given rate and over a given period, whereas dividend yields are uncertain.
Moreover, the order in which creditors’ claims are satisfied is different in the event of insolvency, precedence being given
to other creditors over shareholders. It follows that, from a private investor’s point of view, the uncertainties associated
with the two operations are different. Even though the main part of the IRI capital injection of ITL 1 000 billion in 1996
was used to repay the Cofiri loans totalling ITL 900 billion, that injection still represents an investment for IRI and must
be taken into account as such in the determination of the internal rate. Accordingly, the Commission did not make a manifest
error of assessment by not simply deducting the repaid loans from the total amount of the investment, namely ITL 2 750 billion.

369    The question whether all the capital would have been lost, had the loans not been converted into capital, is irrelevant for
the purpose of assessing the effect of that conversion of loans into capital on the calculation of the internal rate as carried
out by the Commission. For the sake of completeness, it should be added that, in any event, the internal rate calculated by
Alitalia on the basis of the figure of ITL 1 850 billion, that is to say, by deducting the amount of the conversion of loans
into capital, is still lower than the minimum rate.

370    On the basis of all the foregoing considerations, it is established that the Commission did not make a manifest error of assessment
in the determination of the internal rate.

F –  *The plea alleging infringement of Article 87(3) EC*

371    In connection with this plea, Alitalia criticises the fact that the conditions laid down in the 1997 decision before it was
annulled by the Court were repeated in the contested decision without being reviewed. It considers those conditions to be
disproportionate, discriminatory, unlawful and unjustified.

372    The Commission contends that this plea is inadmissible on the ground that Alitalia has no interest in bringing proceedings.
It is therefore necessary to begin by considering whether this plea is admissible.

1.     *Admissibility*

a)     Arguments of the parties

373    The Commission states that the conditions in question were not imposed in the contested decision or in the 1997 decision but
are, in reality, undertakings given by the Italian authorities. It follows that, in its view, those undertakings are not extrinsic
to the project on which it gave a decision as regards compatibility but, rather, an integral part of the project. Those undertakings
cannot be attributed to the Commission but to the Italian authorities.

374    In those circumstances, it follows, in the Commission’s view, from the judgment in Case T‐212/00 *Nuove Industrie Molisane* v *Commission* [2002] ECR II‐347 that the operative part of the contested decision does not adversely affect the interests of Alitalia and
it therefore has no interest in bringing proceedings. Similar reasoning was followed by Advocate General Mischo in his Opinion
in Case C‐242/00 *Germany*v *Commission* [2002] ECR I‐5603, I‐5605.

375    In the rejoinder, the Commission also calls into question the ‘effectiveness’ of the complaints concerning those conditions.
It points out that the contested decision was adopted in 2001, approximately seven months after the implementation of the
restructuring plan, set for 31 December 2000, had been completed, which meant that the obligations Alitalia was under by virtue
of the contested conditions ceased to have effect at the same time. Any annulment of those conditions would therefore confer
no benefit on Alitalia, either economically or from a legal standpoint.

376    Alitalia considers that neither the judgment nor the submissions relied on by the Commission are capable of supporting the
latter’s argument. In fact, in *Nuove Industrie Molisane* v *Commission*, the Court did not in any way rule out the possibility for the undertaking concerned to challenge the parts of a decision
adversely affecting it if they were the result of concessions made by the national authorities to the Commission.

b)     Findings of the Court

377    It is apparent from Article 1 of the contested decision that the aid in question was declared compatible with the common market
‘subject to compliance with the obligations and conditions laid down in Articles 1, 2 and 3 of [the 1997] decision, as quoted
in recital 1 of this Decision’.

378    Moreover, it is apparent from the description of the progress of the administrative procedure in the *Alitalia I*judgment (paragraphs 13 to 35) that the Italian authorities, in their letter of 26 June 1997, undertook to comply with a number
of conditions. However, it is also apparent from that judgment (paragraphs 29 and 30) that the Commission had initially informed
Alitalia and the Italian authorities that it was not in a position to adopt a positive decision on the matter on the basis
of the criterion of the private investor operating on market principles. Subsequently, it sent to Alitalia an informal document
containing, on the one hand, possible changes to improve the restructuring plan and, on the other hand, an indication of the
conditions to which authorisation of State aid to Alitalia would be subject.

379    Furthermore, in the rejoinder, the Commission states that, in exceptional cases, the aviation notice (paragraph 38) provides
that ‘the Commission will not be able to authorise restructuring aid unless under very stringent conditions’. It explains
that it has consistently applied those rules by making all aid authorised previously in respect of other companies subject
to conditions comparable to those imposed upon Alitalia. The Commission adds that it follows that, if it had failed to make
the aid to Alitalia subject to the conditions which are being criticised in these proceedings, the contested decision would
be unlawful because it would infringe Article 87 EC, the aviation notice and general principles of law, such as the principle
of equal treatment.

380    The Commission cannot therefore claim that those conditions are not attributable to it but simply the result of undertakings
given by the Italian authorities. Those conditions were undoubtedly discussed by the Commission, Alitalia and the Italian
authorities and those authorities undertook to comply with them. The fact remains, however, that the Commission has exclusive
jurisdiction to find that aid is incompatible with the common market (Case 78/76 *Steinike & Weinlig*[1977] ECR 595, paragraph 9, and Case T‐73/98 *Prayon-Rupel* v *Commission* [2001] ECR II‐867, paragraph 40). In exercising that exclusive jurisdiction, the Commission could – and indeed should, as
it states – make the decision declaring the aid compatible subject to certain conditions.

381    In those circumstances, the plea against the conditions which made the aid in question subject to compatibility with the common
market in the contested decision cannot be regarded as inadmissible on the ground that those conditions are not attributable
to the Commission.

382    The case‐law cited by the Commission cannot cast doubt on that conclusion.

383    While it is true that in its judgment in *Nuove Industrie Molisane* v *Commission*the Court declared the action inadmissible, it did not, to that end, base its decision on the argument put forward by the
Commission that the choice of the contested adjustment coefficient had been made directly by the Italian authorities and not
the Commission itself. That judgment cannot therefore be interpreted as ruling out the possibility for the undertaking receiving
the aid to challenge, before the Community judicature, the conditions to which a decision adversely affecting it is made subject,
where those conditions have been the subject of negotiations between the Commission and the national authorities and even
of undertakings given by those authorities.

384    Moreover, contrary to what the Commission contends, the judgment in *Nuove Industrie Molisane*v *Commission* is not based on the fact that a decision authorising aid is not capable of adversely affecting the rights of the Member State
or the undertaking receiving the aid. On the contrary, in that case, the Court considered that the fact alone that the contested
decision declared the notified aid compatible with the common market and did not therefore, in principle, adversely affect
the applicant in that case did not relieve it of its duty to examine whether the Commission’s assessment had binding legal
effects such as to affect that applicant’s interests. The Court cited in that regard, by analogy, the judgment in Joined Cases
T‐125/97 and T‐127/97 *Coca-Cola*v *Commission* [2000] ECR II‐1733, paragraph 79.

385    As regards the judgment in Case C-242/00 *Germany*v *Commission*, unlike the present case, the dispute was between the Member State and the Commission. The Federal Republic of Germany’s
action was held to be inadmissible because the Court of Justice found that the contested decision did not of itself have a
scope unfavourable to the applicant Member State and thus did not adversely affect it. However, in the present case, the Italian
authorities cannot be regarded as having themselves requested that the conditions to which the declaration of compatibility
was made subject in the contested decision should be imposed upon them and that decision cannot therefore be regarded as not
having a scope unfavourable to the Italian Republic. Those considerations apply a fortiori to Alitalia, which was, moreover,
adversely affected by the contested decision, as stated in paragraph 38 above.

386    As regards the ‘effectiveness’ of the plea relating to the conditions in question, it should be noted, in the first place,
that, in its principal heads of claim, Alitalia bases its plea seeking annulment of the contested decision in its entirety
on the claim that those conditions are unlawful and, as is apparent from paragraphs 35 to 47 above, it maintains an interest
in seeking that annulment. Alitalia therefore maintains an interest in demonstrating that the conditions at issue are unlawful.

387    In the second place, an act which has already been carried out is still capable of having legal consequences. The act could
have produced legal effects during the period when it was in force and its effects are not necessarily eradicated by reason
of its having been carried out (see, to that effect, Case T‐102/96 *Gencor* v *Commission* [1999] ECR II‐753, paragraph 41). At the very least, conditions imposing, inter alia, a limitation on capacity available
and the disposal of shares affected Alitalia’s rights during the implementation of the restructuring plan. In addition, the
imposition of certain conditions, such as the disposal of shares, had a lasting effect on Alitalia’s situation which continued
after the implementation of the restructuring plan was completed.

388    Accordingly, Alitalia has an interest in challenging the conditions in question.

2.     *Substance*

389    Alitalia makes a number of complaints against the conditions laid down in the contested decision. Some are of a general nature
while others are specific to the conditions in question. It is therefore necessary to examine them separately.

a)     Complaints of a general nature against the conditions laid down in the contested decision

Arguments of the parties

390    Alitalia submits that, in the contested decision, the Commission simply repeats the conditions set out in the 1997 decision.
Since the 1997 decision was annulled by the Court, those conditions have no legal basis. Alitalia states that it does not
challenge the conditions as imposed in the 1997 decision but contends that it is impossible for the Commission to reimpose
the same conditions in the context of the contested decision without providing adequate reasons for so doing.

391    Alitalia also claims that the Commission should have reviewed the contested conditions in the light of the final version of
the plan and the increased viability it engendered. That obligation arises because the Court annulled the 1997 decision on
the ground, inter alia, that the Commission had not adopted that decision on the basis of the final version of the restructuring
plan.

392    Lastly, Alitalia submits that the conditions are, in any event, disproportionate, discriminatory, unlawful and unjustified.
Since the restructuring plan satisfied the criteria laid down in the aviation notice, it should have been approved as such
without there being any need to impose additional conditions. Those conditions imposed sacrifices and very serious restrictions
on the company, contrary to the guidelines (the aviation notice and the Commission communication to the Member States on the
application of Articles [87 EC] and [88 EC] and of Article 5 of Commission Directive 80/723/EEC to public undertakings in
the manufacturing sector (OJ 1993 C 307, p. 3)), which provide that conditions are to be imposed in only two cases. By imposing
those conditions, the Commission greatly discriminated against Alitalia by comparison with other airlines which had recently
been the subject of State aid procedures, including, in particular, Air France. Never before had the Commission imposed such
a major series of stringent restrictions on the management autonomy of a company. It cannot be claimed that such conditions
were a response to any alleged abusive conduct on the part of Alitalia, which should have been the subject of a different
procedure.

393    The Commission submits that, in order properly to assess the contested conditions, which were the result of lengthy consideration
and three-way meetings among the Italian authorities, Alitalia and the Commission itself, it is necessary to analyse the extremely
serious situation which the company was in 1996.

394    As regards the claim that the conditions were unlawful, the Commission states that Alitalia appears to be unaware of the very
close connection between the conditions and the plan, the conditions forming the backbone of the plan. In its criticisms,
Alitalia seems to have total disregard for the Community interest, whereas, in order for aid to be considered compatible in
accordance with Article 87(3)(c) EC and paragraph 41 of the aviation notice, it is necessary for that interest to be satisfied.

395    As regards the claim that the conditions at issue are disproportionate, the Commission maintains that, apart from conditions
4 and 8, which are specific to the case of Alitalia, the majority of the conditions are customary and imposed in all authorisations
for restructuring aid. Only three of them, that is, conditions 3, 5 and 7, had a real economic and financial impact, which
does not in any way entail the adverse effects that Alitalia suggests it has without adducing any evidence whatsoever. In
that context, reference to disproportion of any kind is totally unwarranted.

396    With regard to the claim that the conditions should have been reviewed following the amendments to the plan, the Commission
states that Alitalia fails to specify which conditions or the practical effects such a review was supposed to have. Moreover,
those conditions were finalised after the final amendments were made to the plan and took account of them. Finally, since
the rate of return in the plan rose from 25.7% to 26.1%, it was not possible to conclude that this would have any major impact
on the substance of the conditions.

397    As regards the alleged failure to state adequate reasons, the Commission refers to recital 36 in the preamble to the contested
decision.

398    With regard to the alleged discrimination which Alitalia suffered, in particular by comparison with Air France, the Commission
states that Alitalia appears to have overlooked the fact that the Commission established the criteria for certain conditions
by reference to Commission Decision 94/653/EC of 27 July 1994 concerning the notified capital increase of Air France (OJ 1994
L 254, p. 73) (‘the Air France decision’) at the express request of the Italian authorities and, indeed, in accordance with
the principle of equal treatment.

Findings of the Court

399    First of all, as regards the claim that the conditions at issue have no legal basis, that basis is to be found, first, in
the notification by the Italian authorities of the restructuring plan and, secondly, in Article 7(4) of Regulation No 659/1999.
The latter provision states that:

‘The Commission may attach to a positive decision conditions subject to which an aid may be considered compatible with the
common market and may lay down obligations to enable compliance with the decision to be monitored.’

400    The conditions in question cannot therefore be regarded as lacking in legal basis.

401    In the second place, with regard to the alleged obligation to review the conditions in the light of the final version of the
plan, it is apparent from the *Alitalia I*judgment (paragraph 33) that the Italian authorities’ undertakings, which are set out in their letter of 26 June 1997 (annexed
to the defence) and correspond exactly with the conditions in the contested decision, were given to the Commission by those
authorities at the same time as the final version of the restructuring plan.

402    It follows from the fact that the final version of the plan and the Italian authorities’ undertakings were delivered at the
same time and that, accordingly, the conditions in the contested decision are the same as those the Italian authorities undertook
to comply with, that there is no need for those conditions to be reviewed in order for them to be adapted to the final version
of the plan.

403    For the sake of completeness on this point, it should be observed that not all the conditions in question were directed at
restoring the undertaking’s profitability. Many of the conditions sought to prevent distortions of competition, so that the
increase in the internal rate should not necessarily have led to the conditions being adjusted. However, Alitalia has failed
to put forward any specific argument dealing with that fact.

404    In the third place, as regards the argument that the conditions are unlawful, the Commission may in principle make a decision
authorising aid under Article 87(3)(c) EC subject to conditions for ensuring that the authorised aid does not alter trading
conditions to an extent contrary to the general interest (Joined Cases T‐244/93 and T‐486/93 *TWD*v *Commission* [1995] ECR II‐2265, paragraph 55, and *British Airways and Others* v *Commission*, paragraph 288).

405    Moreover, according to established case‐law, the Commission may lay down for itself guidelines for the exercise of its discretionary
powers by way of documents such as the guidelines in question, provided that they contain directions on the approach to be
followed by that institution and do not depart from the Treaty rules (see, to that effect, Case T‐17/03 *Schmitz-Gotha Fahrzeugwerke* v *Commission* [2006] ECR II‐1139, paragraph 42).

406    The aviation notice, which is referred to in recital 15 in the preamble to the contested decision, requires restructuring
aid to be part of a programme aiming to restore the health of the airline so that it can, within a reasonable period, be expected
to operate viably. The Commission can authorise restructuring aid only in exceptional cases and under very stringent conditions
(paragraph 38(1) and (2) and paragraph 41).

407    It follows that, in a decision adopted on the basis of Article 87(3)(c) EC, such as the contested decision, the Commission
can impose any condition it deems necessary to ensure that the undertaking receiving the aid will be viable following its
restructuring.

408    On the other hand, none of the provisions referred to above requires all the conditions imposed in that context to be necessary
for ensuring that the undertaking is restored to viability. On the contrary, it is apparent from the aviation notice that
the Commission must also endeavour to limit, as far as reasonably practicable, distortions of competition (paragraph 41) and
to ensure that the government refrains from interfering in the management of the company for reasons other than those stemming
from its ownership rights (paragraph 38(5)) and that the aid is used exclusively for the purposes of the restructuring programme
and is not disproportionate to its needs (paragraph 38(6)).

409    Contrary to what Alitalia states, paragraph 38(3) of the aviation notice does not provide that the Commission can impose conditions
only in two cases, namely if it is dictated by the need to restore financial viability or there is overcapacity on the market.
In fact, that paragraph is worded as follows:

‘If restoration to financial viability and/or the situation of the market require capacity reductions, this must be included
in the programme.’

410    In so far as Alitalia appears to rely on the Community guidelines on State aid for rescuing and restructuring firms in difficulty
of 9 October 1999 (OJ 1999 C 288, p. 2), those guidelines are not applicable in the present case because the restructuring
plan was communicated to the Commission by the Italian authorities by letter of 26 July 1996. For the sake of completeness,
those guidelines do not support Alitalia’s argument. Point 3.2.2(c)(i) of the Community guidelines on State aid for rescuing
and restructuring firms in difficulty provides that ‘where there is a Community-wide or EEA‐wide structural excess of production
capacity in a market served by the recipient, the restructuring plan must make a contribution, in proportion to the amount
of aid received and its impact on that market, to the improvement of market conditions by irreversibly reducing production
capacity’. Point 3.2.2(c)(ii) of the guidelines states that, ‘where, on the other hand, there is no Community‐wide or EEA‐wide
structural excess of production capacity in a market served by the recipient, the Commission will nevertheless examine whether
compensatory measures should be required’.

411    Accordingly, the Commission can impose conditions even where there is no structural excess of production capacity. Contrary
to what Alitalia contends, the Commission was therefore not required to demonstrate that there was a structural excess of
production capacity in order to be able to make authorisation of the aid subject to conditions.

412    In the fourth place, as regards the general argument that the conditions in question are disproportionate, the simple fact
that the rate of return improved in the final version of the plan cannot mean that the Commission was required to accept it
unconditionally. As already pointed out, the Commission must also endeavour to limit any distortions of competition to which
the plan may give rise. It can therefore, to that end, make authorisation of the plan subject to certain conditions.

413    Moreover, Alitalia’s argument is of a general nature and is not supported by any concrete evidence. First, Alitalia fails
to establish in what way the conditions imposed are disproportionate vis-à-vis its situation. Secondly, it cannot be presumed
that its situation was comparable to that of the companies referred to above which had previously been the subject of Commission
decisions. Furthermore, even if its management autonomy were very much reduced, that would not suffice to establish that the
conditions imposed upon it were disproportionate.

414    In the fifth place, it will be appropriate to return to the argument alleging that conditions were imposed which discriminated
against Alitalia in comparison with its competitors, in particular Air France, in the examination of the complaints that are
specific to certain conditions. However, at this stage, it should be pointed out, in general terms, that the Court rejected
a similar complaint in its judgment in *British Airways and Others* v *Commission* (paragraph 443). In that judgment, the Court held that, when the restructuring plan was considered in that light, the Commission
was clearly not under an obligation to provide specific explanations comparing Air France’s plan and those of other airlines
such as Lufthansa and British Airways. Those plans, in fact, related to other companies that were restructured during a different
period. Consequently, such a comparison is not a sufficient basis for discrimination to be established, bearing in mind the
context, which will vary.

415    In the sixth place, as regards the adequacy of the reasons given for those conditions and the argument that it was not possible
to reimpose them in the contested decision, reference should be made, first of all, to paragraphs 74 to 77 above.

416    Secondly, in order to adopt and state reasons for the contested decision, the Commission was obliged to place itself in the
context of the period during which the financial support measures were taken and thus to have recourse to the information
that was available to it at the time when the 1997 decision was adopted and it could not, therefore, take account of later
circumstances (see paragraph 137 above).

417    In addition, the Commission concluded in the contested decision that the minimum rate was greater than the internal rate,
in spite of the fact that the latter had increased. The final conclusion, namely that the operation in question was classified
as State aid, is thus the same as that of the analysis carried out in the 1997 decision. The fact that the capital injection
was classified as State aid means that an assessment had to be carried out as to its compatibility with the common market
and the conditions in question are linked to that issue of compatibility. Since the conditions are not directly linked to
the internal rate, the fact that that rate increased did not oblige the Commission to amend them and provide appropriate reasons
for so doing.

418    All the general complaints made by Alitalia concerning the conditions in the contested decision must therefore be rejected.

b)     Specific complaints made against certain conditions in the contested decision

419    Alitalia specifically challenges conditions 2 to 8 in the contested decision. It is appropriate to examine each of them separately.

Condition 2: Prohibition of new aid

–       Arguments of the parties

420    According to Alitalia, the condition requiring the Italian authorities to undertake ‘not to grant Alitalia any further capital
payment or any other aid in any form, including loan guarantees’, was, due to its general nature, arbitrary and excessively
onerous for it, especially at a time when the entire sector in question was experiencing an extremely serious crisis.

421    That condition is contrary to the logic underlying the aviation notice. In that notice, the Commission simply stated that
restructuring aid could, in principle, be granted only once. It stated that no additional aid should be necessary for the
duration of the programme but ‘would leave the door open as to the future’.

422    Lastly, Alitalia claims that it is incorrect to state that that condition is imposed in all decisions authorising restructuring
aid for competing airlines. In its decision of 22 July 1992 concerning a capital injection and complete restructuring and
investment programme for the company Iberia, one of the conditions imposed by the Commission for the authorisation of the
aid was that the aid should be ‘the last during the strategic plan’.

423    The Commission is of the view that condition 2 is fully justified and cannot be classified as arbitrary or excessively onerous.
That condition appears in all decisions authorising restructuring aid for airlines.

424    The Commission states that the prohibition of aid derives from Article 87(1) EC and, obviously, an individual decision cannot
amend the Treaty. In the Commission’s view, it is therefore in that context that the condition imposed must be interpreted.
That condition is necessarily limited in scope, since it was applicable only during the restructuring of Alitalia and did
not preclude the grant of horizontal aid for investments that are different and unconnected to those covered by the restructuring
plan, subject to compliance with Article 87(3) EC.

–       Findings of the Court

425    The parties disagree as to the scope of the prohibition of new aid in the contested decision. Alitalia regards it as a general
and arbitrary condition which is unlimited time.

426    The general prohibition in principle of State aid stems from Article 87(1) EC and not the contested decision. That prohibition
does not in any case prevent the Member States from notifying the Commission of new aid projects, pursuant to Article 88(3)
EC. Responsible for investigating such projects, the Commission has drawn up guidelines governing its assessment of aid projects
of certain types or in certain sectors, including the aviation sector by means of the aviation notice.

427    It is apparent from paragraph 38(2) of the aviation notice that the Commission ‘normally requests the written assurance from
the government that the present aid will be the last cash injection from public funds or any other aid, in whatever form,
[for the duration of the programme], in conformity with Community law’.

428    Read in the light of those provisions, condition 2 cannot therefore be regarded as being of a general or arbitrary nature.

429    As regards the claim that condition 2 is unlimited in time, subject to the application of Article 87(1) EC, the undertakings
given by the Italian authorities and repeated in the contested conditions are, as is apparent from the aviation notice and
was confirmed by the Commission in the defence, limited to the duration of the restructuring plan. The scope of condition
2 as such is therefore necessarily limited in time.

430    Alitalia is incorrect in disputing that such a condition is imposed in all other Commission decisions of this kind authorising
restructuring aid for airlines by invoking the Commission decision of 22 July 1992 authorising restructuring aid for the company
Iberia. As Alitalia itself states in the reply, one of the conditions in that decision was that the aid was to be ‘the last
during the strategic plan’. The Commission is therefore correct in stating that, in that decision, while the prohibition is
expressed in terms that are slightly different from those in the contested decision, the substance is the same, the condition
in both cases being limited to the duration of the restructuring plan (see the preceding paragraph). The sole example put
forward by Alitalia cannot therefore alter the fact that such a condition is to be found in all Commission decisions of that
kind.

431    Nor has Alitalia attempted to establish that the presence of such a condition was justified in the case of the other companies
in question but not in its own case.

432    Condition 2 does not therefore suffer from any of the defects alleged by Alitalia and, consequently, its complaints in that
regard must be rejected.

Condition 3: Prohibition on acquiring shareholdings in other air carriers

–       Arguments of the parties

433    Alitalia claims that condition 3, which obliges the Italian authorities ‘[to guarantee] that, until 31 December 2000, the
aid shall be used by Alitalia solely for the purposes of restructuring the company and not for acquiring new shareholdings
in other air carriers’, is disproportionate and discriminatory.

434    Alitalia submits that Commission Decision 94/118/EEC of 21 December 1993 concerning aid to be provided by the Irish Government
to the Aer Lingus group (OJ 1994 L 54, p. 30) (‘the Aer Lingus decision’) and Commission Decision 94/696/EC of 7 October 1994
on the aid granted by Greece to Olympic Airways (OJ 1994 L 273, p. 22) (‘the Olympic Airways decision’) simply prohibited
those companies from acquiring shareholdings in other Community or EEA airlines. It adds that there is no prohibition of that
kind in Commission Decision 91/555/EEC of 24 July 1991 on aid to be granted by the Belgian Government in favour of the Community
air carrier Sabena (OJ 1991 L 300, p. 48) (‘the Sabena decision’).

435    Alitalia also maintains that its situation is not comparable to that of Air France, which was clearly more critical and, accordingly,
a prohibition was justifiable in the case of that company. It considers that the prohibition in its case is totally disproportionate
once it is established that the amount of aid and the aid intensity are appropriate for the purpose of meeting the restructuring
needs and guarantee a return that is higher than the average in the sector.

436    Alitalia adds that it is even more apparent that condition 3 is excessive and discriminatory when seen in conjunction with
condition 8, which requires Alitalia to dispose of its shareholding in Malév. In that connection, the Commission obliged Air
France simply to dispose of its foreign interests within its core business.

437    The Commission contends that conditions 3, 5 and 7, which are the hard core of the reconstruction, must be ‘taken as a whole’,
since they are directed at the same objectives, namely to restore Alitalia to viability and competitiveness by 2000 and to
limit the distortions of competition inherent in aid. They achieve a balance between the interests of Alitalia and the common
interest.

438    The Commission then explains that the breadth of the prohibition on acquiring new shareholdings stems from the liberalisation
of the aviation market at EEA level in 1997. In that regard, the Commission refers to the aviation notice.

439    The Commission points out that the Aer Lingus and Olympic Airways decisions relied on by Alitalia pre-date that liberalisation.
Furthermore, those companies had an essentially regional sphere of operation and were not, therefore, major players in the
global market. That is not the case with Air France. The Air France decision laid down the same prohibition as that imposed
on Alitalia in the contested decision, which is justified by the fact that both companies pursue global strategies and are,
to an extent, competitors in the same market.

440    Finally, the Commission argues that condition 3 was not an unjustified limitation on the use to be put by Alitalia of its
funds but rather the corollary of the obligation upon Alitalia to use that aid only for the purpose of restructuring and not
that of its expansion, in accordance with paragraph 38(4) of the aviation notice.

–       Findings of the Court

441    It is not in dispute that the Community air transport sector was liberalised in stages and that that programme was completed
in 1997. That liberalisation programme was the core element of the aviation notice, as is apparent from its introduction.
Under the heading ‘Liberalisation of the Community’s air transport’, the Commission states as follows:

‘1. Community air transport has been characterised by a high level of State intervention and bilateralism.

...

The Council has, however, now completed its liberalisation programme for Community air transport. Therefore, in a situation
of increased competition within the Community there is a clear need for a stricter application of State aid rules.

2. The measures on market liberalisation and competition, which are now in force, have fundamentally changed the economic
environment of air transport.

...

In the more competitive environment State aids might be of substantially increased strategic importance for governments looking
for measures to protect the economic interest of their own airlines. This could lead to a subsidy race which would jeopardise
both the common interest and the basic objectives of the liberalisation process.’

442    Moreover, in paragraph 38(2) of the aviation notice, the Commission draws attention to the fact that ‘the full completion
of the common aviation market in 1997 will considerably increase competition within the common market’. It adds that, under
those circumstances, it ‘will not be able to authorise restructuring aid unless under very stringent conditions’. The Commission
even makes that point again at the end of paragraph 41.

443    In paragraph 38(4) of the aviation notice, the Commission states that ‘the programme to be financed by the State aid can only
be considered not contrary to the common interest ... if it is not expansive; that means that its objective must not be to increase
the capacity and the offer of the airline concerned, to the detriment of its direct European competitors’.

444    Lastly, in paragraph 38(6) of the aviation notice, the Commission indicates that the aid ‘must only be used for the purposes
of the restructuring programme and must not be disproportionate to its needs’. It concludes that ‘[t]he company must for the
period of the restructuring refrain from acquiring shareholdings in other air carriers’.

445    It follows that condition 3 imposed upon Alitalia is one of the specific conditions to which the Commission made its approval
of the aid subject, as laid down in the aviation notice, to which the contested decision refers. Those conditions, which must
be seen in the context of the liberalisation of the air transport market, were established by the Commission by reference
to Article 87(3)(c) EC, which provides that restructuring aid may be compatible with the common market if it does not adversely
affect trading conditions to an extent that is contrary to the common interest. The fact that the Commission took account
of the liberalisation of trade and the common interest is, therefore, in conformity with Community law.

446    Nor does the fact that condition 3 was applied to it discriminate against Alitalia.

447    It is true that in the Aer Lingus and Olympic Airways decisions, the Commission simply prohibited those companies from acquiring
shareholdings in, respectively, any Community or EEA air carrier. However, as the Commission points out, both those decisions
pre-date the liberalisation of the market and the adoption of the aviation notice (December 1994). Those considerations are
of even greater relevance in the case of the Sabena decision, which, while not imposing a prohibition of that nature, dates
back to 1991. Since they do not share the same context, the conditions laid down in those decisions cannot be compared to
those imposed in the contested decision.

448    For the sake of completeness, even if it had been necessary to take account of the precedents established prior to the liberalisation
of the market and the adoption of the aviation notice, on account of its size and the market it serves, Alitalia is closer
to Air France than Aer Lingus or Olympic Airways. In the Air France decision, the Commission made authorisation of the aid
subject to a condition with the same scope as that imposed upon Alitalia in the contested decision, namely that ‘during the
implementation of the plan, the aid is used exclusively by Air France for the purposes of restructuring the company and not
acquire new holdings in other air carriers’.

449    In conclusion, condition 3 cannot be regarded as disproportionate or discriminatory towards Alitalia and the complaints made
in that regard must, therefore, be rejected.

Condition 4: Prohibition of preferential treatment for Alitalia

–       Arguments of the parties

450    Condition 4 of the contested decision obliged the Italian authorities to put an end to certain preferential treatment which
Alitalia enjoyed. According to Alitalia, the legislation applicable to air transport in Italy, in particular Agreement No
4372 of 15 April 1992, as approved by the Decree of 16 April 1992, is totally consistent with the relevant provisions of Community
law. Condition 4 is therefore unjustified and misconceived. Moreover, no reasons are given for imposing that condition.

451    In addition, a letter from the Italian Ministry of Transport stated, first of all, that Alitalia had renounced its right of
priority, as required under the 1997 decision, that, secondly, Alitalia’s unused traffic rights had been forfeited, and, thirdly,
that the objective criteria for allocating the traffic rights withdrawn from Alitalia or made available on another basis were
being drawn up.

452    Finally, Alitalia does not accept that a Commission decision adopted on the basis of Articles 87 EC and 88 EC can have an
effect on the allocation of traffic rights to or from non‐member countries outside the EEA. It submits that those rights are,
in fact, governed by a series of agreements under international law, which fall outside the Commission’s competence.

453    The Commission replies that the prohibition in question has its origins in the general prohibition of discrimination in Article
12 EC, as supplemented by the legislation providing for the liberalisation of the air sector. The Commission could not authorise
aid that was contrary to a rule or principle of Community law and, therefore, incompatible with Community law.

454    According to the Commission, Agreement No 4372 conferred upon Alitalia a series of privileges, set out in Article 1(4) of
the 1997 decision. It adds that those privileges gave rise to legitimate complaints on the part of the companies which intervened
in the procedure, as is evident from Point IV of the 1997 decision. The Commission also refers to Point VI(4) of the 1997
decision, which states that the Italian authorities recognised that preferential treatment had been given to Alitalia as regards
traffic rights, slot allocation, ground-handling assistance and access to airport facilities. That favourable treatment continued
until January 1998.

–       Findings of the Court

455    Pursuant to Article 87(3)(c) EC, the Commission can declare restructuring aid compatible with the common market only where
such aid does not adversely affect trading conditions to an extent contrary to the common interest. The Commission was therefore
obliged in the circumstances to verify whether that condition had been satisfied, especially as the interested parties, which
had submitted observations in the course of the formal investigation which preceded the adoption of the 1997 decision and
was then resumed for the purpose of the adoption of the contested decision, had expressly requested that the preferential
treatment which Alitalia had enjoyed in a number of areas should cease.

456    When the Commission carried out its investigation prior to the adoption of the 1997 decision, Agreement No 4372 was not compatible
with Community law. In fact, in the letter of 26 June 1997, annexed to the defence, the Italian authorities guaranteed that
they would ‘initiate immediately and complete by 31 December 1998 at the latest the review procedure’ for that agreement.
The existence of a ‘de facto review’ of Agreement No 4372 which provided that it was to apply only in so far as it was compatible
with Community law could not be regarded as sufficient for the purpose of amending the law and ensuring its application.

457    Alitalia cannot therefore claim that Agreement No 4372 was, from the outset, compatible with Community law or even that the
review procedure intended to ensure that it was compatible was completed at the time when the 1997 decision was adopted. Condition
4 was thus necessary in order to ensure that the aid did not adversely affect trading conditions and was compatible with the
common market. Consequently, that condition was justified and Alitalia, which was closely involved in the procedure which
led to the adoption of the 1997 decision and subsequently the formal investigation which was resumed for the purpose of adopting
the contested decision, cannot claim that it was unaware of the reasons for that condition.

458    The Commission cannot rely on the letter of 6 February 1998 to the Commission from the Italian Ministry of Transport, which
was reproduced in the Commission communication of 18 September 1998 on the second instalment of restructuring aid for Alitalia
approved by the Commission on 15 July 1997 (OJ 1998 C 290, p. 3), since it post-dates the adoption of the 1997 decision and,
accordingly, cannot be taken into account for the purpose of determining whether that condition was justified at that date.
The same applies to the Commission’s claim that the preferential treatment in question continued until it was dealt with in
the course of technical meetings in July and August 1999.

459    As regards the argument that a Commission decision adopted on the basis of Articles 87 EC and 88 EC cannot have any effect
on the grant of traffic rights from countries outside the EEA, such a situation is clearly not contemplated in the condition
in question, which concerns, in particular, ‘the allocation of traffic rights (including those relating to third countries
outside the EEA)’.

460    With regard to traffic to non‐member countries, it must be borne in mind that airlines also compete on routes to countries
outside the EEA and the Commission must accordingly take account of this in its assessment of the aid measure in question
(see, to that effect, *British Airways and Others* v *Commission*, paragraph 273).

461    It is also to be noted that the requirement under condition 4 not to give preferential treatment to Alitalia is imposed on
the Italian authorities, in particular as regards the allocation of traffic rights. The Commission is not, therefore, directly
involved in that allocation. The complaint that the Commission does not have competence in that regard is therefore redundant.

462    Consequently, Alitalia’s complaints concerning condition 4 must be rejected.

Condition 5: Restriction of capacity

–       Arguments of the parties

463    Alitalia submits that condition 5 imposed a dual condition as regards the available capacity of the aircraft it operated,
that is, a restriction on the number of seats available and a restriction on the annual increase in the number of seat‐kilometres
available. That condition is disproportionate, discriminatory and in contradiction to condition 1, which provides that Alitalia
must have management autonomy in order to be able to make the maximum use of market opportunities. That condition would paralyse
it by preventing it from operating with the necessary flexibility on the market. When it laid down those conditions, the Commission
failed correctly to assess Alitalia’s particular situation and the economic context in which it operated. Furthermore, the
Commission justified the restriction imposed on the company by having recourse to purely formal reasoning, based on paragraph
38(4) of the aviation notice.

464    Alitalia then states that the parameter used for condition 5(a), that is, a restriction on the number of seats available,
is particularly restrictive, especially when compared with that imposed in the Air France decision, in which the Commission
simply set a maximum ceiling by reference to the number of aircraft in its fleet. That applies a fortiori since, in the present
case, the restriction applied to all the aircraft of the Alitalia group. Moreover, the condition at issue applied to all countries
outside the EEA and is thus beyond the scope of the aviation notice.

465    Alitalia then states that condition 5(b), which limits the annual increase in the number of seat‐kilometres available, was
clearly lifted directly from condition 8 in the Air France decision. That condition is totally unjustified and discriminatory
in so far as it was applied to an economically viable undertaking. The content of that condition is more stringent than that
applied in the case of Air France, since it affected Alitalia as a whole, whereas the Air France decision distinguished between
Air France, Air Charter and Air Inter. The restriction imposed upon Alitalia also affected national traffic and thus contained
an additional element of rigidity. Moreover, the restriction on Alitalia’s rate of growth was taken directly from the Air
France decision without any explanation being given. Finally, for 1999 and 2000, the Commission lowered even further the ceiling
imposed in the 1997 decision.

466    The Commission maintains that the restriction on capacity and prohibition of price leadership are ‘two faces of the same coin’.
In its view, price and quantity are the two main variables generally relied on by undertakings to define their industrial
and business strategies. By influencing either of those variables, different effects may be achieved, while pursuing the same
aim of limiting supply. Those two variables are therefore negotiable and were the subject, in the case of Alitalia, of lengthy
negotiations in which Alitalia’s representatives fully participated. Those conditions are thus the result of detailed, complex
and sensitive market assessments carried out by the Commission with due regard to the need to exchange arguments and with
the assistance of external consultants. The Commission states that, in such circumstances, the Court can declare invalid only
a manifest error in the assessment of the facts or in the application of the Treaty.

467    The Commission states that it has already explained the reason for the restriction on capacity, which was, in accordance with
paragraph 38(3) and (4) of the aviation notice, to enable the undertaking to be restored to viability.

468    Alitalia’s complaint that it was discriminated against by comparison with Air France as regards the restriction on available
seats is the result of a misunderstanding, since the Air France decision set limits on both the seat-kilometres available
and the number of authorised flights.

469    The complaint that Alitalia was allegedly prohibited from entering into commercial partnerships is equally redundant, since
it was authorised to enter into partnerships on the basis of condition 5.

470    The Commission is of the view that Alitalia’s arguments concerning the restriction on the annual growth rate for seat‐kilometres
available fail to take account of the obligation incumbent upon Alitalia to have regard to the Community interest. The differences
as regards the conditions imposed on Air France in 1994 can be explained by the new circumstances which arose, as set out
in the aviation notice. Following changes brought about in the market, the situations of the two companies were not always
comparable.

471    The Commission also considers that, if the growth in capacity and supply of the company concerned cannot be greater than market
growth, it must necessarily be lower than or, at most, equal to that rate and, therefore, Alitalia’s argument alleging disregard
for paragraph 38(4) of the aviation notice is incomprehensible. By setting the rate at 2.7% and allowing for possible adjustments,
the Commission fully complied with that provision.

472    Finally, as regards the distinction made in the Air France decision between Air France and Air Inter, the Commission states
that it did not impose on the latter the growth restriction imposed on the former because it had taken the measures necessary
to ensure that the authorised aid would not place Air Inter at an advantage and, most importantly, that the complaints made
in that regard were clearly rejected by the Court in *British Airways and Others* v *Commission*.

–       Findings of the Court

473    In the first place, condition 5, which limits the capacity available to Alitalia, is clearly not in contradiction to condition
1. Condition 1 provides that the Italian authorities must undertake to ‘adopt the behaviour of a normal shareholder towards
Alitalia; to enable it to be managed in accordance with commercial principles only and not to become involved in its management
for reasons other than those strictly related to the Italian State’s status as a shareholder’. Condition 1 is directed at
the Italian State in order to restrict its involvement in the management of Alitalia. Its primary purpose is to ensure that
the Italian State behaves like a normal shareholder and not, as the applicant claims, to grant Alitalia management autonomy.

474    In any event, Alitalia cannot, in the present circumstances, claim entitlement to full management autonomy. That would be
contrary to Article 87(3)(c) EC and, thus, to the condition that the restructuring aid did not adversely affect trade to an
extent contrary to the common interest.

475    Paragraph 38(4) of the aviation notice provides that, as ‘[a]id granted in the aviation sector affects trading conditions
between Member States’, the programme to be financed by the State aid can only be considered not contrary to the common interest
if its objective is ‘not to increase the capacity and the offer of the airline concerned, to the detriment of its direct European
competitors’. That provision also states that ‘[i]n any case, the programme must not lead to an increase beyond market growth
in the number of aeroplanes or the capacity (seats) offered in the relevant markets’.

476    It should be added that paragraph 38(3) of the aviation notice provides that ‘if restoration to financial viability and/or
the situation of the market require capacity reductions, this must be included in the programme’.

477    The provisions of the Treaty in conjunction with those to which, on that basis, the Commission bound itself in the aviation
notice thus authorise the Commission to lay down conditions on capacity in order to ensure that Alitalia is restored to viability
and to safeguard the common interest.

478    As regards the various forms of discrimination which Alitalia claims it suffered by comparison with Air France, inter alia,
while there can be no grounds for denying that the Commission is entitled to compare the restructuring measures contemplated
by Alitalia with those adopted by other airline companies, the fact remains that the restructuring of a company must focus
on its own specific problems, and the experience of other companies, in different economic and political contexts and at other
times, may be irrelevant (see, to that effect, *British Airways and Others* v *Commission*, paragraph 135).

479    The Commission is correct in stating that the context in which the Air France decision was taken was different from that of
the contested decision in that the restructuring of Air France took place over the period 1994 to 1996 and that of Alitalia
between 1996 and 2000. The latter took place in the context of a market that was in the process of becoming fully liberalised
and thus one of increased competition, in which more stringent State aid rules were imposed in response to an obvious need,
as stated in the aviation notice. That difference in context is sufficient to diminish the relevance of any comparison that
may be made between the conditions imposed on either company.

480    Moreover, and in any event, Alitalia is incorrect in stating that, in the Air France decision, the Commission simply set a
maximum ceiling by reference to the number of aircraft in its fleet. It is, in fact, apparent from Article 1(8), (11) and
(12) of the Air France decision that the Commission imposed on Air France and Air Charter restrictions on both the number
of seat‐kilometres available and the number of authorised routes.

481    Furthermore, in that case, all the aid was to benefit Air France and its subsidiaries alone, to the exclusion of Air Inter
(see Article 1(1) of the Air France decision). That arrangement was endorsed by the Court in its judgment in *British Airways and Others* v *Commission*. Alitalia cannot therefore draw an argument from the fact that the condition imposed in the Air France decision did not apply
to Air Inter.

482    Furthermore, Alitalia’s argument comparing its case with that of Air France is contradictory. At times, it relies on the fact
that its situation is comparable to that of Air France and that, accordingly, the same conditions should have been applied
to it and not more stringent conditions, such as the restriction on seats available (condition 5(a)). But with regard to the
annual growth rate of the number of seat‐kilometres (condition 5(b)), it argues, conversely, that the Commission was incorrect
in applying to it the same restriction as that applied to Air France, since its situation was not comparable.

483    As regards the growth rate of 2.7% imposed in condition 5, it is clear, first of all, that the aviation notice simply provides
that there must not be an increase beyond market growth in the number of aircraft or the seats offered in the relevant markets
(see paragraph 475 above). Setting a rate below the growth rate in the relevant markets is not, therefore, contrary to the
aviation notice.

484    In the second place, that rate of 2.7% applied, according to the contested decision, to ‘the increase in the number of available
seat-kilometres for each calendar year’, ‘within the EEA excluding Italy’ and ‘within Italy’. What this is, therefore, is
simply one of the parameters of the general situation and Alitalia’s growth. The figures provided by Alitalia in response
to questions from the Court on that point refer, in a general manner, to ‘Alitalia’s growth rate’ and do not provide any further
detail. Furthermore, the figures in one of the tables provided relate to the international network and not to the EEA.

485    Alitalia has consequently failed to establish that that rate, which is set in condition 5 and is, moreover, subject to increase,
is disproportionate.

486    It should be added that, in any event, the parameters established by the Commission, such as the maximum number of seats available
and the maximum annual growth rate for the number of seat‐kilometres available, form part of a complex economic assessment.
In that connection, therefore, the Commission enjoys wide discretion.

487    Alitalia has failed to demonstrate any manifest error in the Commission’s assessment of its particular situation and context.

488    In particular, Alitalia cannot claim that condition 5(b) is unjustified and discriminatory in so far as it applied to an economically
sound undertaking. Indeed, the situation which the Commission was obliged to take into account when the contested decision
was adopted, namely that which prevailed when the 1997 decision was adopted, which is described, inter alia, in the *Alitalia I*judgment (paragraphs 5 to 7), was one in which it was impossible for the airline to return to profitability, with debts giving
rise to substantial financial costs and considerable losses.

489    Alitalia is also incorrect in relying on an alleged ban on entering commercial partnerships as a result of condition 5. In
recital 1 in the preamble, the contested decision refers, first, to the Italian authorities’ undertaking to submit a report
containing a description ‘of the commercial or operational cooperation agreements concluded by Alitalia during the previous
year’ (condition 10). Secondly, the contested decision refers expressly to the capacity available on aircraft operated by
Alitalia ‘or by other carriers under agreements whereby Alitalia assumes the commercial risk for such capacity (wet‐leasing,
block-space, joint-venture agreements, etc.)’. The conclusion of such agreements was, therefore, not in any way excluded.

490    Furthermore, with regard to the argument that the condition in question applied to countries outside the EEA, it must be noted
that that condition relates to the maximum number of seats available to the Alitalia fleet and the restriction on growth in
the number of seat‐kilometres available ‘within the EEA excluding Italy’ and ‘within Italy’.

491    Furthermore, even if it were true that the maximum ceiling for 1999 and 2000 was lowered, it is irrelevant, since it post-dates
the facts to be taken into account.

492    Finally, the reasons for condition 5 are evident in the contested decision and the 1997 decision, to which the contested decision
refers, and it is possible from these to understand the grounds on which the Commission imposed that condition (see paragraph
74 above).

493    Consequently, all the complaints relating to condition 5 must fail.

Condition 6: Having in place an analytical accounting system

–       Arguments of the parties

494    Alitalia submits that condition 6, which required it to have in place an analytical accounting system for each route it operated,
is excessive and unjustified.

495    That condition necessitated a total reorganisation of Alitalia’s accounting structure, a rather complex operation entailing
substantial administrative costs. It is excessive, since the 1997 decision had already provided that Alitalia should stop
operating a considerable number of routes. Moreover, whether routes were profitable could not be determined by reference to
one route alone but had to be analysed in the general context of the entire company network.

496    Alitalia maintains that condition 6 is at variance with the practice followed by airline companies which manage their accounts
‘in accordance with the principle of network analysis’, that is, taking an overall view of the various routes operated. In
addition, none of the Commission’s decisions on State aid in the airline sector lays down such a condition. That condition
therefore departs, without any justification, from the normal practice of airlines and the Commission.

497    Alitalia also argues that the Commission lacks the competence to impose such a condition, since its application is not confined
to routes within the EEA.

498    Lastly, Alitalia states that condition 6 cannot be justified by reference to condition 10 (proper implementation of the plan,
demonstrated by annual reports). It claims that it could have fulfilled the obligation laid down in condition 10 perfectly
well by producing the data on all the routes it operated. In any event, to impose such a burden on it for the sole purpose
of facilitating the task of the Commission’s consultants is unjustifiable.

499    In response, the Commission maintains that the introduction of an analytical accounting system was dictated by the need for
transparency and to monitor the various stages of the implementation of the plan. That method made it possible, in particular,
to review, within a very short period, trends in profitability for each route, including routes outside the EEA which have
an impact on the company’s profitability. That condition was the corollary to – or the premiss of – Alitalia’s proper compliance
with condition 10, a point which the latter does not challenge.

500    The Commission states that condition 6 is not to be found in other decisions because the companies in question did not have
the same problems as Alitalia.

–       Findings of the Court

501    Condition 6 obliges the Italian authorities to ensure that ‘Alitalia shall have an analytical accounting system that makes
it possible to determine, in the short term and for each route, the profitability ratio defined as the ratio between the full
revenue and the full costs (the full cost being equivalent to the sum of the variable costs and fixed costs) for a particular
route’.

502    At the outset, it should be observed that, contrary to what Alitalia claims, condition 6 does not require it, strictly speaking,
to have a separate analytical accounting system for each route but simply to put into place an accounting system which makes
it possible swiftly to determine the profitability ratio for each route, which is not quite the same thing. Alitalia’s argument
is therefore based on a misconceived interpretation of the condition in question.

503    With regard to that condition, it should be recalled that, pursuant to Article 87(3)(c) EC, the Commission can declare compatible
with the common market only restructuring aid that does not adversely affect trade to an extent contrary to the common interest.
It must therefore be able to determine the effect of the measures in question on trade. Furthermore, the aviation notice states
in paragraph 38(8) that ‘any such aids must be structured so that they are transparent and can be controlled’. The requirement
to have in place an analytical accounting system must therefore be seen in that context. That accounting system is one of
the means enabling the Commission to ‘verify how the restructuring programme, which is financed with the help of the State
aid, is realised’ (paragraph 40 of the aviation notice).

504    As regards Alitalia’s other complaints concerning condition 6, first of all, the requirement to have in place an analytical
accounting system making it possible to determine the profitability ratio for each route cannot be regarded as being at variance
with the practice of analysing the profitability of the undertaking on the basis of all the various routes operated. One does
not rule out the other and may form the basis of the other or be an adjunct to it.

505    However, even though that condition imposes an additional burden on Alitalia, it cannot be regarded as excessive in the light
of the need for the Commission to be able swiftly to verify whether the plan is in fact being properly implemented, in particular
with a view to the payment of further instalments, especially as the plan, in its amended version, provided, as Alitalia itself
acknowledged, that the company should stop operating a considerable number of routes and frequencies deemed to be unprofitable.
In order for that measure to be implemented, it was therefore necessary to have in place an accounting system which made clear
the profitability of each route.

506    Condition 6 does not serve the same purpose as condition 10. The latter is, in fact, directed at reviewing, overall, the implementation
of the restructuring plan, the viability of the undertaking and whether the conditions imposed are being complied with, whereas
the purpose of condition 6 is to make precise information available on the profitability of each route. It cannot therefore
be assumed that condition 10 would have enabled the Commission swiftly to determine the profitability ratio for each route.
According to paragraph 38(1) of the aviation notice, when evaluating the programme, the Commission must be particularly attentive
to, inter alia, ‘the closing-down of unprofitable routes’. That would be impossible if it did not have at its disposal a precise
mechanism enabling it to assess whether each of those routes was making a loss.

507    In the second place, the fact that other Commission decisions on State aid do not lay down such a condition cannot be construed
as discrimination against Alitalia. First, the general context had changed (see paragraphs 441, 447 and 479 above). Secondly,
the accounting system in place at Alitalia could have differed from that at the other companies in question, so that it may
have been necessary to lay down a special condition in its case. It is apparent from the judgment in *British Airways and Others* v *Commission* (paragraph 135) that the Commission is not obliged to reproduce exactly the same conditions as in the past but it must take
account of the context of the operation and the undertaking’s own particular situation.

508    In the third place, Alitalia is incorrect in stating that the Commission lacks the competence to impose such a condition since
its application is not confined to routes within the EEA. In fact, the airline companies established within the EEA also compete
on routes to countries outside the EEA. The Commission was therefore entitled to adopt a measure with a view to monitoring
whether Alitalia complied with competition rules on the routes in question (see paragraph 460 above).

509    As a consequence, Alitalia’s complaints concerning condition 6 must be rejected.

Condition7: Prohibition of the practice of price leadership

–       Arguments of the parties

510    Alitalia also challenges condition 7, which provided that, until 31 December 2000, it was to refrain from offering fares lower
than those offered by its competitors for an equivalent service supplied on the routes which it operated.

511    Alitalia claims that there is no mention of the prohibition of price leadership in the document sent by the Commission to
the Italian authorities on 14 May 1997. It follows that that condition was not the subject of discussion and constitutes an
infringement of the rights of defence.

512    The applicant also maintains that condition 7 is excessive and discriminatory by comparison with the manner in which the Commission
treats other airline companies. It states that, in the Air France decision, the Commission confined the prohibition of price
leadership to routes operated by Air France within the EEA, whereas in its case the prohibition extended to all the routes
it operated, including routes outside the EEA. Moreover, the duration of the prohibition imposed was longer for Alitalia than
it was for Air France. Such severity towards Alitalia is all the less justified since it was in a much more serious situation
than Air France.

513    The prohibition of price leadership was also much more damaging to Alitalia than it was to Air France, because, in the case
of the former, it occurred against the background of the definitive opening-up of the market to competition and the unconditional
liberalisation of traffic and freedom to set prices.

514    It is also apparent that condition 7 is discriminatory from the fact that no prohibition of price leadership was imposed in
the 1992 Iberia decision or in the Aer Lingus decision and that such a prohibition was limited to regular routes between Athens
(Greece) and Stockholm (Sweden) and between Athens and London in the Olympic Airways decision.

515    Alitalia also questions whether the Commission is competent to enact such a measure, given that the kind of conduct at which
that condition is aimed does not have a direct impact on Community trade. It refers, in that regard, to the aviation notice.

516    Alitalia then submits that condition 7 is unlawful in so far as it seeks to curb conduct ‘without any actual verification
as to whether it is in fact unlawful’. Alitalia finds support for its contention that price leadership must be assessed on
a case-by-case basis in the approach which the Commission itself adopted to Air France’s failure to comply with such a prohibition.

517    Alitalia submits that the judgment of the Court of Justice in Case C‐225/91 *Matra*v *Commission* [1993] ECR I‐3203, paragraph 41, confirms that this plea is well founded.

518    Finally, Alitalia observes that condition 7 is contrary to the logic underlying the contested decision. That prohibition is,
in fact, capable of seriously undermining the profitability of the company. In particular, it prevented Alitalia from appropriately
facing increasing competition at national and international level, opening new routes and launching new shuttle services on
busy routes.

519    According to the Commission, the prohibition of price leadership is intended to prevent a company receiving public funds from
gaining market share to the detriment of competing companies which do not have that advantage. It is aimed at restoring competition
rules and helps to achieve the objective of reducing production capacity referred to in the aviation notice. The Commission
points out that it imposed such a condition in the Olympic Airways and Air France decisions.

520    The Commission adds that the prohibition of price leadership was the subject of lengthy negotiations and was proposed by the
Italian authorities in their letter of 26 June 1997. Those authorities even favoured a prohibition of price leadership over
a greater reduction in capacity. It was also at the express request of Alitalia that the prohibition was extended to flights
on all routes in preference to a simple limitation on the number of flights. The active involvement by the Italian authorities
and Alitalia during the administrative procedure thus explains the difference to be found between the contested decision and
the Air France decision. Moreover, there is no prohibition of price leadership in the decision of 22 July 1992 authorising
restructuring aid for the company Iberia or in the 1993 Aer Lingus decision because those decisions were adopted before the
liberalisation of the markets. In the Olympic Airways decision, the prohibition related simply to routes which posed particular
problems.

521    As regards whether it is competent to impose the conditions in question, the Commission submits that, by virtue of Article
87(3)(c) EC, it is competent to impose any condition necessary to enable Alitalia to recover its economic and financial viability.
The competence conferred on it by that provision is wholly separate from that conferred on it by Article 82 EC. It also derives
competence from that same provision to impose conditions concerning flights outside the EEA, since there is competition among
Community airlines not only on routes within the Community but also on air routes to and from non-member countries. Furthermore,
it is apparent from Article 71(1)(a) EC and Article 80(2) EC that those routes fall within the scope of the common transport
policy.

522    Lastly, the Commission observes that, by complaining that, as a result of price leadership, it cannot attract new customers
to new routes or encourage those customers to fly more often, Alitalia is in effect claiming that it benefited from the aid
in order to reserve for itself a greater market share by removing it from competition.

–       Findings of the Court

523    In the first place, as regards the alleged infringement of the rights of defence, it has already been stated in paragraphs
169 to 172 above that the administrative procedure in matters of State aid is initiated only in relation to the Member State
concerned, which alone enjoys the protection of the rights of defence. Essentially, the role that is conferred upon the parties
concerned, which include the recipients of the aid, is that of information source for the Commission. It follows that, far
from being able to rely on the rights of defence conferred upon persons in respect of whom a procedure is initiated, the parties
concerned simply have the right to be involved in the administrative procedure to a degree that is appropriate in the circumstances
of the case. Alitalia cannot therefore rely on an infringement of the rights of defence. Moreover, Alitalia was closely involved
in the administrative procedure preceding the adoption of the 1997 decision and that procedure was not declared void.

524    In the second place, the difficulty with Alitalia’s arguments alleging that it was subject to discrimination by comparison
with other airline companies that were the subject of earlier Commission decisions is that the general context in which those
decisions were taken and the individual situations of the companies concerned cannot be compared (see paragraph 507 above).
It would be contrary to the procedure of assessing a company’s conduct on a case-by-case basis, advocated by Alitalia, for
the Commission to be required to reproduce in exactly the same form the same conditions in all its decisions on State aid
in the air transport sector.

525    Moreover, Alitalia’s argument contains a further contradiction (see paragraph 482 above). On the one hand, with regard to
the routes in question and the length of the prohibition, it asks to be treated in the same way as Air France – which presupposes
a comparable situation. On the other hand, in other respects, it relies on a different context – and therefore one that is
not comparable – namely the liberalisation of the market which took place in the meantime, generally authorising airlines
to set their own fares.

526    While Alitalia relies on the liberalisation of the air transport market, it is apparent from the aviation notice that that
event was intended to make the Commission more stringent in the authorisation of State aid and the conditions it imposed.
Thus, for example, paragraph 41 of that notice states:

‘The full completion of the common aviation market in 1997 will considerably increase competition within the common market.
Under such circumstances, the Commission will not be able to authorise restructuring aid, unless in very exceptional cases
and under very stringent conditions.’

527    In the third place, the Commission’s competence to impose a condition such as condition 7 is based on Article 87(3)(c) EC,
which authorises the Commission to declare State aid for the purpose of restructuring compatible with the common market only
if it does not adversely affect trading conditions to an extent that is contrary to the common interest. As the Commission
stated in the second subparagraph of paragraph 37 of the aviation notice, ‘[i]t is in the light of this latter requirement,
to be interpreted in the context of the air transport industry, that the Commission has to determine the conditions which
will usually need to be met in order to be able to grant an exception’. The Commission enjoys discretion in such matters.
Even though the aviation notice does not allude expressly to prohibition of price leadership, such a prohibition clearly helps
in attaining the objective that aid should not adversely affect trading conditions to an unacceptable degree, in accordance
with the Treaty.

528    In the fourth place, while it is clear from the general scheme of the Treaty that the procedure under Articles 87 EC and 88
EC must never produce a result which is contrary to the specific provisions of the Treaty, the fact remains that the procedure
to be followed under Article 81 EC et seq. and that to be followed under Article 87 EC et seq. are independent procedures,
governed by specific rules (see, to that effect, *Matra*v *Commission*, paragraphs 41 and 44). The present procedure is not governed by Article 82 EC but by Article 87 EC. Alitalia’s arguments
concerning the need to render unlawful anti-competitive activities on a case-by-case basis are, therefore, irrelevant.

529    In the fifth place, it has already been stated, in paragraph 460 above, that Alitalia is incorrect in claiming that the Commission
does not have competence to impose a condition which extends to routes operated outside the EEA. The imposition of that condition
is justified because Alitalia is competing for those flights with other airline companies established within the Community.

530    In the sixth place, Alitalia’s argument that condition 7 is contrary to the logic underlying the contested decision, in so
far as it could seriously undermine the profitability of Alitalia, must fail. In accordance with paragraph 38(1) and (2) of
the aviation notice, the purpose of the aid was to restore the company to viability. Contrary to what Alitalia appears to
consider, the purpose was not to enable it to expand, to commence new services on routes it did not serve or to launch new
shuttle services on busy routes.

531    As regards the reasons for that condition, reference should be made to paragraphs 74 to 77 above. In the contested decision,
as in the 1997 decision, the Commission refers, inter alia, to Articles 87 EC and 88 EC and to the aviation notice, which
oblige the Commission to ensure that the aid does not have the effect of transferring the difficulties of the company receiving
it to its competitors. On the basis of that reasoning, it is possible to understand the grounds which led the Commission to
impose that condition.

532    Since the above examination has revealed nothing capable of affecting the validity of condition 7, the objections raised against
it must be rejected.

Condition 8: Disposal of the shareholding in Malév

–       Arguments of the parties

533    Alitalia submits that no adequate reasons were given for condition 8 of the contested decision, which required it to release
its shareholding in Malév. That obligation, it argues, is in contradiction to the considerations set out in the 1997 decision,
which state that Alitalia was to pursue a policy of refocusing its activities in order to concentrate more on its core business
and ‘would ... be unable to dispose of assets relating to its main activities without compromising the plan’s success’ (18th
subparagraph of point VIII). Alitalia claims, however, that its shareholding in Malév was an asset that was inextricably linked
with its core business.

534    Alitalia contends that that condition is also discriminatory, since, in the Air France decision, the Commission required the
French company merely to dispose of the Le Méridien hotel chain, which was not a strategic part of its business.

535    Lastly, Alitalia maintains that condition 8 lacks any legal basis in so far as the purpose of a restructuring plan is to enable
a company to be restored to profitability and not to achieve profitability equal to or greater than that in the private sector.
Even if that condition had not been imposed, the restructuring plan would have made it possible to improve the financial health
of the airline so that, within a reasonable period, it would have been restored to viability, that is to say, in the normal
course of things, without any further aid, in accordance with paragraph 38(1) of the aviation notice.

536    In response, the Commission states that the disposal of Alitalia’s shareholding in Malév was negotiated and accepted by Alitalia
in the course of the administrative procedure. As the synergies between Alitalia and Malév were extremely weak, the shareholding
in question was not regarded as a strategic asset. The disposal of the shareholding was necessary in order to consolidate
the financial part of the restructuring plan. The Commission also observes that Alitalia fails to state the reasons for which
the disposal of the shareholding was liable to have adverse effects.

–       Findings of the Court

537    With regard to the claim that condition 8 is in contradiction to some of the considerations set out in the 1997 decision,
it must be noted that Alitalia cites that decision only in part. In fact, the Commission did not, in the 1997 decision, take
the view that the shareholding in Malév was a core part of Alitalia’s business. On the contrary, the sale of that shareholding
was regarded as part of Alitalia’s refocusing on its core business, as is apparent from the following:

‘Like most competitor companies which had to cope with the crisis in air transport in the early 1990s, Alitalia is also pursuing
a policy of refocusing its activities on its core business, namely air transport itself. Therefore, following the disposal
of the shares in the capital of Società Aeroporti di Roma in 1995, the plan provides in particular for the forthcoming sale
of the headquarters building at Magliana and of Alitalia’s shareholdings in Alfa Romeo Avio, SISAM, the computerised reservation
system Galileo, Mal[é]v and six regional Italian airports.

On this basis, the extremely positive results expected by the year 2000 should both meet the company’s needs in terms of working
capital and funding of investments essential for long-term business and open up the prospect of long-term viability. They
should also inspire confidence in investors and pave the way for the development of alliances with other companies.

...

By refocusing its activities on its core business and shedding a large amount of its investment, Alitalia is helping to cover
the financial needs from its own resources.

...

The resources provided by the aid would also seem to be necessary since Alitalia is unable to substitute sufficient resources
from the sale of assets. As indicated above, the company has already embarked on a policy of disinvestment and refocusing
on its core business. However, although the resources of about [ITL] 600 billion thus released will make it possible to reduce
the capital increase to be made, they are out of all proportion to the financial requirements of the plan. The company would,
moreover, be unable to dispose of assets relating to its main activities without compromising the plan’s success.’

538    As set out in the 1997 decision, the sale of the shareholding in Malév was, therefore, intended to cover Alitalia’s financial
needs and make it possible to reduce the amount of aid. This can be understood from the statement of reasons in the 1997 decision,
to which the contested decision expressly refers (see paragraphs 74 to 77 above).

539    Moreover, Alitalia has not put forward any evidence capable of establishing that the Commission was not entitled to regard
its minority shareholding in Malév (30%) as a non-strategic asset or to consider that the sale of that asset was necessary
to limit the aid injection and ensure that the aid was proportionate to its needs under the plan. It follows that the Commission
cannot be regarded as having made a manifest error of assessment in that regard.

540    Furthermore, it is not apparent from the contested decision, the provisions relied on by the Commission or its written submissions
in these proceedings that the sole objective of the conditions imposed in the contested decision was to improve the viability
of the restructuring plan.

541    In fact, the Commission initially took the view that the plan for the restructuring of the company communicated on 29 July
1996 was not adequate to warrant a positive decision. Alitalia then informed the Commission that it intended to adjust the
plan. After considering the adjustments, the Commission subsequently notified the Italian authorities, by letter of 18 April
1997, that it was not in a position to adopt a positive decision on the matter on the basis of the principle of the private
investor operating on market principles, due to both the difficulties inherent in the fact that account had been taken of
the insolvency costs to be borne by IRI in the event of Alitalia’s bankruptcy and the extent of the commercial risk which
the plan still presented. A third phase therefore commenced, during which meetings were held between the Italian authorities
and the Commission. It was possible as a result of those meetings to make additional improvements to the plan in certain areas,
namely the cost reduction was to be accelerated, the amount of the proposed capital increase to be reduced and Alitalia’s
shares in the Hungarian company Malév and in six regional Italian airports to be disposed of.

542    It is evident that, initially, the plan did not satisfy the conditions necessary for it to be regarded as compatible with
the common market. The disposal of Alitalia’s shares in Malév was one of the improvements which enabled the Commission, after
consulting its consultants, to take the view that the plan was realistic and would enable Alitalia to be restored to viability
within a reasonable period of time. That disposal was, therefore, an essential prerequisite for the aid to be declared compatible
with the common market.

543    Alitalia cannot, therefore, claim that the only purpose of condition 8 was to improve the viability of the plan and that,
even without that condition, the plan would have improved the financial health of the company so that it would, within a reasonable
period, have been possible to restore its viability. Alitalia has, in any event, failed to demonstrate that that is the case.

544    Accordingly, none of the objections raised against condition 8 is justified.

Implied condition: Assumption of early retirement costs

–       Arguments of the parties

545    Alitalia states that the initial version of the plan envisaged the early retirement of 700 staff. Following a request for
clarification from the Commission, which argued that the cost of such a measure itself constituted State aid, the Italian
authorities stated that that was not the case, not only because that measure was one of general application but also because
the beneficiary of that measure was not the undertaking itself but its staff. Nevertheless, warning the Italian authorities
that it intended to initiate an ad hoc procedure, the Commission succeeded in imposing upon them the requirement that Alitalia
should be liable for all the costs of the early retirement programme.

546    Since it was impossible to obtain a positive decision from the Commission unless it funded the early retirement programme,
Alitalia indicated that it was prepared to bear those costs on condition that the Commission accepted that the operation satisfied
the private investor test.

547    Alitalia maintains that, in its action in Case T‐296/97, it criticised the Commission for adversely affecting the outcome
of the calculation of the internal rate of return by taking the cost of that measure into account and, moreover, for imposing
that precondition upon it without heeding its positive effects on the company. In the *Alitalia I*judgment, the Court ruled only on the complaint concerning the calculation of the internal rate but not on the course of action
taken by the Commission.

548    On the basis of those facts as stated by Alitalia, it makes two complaints against the contested decision. In the first place,
the Commission did not ask itself, in 2001, whether it was appropriate to maintain the position it had adopted in 1997. No
arguments were exchanged on this subject, in spite of the fact that the situation had changed. According to Alitalia, if the
Commission had had doubts at the time whether the scheme was compatible with the common market, it should have subsequently
either dispelled them or confirmed them by initiating a procedure.

549    In the second place, in the contested decision, the Commission unreasonably made approval of IRI’s investment in Alitalia
conditional upon the latter accepting the obligation to pay the costs of the early retirement of 700 of its staff, an unlawful
condition in that it is based on a misinterpretation of the relevant Italian legislation, a superficial analysis of the early
retirement scheme, an application of the principles of the Treaty which discriminated against Alitalia and improper use of
its powers on the part of the Commission by obliging Alitalia to bow to its will and make the payment before the 1997 decision.

550    In the view of the Commission, Alitalia is attempting to relaunch a debate that has already been adjudicated on by the Court
in the *Alitalia I*judgment. It argues that it is incontestable that the company accepted that it should bear the costs in question, since it
was accepted, first of all, by the Italian authorities, which clearly did not wish that the Commission should continue to
examine the early retirement scheme in detail in the light of State aid. It adds that it could not fail to initiate the procedure
under Article 88(2) EC if it had serious doubts about the nature of the scheme in question, and do so free from any constraint.

–       Findings of the Court

551    The Court held as follows in the *Alitalia I*judgment (paragraphs 152 to 156):

‘Second, the applicant claims that the Commission arbitrarily required it to assume the cost, which under Decree-Law No 546
of 23 October 1996 (converted into Law No 640 of 20 December 1996) was to be borne by the State, of the early retirement of
700 of its staff, reducing by at least two points, according to the calculations of the Commission’s consultants, the profitability
rate of IRI’s investment.

As the Commission rightly observes, however, the applicant gave an irrevocable commitment, before the [1997] decision was
adopted, to assume the costs of the early retirement of 700 employees ... For that reason, the legal assessment and the operative
part of the [1997] decision contain no trace of the applicant’s decision to bear those costs. The Commission only takes note
of them in the part of the [1997] decision entitled ‘‘The Facts’’.

Although the applicant initially gave the commitment in question on condition that the final decision recognised that the
recapitalisation constituted an investment which satisfied the private investor test, that commitment became irrevocable when
it placed the relevant funds in escrow in July 1997 ... The Commission should therefore have ascertained whether the investment
satisfied the private investor test in the light of that new situation.

Last, during the administrative procedure the applicant could have resisted the pressure allegedly brought to bear by the
Commission to give the commitment in question or, in the alternative, it could, as for the other conditions, have avoided
giving an irrevocable unilateral commitment. If the applicant had taken that approach during the administrative procedure,
the Commission would have adopted a position on the question of the costs of the early retirement of 700 employees in the
[1997] decision or in another decision whose legality would have been open to review by the Court.

It follows that the applicant’s argument that the internal rate was incorrectly calculated because the Commission obliged
it to assume the cost of the early retirement of 700 of its staff must be rejected.’

552    It follows from this that the Court ruled not only on the claim that the internal rate was miscalculated due to the fact that
the early retirement costs were taken into account but also on the alleged pressure exerted by the Commission to give the
commitment in question. The Court considered that Alitalia could have resisted that pressure or avoided giving an ‘irrevocable’
unilateral commitment. The argument alleging pressure was, therefore, rejected and cannot be re-examined in these proceedings.

553    Alitalia is also incorrect in claiming that the Commission should have re-examined in 2001 the position it had adopted in
1997. In fact, in order to take a new decision after the 1997 decision had been annulled by the Court, the Commission was
required to put itself back in the context of the 1997 decision and assess the plan notified in the light of the information
that was available to it at that time (see paragraph 137 above).

554    Finally, the initiation of the procedure under Article 88(2) EC is subject to strict rules. Since Alitalia had given an irrevocable
commitment to assume the early retirement costs, the Commission could no longer initiate any procedure against the Italian
Republic in order to examine the early retirement scheme from a State aid point of view.

555    Alitalia’s complaints concerning the implied condition relating to the early retirement scheme must therefore be rejected.

556    Since none of Alitalia’s complaints concerning the contested conditions has been upheld, the fifth plea must be rejected.

557    It follows that both the first and the second heads of claim must be rejected.

558    In the light of the foregoing considerations, the action must be rejected in its entirety.

559    There is no need to grant Alitalia’s request for measures of inquiry. First, the Commission produced its consultants’ report
of 1 June 2001 as an annex to the defence. Secondly, the various factors taken into account in the calculations and assessments
which are disputed are apparent from the case-file, and in particular the annexes to Alitalia’s application.

**Costs**

560    Under Article 87(2) of the Rules of Procedure, the unsuccessful party is to be ordered to pay the costs if they have been
applied for in the successful party’s pleadings. Since Alitalia has been unsuccessful, it must be ordered to pay the costs,
in accordance with the form of order sought by the Commission.

On those grounds,

THE COURT OF FIRST INSTANCE (Fifth Chamber, Extended Composition)

hereby:

1.      **Dismisses the action;**

2.      **Orders Alitalia – Linee aeree italiane SpA to pay the costs.**

| Vilaras | Martins Ribeiro | Dehousse |
| ------- | --------------- | -------- |

| Šváby | | Jürimäe |
| ----- | | ------- |

Delivered in open court in Luxembourg on 9 July 2008.

| E. Coulon | | M. Vilaras |
| --------- | | ---------- |

| Registrar | | President |
| --------- | | --------- |

Table of contents

Background to the dispute

The contested decision

Procedure

Forms of order sought by the parties

Admissibility

A –  Arguments of the parties

B –  Findings of the Court

Substance

A –  The plea alleging infringement of the obligation to state reasons

1.  Insufficient reasons given for the conclusions in the contested decision

a)  Arguments of the parties

b)  Findings of the Court

2.  Failure to give adequate reasons in the contested decision for the conditions imposed in the 1997 decision

a)  Arguments of the parties

b)  Findings of the Court

B –  The plea alleging infringement of Article 233 EC

1.  Arguments of the parties

2.  Findings of the Court

C –  The plea alleging infringement of the obligation to adopt a decision within a period of two months, laid down in Article
4(5) of Regulation No 659/1999

1.  Arguments of the parties

2.  Findings of the Court

D –  The plea alleging infringement of the rights of defence

1.  Arguments of the parties

2.  Findings of the Court

E –  The plea alleging infringement and misapplication of Articles 87 EC and 88 EC

1.  Determination of the minimum rate

a)  The application of the minimum rate used in the Iberia decision to Alitalia

Arguments of the parties

Findings of the Court

b)  Failure to take proper account of the effect of the final version of the plan in calculating the minimum rate

Arguments of the parties

Findings of the Court

c)  Taking account of erroneous premisses in calculating the minimum rate

Arguments of the parties

Findings of the Court

–  Method of calculating the minimum rate

–  Risks taken into account by the Commission

2.  Determination of the internal rate

a)  The amount of insolvency costs

Arguments of the parties

Findings of the Court

b)  Assessment of the internal rate on the basis of the final version of the restructuring plan

Arguments of the parties

Findings of the Court

c)  The objection that some of the parameters used by the Commission are incorrect

Arguments of the parties

Findings of the Court

d)  The effect of the conversion of loans into capital on the calculation of the internal rate

Arguments of the parties

Findings of the Court

F –  The plea alleging infringement of Article 87(3) EC

1.  Admissibility

a)  Arguments of the parties

b)  Findings of the Court

2.  Substance

a)  Complaints of a general nature against the conditions laid down in the contested decision

Arguments of the parties

Findings of the Court

b)  Specific complaints made against certain conditions in the contested decision

Condition 2: Prohibition of new aid

–  Arguments of the parties

–  Findings of the Court

Condition 3: Prohibition on acquiring shareholdings in other air carriers

–  Arguments of the parties

–  Findings of the Court

Condition 4: Prohibition of preferential treatment for Alitalia

–  Arguments of the parties

–  Findings of the Court

Condition 5: Restriction of capacity

–  Arguments of the parties

–  Findings of the Court

Condition 6: Having in place an analytical accounting system

–  Arguments of the parties

–  Findings of the Court

Condition7: Prohibition of the practice of price leadership

–  Arguments of the parties

–  Findings of the Court

Condition 8: Disposal of the shareholding in Malév

–  Arguments of the parties

–  Findings of the Court

Implied condition: Assumption of early retirement costs

–  Arguments of the parties

–  Findings of the Court

Costs

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- Language of the case: Italian.