Commission Decision

of 9 July 2003

on aid which France intends to grant for the restructuring of the Société Nationale Maritime Corse-Méditerranée (SNCM)

(notified under document number C(2003) 2153)

(Only the French text is authentic)

(Text with EEA relevance)

(2004/166/EC)

THE COMMISSION OF THE EUROPEAN COMMUNITIES,

Having regard to the Treaty establishing the European Community, and in particular the first subparagraph of Article 88(2) thereof,

Having regard to the Agreement on the European Economic Area, and in particular Article 62(1)(a) thereof,

Having invited the interested parties to submit their comments in accordance with the said Articles(1), and having regard to those comments,

Whereas:

1. PROCEDURE

1.1. Procedural overview

(1) By letter of 18 February 2002, the French Government notified a plan to grant aid for the restructuring of the Société Nationale Maritime Corse-Méditerranée (SNCM). This case was registered as N 118/2002. The notification was supplemented by letters from the French authorities dated 3 July 2002(2).

(2) On 19 August 2002, the Commission decided to initiate the formal investigation procedure provided for in Article 6 of Council Regulation (EC) No 659/1999 of 22 March 1999 laying down detailed rules for the application of Article 93 of the Treaty(3); the case was registered as C 58/2002.

(3) By fax of 11 September 2002, the French authorities asked for the correction of a number of factual errors in the decision of 19 August 2002.

(4) By letter of 11 September 2002, registered as TREN A/65862, the French authorities asked for extra time to submit their comments to the decision of 19 August 2002. By letter of 17 September 2002, the Commission granted France an additional month to prepare its reply.

(5) By letter of 8 October 2002, sent on 15 October with annexes and registered as SG(2002) A/10050, the French authorities submitted to the Commission observations on the decision of 19 August 2002 opening the procedure, stressing the need for progress in implementing the restructuring plan.

(6) By letter of 15 October 2002, registered as SG(2002) A/10252, the French authorities emphasised that it was a matter of urgency that the decision opening the formal investigation procedure be published in the Official Journal of the European Communities.

(7) By fax of 19 November 2002, the French authorities transmitted a copy of cash advance agreements between SNCM and the Compagnie Générale Maritime et Financière (CGMF) and proof of refunds of the advance by CGMF to SNCM through two bank transfers of 13 May and 14 June 2002.

(8) On 27 November 2002, the Commission adopted a decision amending the decision of 19 August 2002, which it transmitted to the Permanent Representation of France to the European Union by letter of 29 November 2002. Following this, the Commission's decision to initiate the formal investigation procedure in this case could be published on 11 December 2002 in the Official Journal of the European Communities(4). Interested parties were invited to submit their observations from that date on the plan to provide aid.

(9) The French authorities, at their request, held a first working meeting with the Commission on 24 October 2002, followed by a second one on 3 December 2002.

(10) The Commission has received observations from two companies, Corsica Ferries and the Stef-TFE group, and from various local authorities. By letters of 13 and 16 January and 5 and 21 February 2003, it transmitted its observations to France, asking it for any comments it might have.

(11) By letter of 16 January 2003, the Commission sent a request for additional information in accordance with the provisions of Article 5 of Regulation (EC) No 659/1999.

(12) By letter of 10 February 2003(5), the French authorities transmitted to the Commission arguments intended to show that the plan to provide aid fully complied with the Community guidelines on State aid for rescuing and restructuring firms(6) (hereinafter referred to as "the guidelines") and a description of new commitments regarding the number of staff and level of wages, control of intermediate consumption, and SNCM's fares policy.

(13) By letter of 13 February 2003(7), the French authorities transmitted to the Commission comments on the observations submitted by Corsica Ferries and Stef-TFE.

(14) By letter of 21 February 2003, the French authorities replied to the additional questions contained in the Commission's letter of 10 February 2003.

(15) By fax of 25 February 2003(8), the French authorities transmitted a copy of the shareholders' agreement linking SNCM and the Stef-TFE group, as requested by the Commission.

(16) On 25 February 2003, at the request of the French authorities, a working meeting was held between the Commission and representatives of the French administration.

(17) By electronic mail of 14 May 2003(9), the French authorities transmitted to the Commission the provisional version of SNCM's report of activities for 2002.

(18) By fax of 27 May 2003(10), the French authorities transmitted to the Commission their comments on the documents which Corsica Ferries had submitted to the Commission on 4 February 2003 and which the Commission had forwarded to the French authorities by letter of 21 February 2003.

1.2. Title of the aid

(19) The aid in question is entitled "Aid for the restructuring of SNCM", registered as C 58/2002 (ex-N 118/2002), following the Commission's decision of 19 August 2002 to initiate the formal investigation procedure with regard to the planned aid.

1.3. Recipient of the aid

(20) The recipient of the aid is the Société Nationale Maritime Corse-Méditerranée (SNCM) which comprises several subsidiaries in the maritime sector.

1.4. Purpose of the aid

(21) The main purpose of the restructuring aid is to enable SNCM to complete its restructuring process so as to ensure the group's long-term viability.

2. DETAILED DESCRIPTION OF AID

(22) The compatibility of the aid can be judged only with some knowledge about the beneficiary of the aid, its background, the competitive context in which it has developed, the causes of its financial difficulties and the details of the restructuring plan.

2.1. SNCM and its main subsidiaries

2.1.1. SNCM

(23) SNCM is a shipping company operating regular services to Corsica from Nice, Toulon(11) and Marseilles and to the Maghreb (Tunisia and Algeria) from France(12) and seasonal services to Sardinia, from April to September.

(24) SNCM came into being in 1969 with the merger of the Compagnie Générale Transatlantique and the Compagnie de Navigation Mixte, both established in 1850. At the time called Compagnie Générale Transméditerranéenne, it was renamed Société Nationale Maritime Corse-Méditerranée in 1976, after the Société Nationale des Chemins de Fer (SNCF) had acquired a share in its capital. The company had been chosen by the French Government to implement the principle of territorial continuity with Corsica, bringing maritime transport fares in line with SNCF fares for rail transport on the basis of an agreement concluded on 31 March 1976 for a period of 25 years. The French Government had already assigned responsibility to the Compagnie Générale Transatlantique for operating services to Corsica through an earlier agreement of 23 December 1948.

(25) In addition to operating public services, SNCM also operates regular crossings to Algeria and Tunisia and seasonally, from April to September, to Sardinia. Between 1990 and 2002, SNCM, through its subsidiary Corsica Marittima, also provided passenger transport services between Corsica and Italy.

2.1.1.1. SNCM's shareholders

(26) Currently 80 % of SNCM's shares are held by CGMF, which took over the shares of the Compagnie Générale Transatlantique, and 20 % by SNCF. The French State has a direct 100 % share in CGMF. SNCM became a subsidiary of CGMF in 1992, taking over from the Compagnie Générale Maritime (CGM) which was subsequently restructured(13), recapitalised(14) and privatised(15).

(27) When it was established in 1977, the wording of CGMF's objective was such as to authorise all operations of maritime transport, outfitting and chartering of ships and the acquisition of shares and all commercial or industrial operations directly or indirectly connected with this objective. Today CGMF mainly plays the following roles on behalf of the State:

- it holds an 80 % share in SNCM (the remaining 20 % being owned by SNCF, held by the French State),

- it is the guarantor of social security obligations (including pensions and health insurance funds) for the personnel of its former subsidiary CGM(16),

- it has assumed responsibility for a leasing agreement to finance a building which at the time was concluded by CGM.

2.1.1.2. Activities of SNCM

(28) SNCM carries passengers, cars and lorries on the following links:

- between Marseilles and various ports on Corsica: Bastia and Ajaccio (daily, both ways), Porto-Vecchio, Balagna and Propriano (three times a week, including CMN's round trips) with additional crossings during the peak period,

- between Nice and Bastia: SNCM runs continuous services during the low season (two or three return trips each week), with more frequent services from the end of March to October,

- between Marseilles and Sardinia (Porto Torres),

- between Bastia and Sardinia (Porto Torres) with one of its own ships and a ship of the Compagnie Maritime de Navigation (CMN),

- between Marseilles and Tunis: at least one round trip a week with one of its ships,

- between Marseilles and Algiers: several times a week in the high season with the Île de Beauté.

2.1.1.3. The fleet

(29) The SNCM fleet for Corsica currently comprises the following ships:

(a) five car ferries:

- the Napoléon Bonaparte (capacity 2150 passengers and 708 cars, power 43 MW, speed 23,8 knots), large luxury car ferry,

- the new Danielle Casanova, delivered in May 2002 (capacity 2204 passengers and 700 cars, power 37,8 MW, speed 23,8 knots), also a large luxury car ferry,

- the Île de Beauté (capacity 1554 passengers and 520 cars, power 37,8 MW, speed 21,5 knots), taken into service in 1979 and rebuilt in 1989/1990,

- the Méditerranée (capacity 2254 passengers and 800 cars, power 35,8 MW, speed 24,0 knots),

- the Corse (capacity 2150 passengers and 600 cars, power 27,56 MW, speed 23,5 knots);

(b) four passenger cargo vessels (freight and passengers):

- the Paglia Orba (capacity 500 passengers, 2000 linear metres for freight and 120 cars, power 19,7 MW, speed 19 knots),

- the Monte d'Oro (capacity 508 passengers, 1615 metres for freight and 130 cars, power 14,8 MW, speed 19,5 knots),

- the Monte Cinto (capacity 111 passengers, 1200 metres for freight, power 8,8 MW, speed 18,0 knots),

- since May 2003, the Pascal Paoli (capacity 594 passengers, 2300 metres for freight and 130 cars, power 37,8 MW, speed 23 knots);

(c) two high-speed vessels operating mainly from Nice:

- the Liamone (capacity 1116 passengers and 250 cars, power 65,0 MW, speed 42 knots) which also operates crossings from Toulon,

- the Aliso (capacity 530 passengers and 148 cars, power 26,0 MW, speed 37 knots).

(30) In 2002 the fleet serving the Maghreb consisted of the car ferry Méditerranée, since 24 June 2002, which will be used between Marseilles and Tunis. The entry into service of this vessel marks a qualitative and quantitative improvement of shipping services for the Tunisian capital. This comfortable and fast ship has a total capacity of 2250 passengers and 760 cars (compared with 1600 passengers and 500 cars on the car ferry Liberté). It represents a significant increase in the number of places available for passengers while at the same time offering space for freight transport, a market which is likewise growing considerably.

2.1.2. The public service delegation contract

(31) Regular shipping services between the ports of mainland France and Corsica have since 1948 been operated as a public service(17). The SNCM and CMN were the concessionaires of the service between 1976 and the end of 2001 under a framework agreement initially concluded for 25 years(18). The French Act of 30 July 1982 transferred the management of territorial continuity to Corsica's Assembly in a contractual framework with the French State. Subsequently, Act 91-428 of 13 May 1991 on the status of the Corsica territorial collectivity(19) granted full responsibility to the Assembly for services to the island. Since 1991, the Corsica territorial collectivity has replaced the French State in granting concessions for public service obligations(20).

(32) Community legislation on maritime cabotage makes it incumbent on Member States to open up their national cabotage markets. With regard to public service, this imposes an obligation on Member States to comply with the priniciple of non-discrimination among all Community shipping companies. However, a transitional period is provided for in respect of existing public service contracts which can be maintained in force until they expire(21). In accordance with the Community rules in force, the territorial collectivity of Corsica issued a European tender in order to select the operator which from 1 January 2002 should, under a five-year contract, implement the public service obligations for crossings to and from the island in return for financial compensation. The collectivity has taken the view that, given the development of competition from Toulon and Nice, only services operated from Marseilles should be subject to strict public service obligations.

(33) SNCM and CMN were jointly awarded this contract for the period from 2002 to 2006 after Corsica Ferries eventually decided not to put in a bid. Moreover, obligations with regard to the frequency of services have been imposed on all operators of services to the island from Toulon and Nice for the benefit of particular categories of passengers receiving social welfare(22).

(34) From 1997 to 2001, the grant allocated to SNCM for "territorial continuity" rose from EUR 80,1 million to EUR 86 million. At the time, it covered all links from the three ports of mainland France (Nice, Toulon and Marseilles).

(35) The current contract provides for an obligation to run services at predetermined frequencies, obligatory service quality, maximum fares according to season, and mandatory reductions for particular categories of passengers. The contract lays down financial compensation, referred to as reference compensation, for every year from 2002 to 2006, in the case of SNCM decreasing from EUR 69,1 million to EUR 61,4 million. This compensation is adjusted by up to 4 % in line with the difference between actual revenue and the reference revenue also laid down in the contract. The reference compensation/reference revenue ratio should decrease from 88 % in 2002 to 75 % in 2006.

(36) In 2002, the first year of the public service delegation contract, financial compensation amounted to EUR 72,1 million, a decrease compared with previous years, account being taken of the fact that only services from Marseilles to Corsica now benefit from this grant. By comparison, the grant in 2001 for the Marseilles-Corsica line amounted to EUR 64,79 million with a net revenue of EUR 73,17 million in 2001, about EUR 41 million of which for passengers (733400) and catering and EUR 32 million for freight and cars (762000 linear metres).

2.1.3. SNCM's main subsidiaries

2.1.3.1. Compagnie Méridionale de Navigation

(37) The SNCM has a non-majority share in CMN, which operates three passenger cargo ships between Corsica and Marseilles, namely the Girolata, the Kalliste and the Scandola, under a public service delegation contract. It also serves Sardinia (Porto Torres) from Marseilles and Propriano.

(38) CMN, set up in 1931, remained a family shipping line until the end of the 1970s when the Compagnie Générale Transatlantique acquired a 49 % share to enable a branch of the founding family to withdraw. In the meantime, CGM has taken over this share. Neither of these two large companies has intervened in the management of CMN which has remained fully in the hands of the Rousset and Rastit families.

(39) Since 1956, CMN has through an agreement been linked with the Compagnie Générale Transatlantique, SNCM's predecessor for services to Corsica. In 1976, CMN was granted a concession for services to Corsica only for freight while SNCM obtained a concession for the carriage of freight and passengers to Corsica. From 1980, CMN has, through delegation from SNCM, also carried passengers after purchasing passenger cargo ships. As a quid pro quo, SNCM was CMN's general agent for passenger transport.

(40) In 1992, CGM, faced with substantial cashflow difficulties, tried unsuccessfully to sell its share in CMN to a third party. As its attempt was not successful, CGM asked SNCM, which was its subsidiary until 1992, to take over the share it held in CMN. Two-tier shareholding was created in order to shift the majority interest to SNCM while enabling private shareholders to retain effective control of CMN through two holdings. The Rousset and Rastit families seized this opportunity to reduce their share for the benefit of the Société de Travaux Industriels et Maritimes d'Orbigny (STIM d'Orbigny) which was subsequently incorporated in the Stef-TFE group. The merger between CGM and SNCM could have been contemplated at the time because of the very strong links between the two companies, but the retention of private investors among CMN's shareholders and their wish to retain control of this company no doubt put a brake on moves towards a merger between the two companies.

(41) Effective control of CMN has thus since 1992 been in the hands of the Stef-TFE group which owns 49 % of the Compagnie Méridionale de Participations (CMP) and acts in concert with the Rousset and Rastit families who hold 6 % of shares in CMP.

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2.1.3.2. Compagnie Générale de Tourisme et d'Hôtellerie

(42) The Compagnie Générale de Tourisme et d'Hôtellerie (CGTH) is a holding company fully owned by SNCM which has the following subsidiaries and holdings:

- 45 % in CMP, the main shareholder (55 %) in CMN,

- 100 % in Comptoirs du Sud, which runs shops on board SNCM's ships,

- 50 % in Société civile immobilière Schuman (non-movable assets sold off or being sold off),

- 100 % in Société Méditerranéenne d'Investissements et de Participations (SMIP), whose only asset is the ship Southern Trader which operates under time charter.

2.1.3.3. Sud-Cargos

(43) Sud-Cargos is a French goods transport shipping company which is based in Marseilles and specialises in running services to the Maghreb. It is an equal subsidiary of two large transport groups, SNCM and Delmas. In 2001 it operated eight roll-on roll-off cargo vessels and container ships and had a EUR 67,3 million turnover, carrying 90000 tonnes, 38000 TEU and 18000 trailers. Together with its subsidiaries, it has about 100 employees.

(44) Sud-Cargos has built up its development strategy on the five following principles:

- proximity to customers by having their own facilities in the main ports of the Mediterranean,

- versatility, with a fleet of diversified ships carrying all types of goods,

- a global network with containers available in all commercial areas worldwide,

- overland transport and transhipment facilities to transport, overland or by sea, containers from anywhere in the world to the main French (Marseilles), Italian (Genoa) and Spanish (Valencia and Barcelona) loading ports,

- up-to-date cargo information.

2.1.3.4. SARA

(45) The Société Aubagnaise de Restauration et d'Approvisionnement (SARA) supplies SNCM's ships. In 2002, its turnover was EUR 8,58 million, entirely with SNCM, making a EUR 0,19 million profit.

2.1.3.5. Ferrytour

(46) The Ferrytour partnership is a tour operator that is 100 %-owned by SNCM. Its turnover in 2002 was EUR 11,2 million making a very modest profit of EUR 0,21 million. It organises trips by sea to Corsica, Sardinia and Tunisia but also flights to many destinations. In addition to its main line of business, it also organises mini-cruises and offers business travel services.

2.1.3.6. Comptoirs du Sud

(47) Comptoirs du Sud, a subsidiary set up in 1996 which is 100 %-owned by SNCM, manages all shops onboard its ships. The company has a turnover which fluctuates between EUR 2 and 4 million, with a net business result of between EUR 0,08 and 0,12 million. Over 72 % of sales are made on Maghreb routes.

2.1.3.7. Sotramat

(48) Société Transmondiale Mer Air Terre Voyages (Sotramat), a 100 % subsidiary of SNCM, are travel agents managing 17 agencies throughout France. In 2001 they sold a total of EUR 42,53 million in services, of which 40 % in SNCM tickets, representing 8,5 % of SNCM's sales. Sotramat made a EUR 0,58 million profit, with EUR 3,80 million in commission.

2.2. Relevant markets

(49) SNCM mainly operates on two clearly different markets, in terms of both passenger transport and goods transport: services to Corsica and services to Maghreb, from France and subsidiarily from Italy and Spain.

2.2.1. Services to Corsica

(50) SNCM mainly operates services to Corsica and Maghreb from mainland France. On the basis of the market research study provided by the French authorities (hereafter referred to as "market survey"), a quite accurate description can be given of the different markets in question.

2.2.1.1. Market characteristics

(51) Air travel makes up 43 % of overall passenger transport in 2001 (with about 2,4 million out of 6 million crossings in each direction). Transport by sea has in recent years shown an upward trend thanks to the improved supply of maritime transport services.

(52) Passenger transport by sea between mainland Europe and Corsica has the following features:

- highly seasonal traffic: the months of July and August have traditionally accounted for 50 % of annual traffic. There are also strong fluctuations during school holiday periods and particular weekends. The seasonal variation is accentuated by asymmetry of traffic during peak periods between crossings in both directions at the beginning and the end of the week,

- a supply which for structural reasons has to exceed demand (occupancy which in terms of monthly average fluctuates from 20 % in winter - with 5 to 10 % in slack periods - but peaks of 100 % in summer and particular holiday weekends),

- SNCM's decline on the sea transport services market between Corsica and mainland Europe: 46 % market share in terms of number of passengers in 2001, decreasing in relation to its main competitor, Corsica Ferries, which has a 44 % share, the rest of the market being shared between Moby Lines (5 %), CMN (3 %) and Happy Lines (2 %),

- a slight 2,4 % increase a year, but sea links are becoming steadily more important compared with air traffic,

- structurally low occupancy averaged over a year: about 40 % for SNCM, 33 % for Corsica Ferries, but 66 % for CMN which in the period 1999-2001 only operated passenger cargo ships which by definition have a higher occupancy rate for passengers. The average occupancy rate of ships has apparently always been low on account of the characteristic features of this market, even before Corsica Ferries started operating services between Corsica and mainland France, as shown in table 1.

TABLE 1

Trend in average occupancy rate of SNCM ships

>TABLE>

(53) The traffic trend between Marseilles and Corsica is the weakest of the three links to Corsica from mainland France, as shown in table 2.

TABLE 2

Trend between the ports of mainland France and Corsica

>TABLE>

2.2.1.2. SNCM's competitors

(54) SNCM had to face a competitor for the first time in 1996 on services to Corsica from mainland France when Corsica Ferries started sailings between Nice and Bastia and Calvi in the high season(23). Since 18 March 1999 these services have been run as weekly round trips. Since 1 April 2000 SNCM has had to face competition on services from Toulon to Bastia and Ajaccio.

(55) SNCM's main competitor in passenger transport to Corsica is Corsica Ferries, which operates links to Corsica from Toulon and Nice in France and from Savona and Livorno in Italy. Its market share has steadily risen, reaching 44 % in 2001, a considerable increase compared with 2000 when it was still only 36 %. This increase was connected with the fact that two high-speed ferries entered service on the Toulon-Corsica lines in 2001, increasing traffic from mainland France without any reduction in transport services run by this company from Italy.

(56) In 2002 Corsica Ferries became the market leader in links to Corsica(24) and its activities are now more or less equally divided between Corsica and Sardinia: it carries 800000 passengers a year between the French mainland and Corsica, 800000 between Italy and Corsica and 800000 between Sardinia and the Italian mainland. The company has about 1000 seamen sailing under the Italian flag. The company's head office is in Bastia and it has an office in Savona. It has 11 ships and a 12th is on order.

(57) SNCM's other competitors on sailings to Corsica are as follows:

- CMN, which is a competitor but also a partner associated with SNCM under the public service concession. CMN operates links only from Marseilles. Its market share is 3 %,

- Moby Lines operates from Genoa, Livorno and Piombino. Its market share in sailings to Corsica dropped from 8 % in 2000 to 5 % in 2001 due to its ageing fleet,

- Happy Lines operates a car ferry with 1100 places from Genoa, La Spezia and Livorno. Its market share is 2 %,

- TRIS, with two car ferries with 800 and 1300 places, and Linee Lauro, with a car ferry with 670 places, focus on crossings to Sardinia and operate occasional links to Corsica. Their market shares are negligible.

(58) CMN, for freight transport, and its Italian competitors, to optimise their services, operate triangular links between the European mainland, Corsica and Sardinia. However, the number of passengers carried on these sailings is very marginal between Corsica and Sardinia.

(59) SNCM and CMN have a de facto monopoly for general cargo transport (unaccompanied). Under the public service delegation contract, the two firms operate frequent sailings from Marseilles to all Corsican ports.

(60) For accompanied trailers(25) loaded onto ferries, accounting for 24 % overall general cargo transport measured in linear metres(26), there is competition among all the passenger transport operators. SNCM and CMN also have the main share of the market in this accompanied transport. The other operators, in particular Corsica Ferries, have a 10 % share, i.e. 2 % of the overall market.

2.2.1.3. Market trends

(61) With regard to the demand for passenger transport by sea to Corsica, the market survey estimates that the growth will be sustained: [...](27) million passengers are expected in 2006 compared with 3,4 million in 2001. The increase in shipping at the expense of aviation will lead to a [...] % share for shipping. On the supply side, there should be continued qualitative improvement of supply by the main actors, with possible marginalisation of particular Italian operators because of their ageing fleet, except for Moby Lines which is beginning to renew its fleet.

(62) SNCM's market share in passenger transport to Corsica was 46 % in 2001 as against 52 % in 2000. This market share steadily diminished in the 1990s to the benefit of Corsica Ferries, thanks to the entry into service of two mega-express ships of Corsica Ferries.

(63) According to the market survey, no operator other than SNCM and CMN is capable, with regard to the carriage of unaccompanied general cargo, to meet the public service constraints and operate profitably outside the concession already allocated. The market survey considers that the SNCM-CMN partnership should therefore be continued in SNCM's long-term interest.

(64) According to the market survey, continuation of the public service contract will enable SNCM and CMN, with regard to general cargo transport from Marseilles to Corsica, to capture most of the growth in traffic: [...] linear metres in 2006 as against 1490000 in 2000. Profitability of this activity will be ensured through efficient management of a range of ferries and passenger cargo ships operated by the two companies, with overall optimisation of passenger and freight transport. There is no price competition as prices are controlled in the framework of the public service concession.

(65) The market survey estimates that, depending on the strength of Moby Lines' commercial policy on links between Italy and Corsica, Italy's share in overall transport will drop from [...] % in 2001 to [...] % in 2006 if Moby Lines is very active or from [...] % to [...] % if it makes no investment. SNCM will be in the top range with more frequent crossings and more varied destinations (secondary Corsican ports) than Corsica Ferries. SNCM should set itself an objective of retaining its market share of at least [...] %. Balance between supply and demand will improve for SNCM, with one ferry withdrawn in 2002, a new passenger cargo ship and modernisation of two others. For Corsica Ferries, the balance between supply and demand will be brought about by achieving ambitious forecasts of growth in activity in double figures which, according to the market survey, will a posteriori justify current supply. In price terms, the continuation of fierce competition from Corsica Ferries will oblige SNCM to improve its productivity.

2.2.2. Services to the Maghreb

(66) The Maghreb comprises three micro-niche markets relatively closed off from one another on which, according to the market survey, SNCM appears to be the challenger.

2.2.2.1. Services to Algeria

(67) The market survey indicates that air transport accounts for 92 % of overall passenger transport between the EU and Algeria. Unlike for Corsica, there is no specific growth in maritime passenger transport to Algeria.

(68) In maritime shipping, SNCM's sole competitor is the Entreprise Nationale de Transport Maritime de Voyageurs (ENTMV), an Algerian public undertaking with a virtual monopoly, with 89 % of the market. SNCM's market share in passenger transport to Algeria is 11 %, considerably reduced since 1990 when it was still 35 %. SNCM's position can be explained from the cessation of SNCM's services in 1995(28), administrative constraints since that year and the absence of a political will to reinstate this link.

(69) It is not likely that any new competitors will arrive on the market in the short term. Even though SNCM continues to be a general agent for ENTMV in its country of origin and vice versa, ENTMV has developed its own network in France (and in other European countries) while SNCM is developing its network in Algeria. [...]

(70) In the light of economic and political trends in Algeria, this market should expand considerably: in 2006 maritime passenger transport should be between [...] and [...] passengers. However, according to the market survey ENTMV's fleet is old and not certain to be renewed. According to the authors of the market survey, the order of two new ships by ENTMV seems to have run into financial difficulties.

(71) In sailings to the Maghreb, SNCM strengthened its position with the entry into service in 2002 of the ferry Île de Beauté, withdrawn from the link with Corsica, which will do well in competition with ENTMV's ageing fleet. According to the market survey, the success of this link will be ensured by controlling operating costs which should enable SNCM to offer attractive fares to recover a part of the market. The market survey stresses the importance for SNCM of getting involved in operating services to Oran, a market segment in which it does not currently play a role. According to the survey, SNCM should be able to recover its initial market share of 35 % by 2006.

2.2.2.2. Services to Morocco

(72) The overall market share of aviation is 77 %. This share, distinctly lower than that for Algeria, is connected with the importance of short-haul sea transport, virtually road transport, across the Strait of Gibraltar via southern Spain.

(73) This market is much more competitive, highly fragmented, with a 5 % growth rate a year for services between Morocco and Europe (95 % to Spain) with the following main market shares: Comarit 23 %, Transmediterranea 22 %, Comanav 20 %, Euroferrys 18 % and Ferrimaroc 17 %. Many Moroccan and Spanish companies are involved in this short-distance shipping link: Comanav, Comarit, Euroferrys, Ferry Maroc, Limadet and Transméditeranea. None of them have a market share of more than 23 %. Competition is fierce, in particular in terms of fares, with old ships already amortised.

(74) The only long-distance service is operated by Comanav, from Sète to Tangiers or Nador. Accordingly, it has 100 % of the market on these links, which however represent only 5 % of maritime transport overall.

(75) As emphasised in the market survey, SNCM is currently not involved in maritime passenger transport to Morocco. It seems important for SNCM to gain a foothold in the long-distance traffic market between France and Morocco. By seeking to capture a small part of this virtual road transport (which currently passes through southern Spain) rather than taking passengers away from Comanav, SNCM could help to double passenger transport by sea from France, which would nevertheless remain marginal compared with sailings across the Strait of Gibraltar.

2.2.2.3. Services to Tunisia

(76) Aviation retains a dominant position, with 96 % of the passenger transport market. The relative importance of tourist traffic to Tunisia explains this share which is even higher than for Algeria as tourists almost exclusively go there by plane.

(77) Only two Member States run shipping services to Tunisia: France, from Marseilles and Toulon, with 47 %, and Italy from Livorno and Genoa with 39 % and from Sicily with 14 %.

(78) The principal actor on this market which is growing by 7 % a year is the Compagnie Tunisienne de Navigation (CTN) with a 58 % market share, followed by SNCM with 21 %. CTN has a relatively modern fleet and makes optimal use of it on links from France and Italy. The other competitors are: Linee Lauro, Tirrenia and Ustica Lines, the last two operating sailings from Sicily only.

(79) Competition on the sea links varies according to Member State. CTN's fares from Italy are 30 % lower than from France, although crossing time is the same. However, CTN and SNCM have identical fares from France.

(80) SNCM had a 21 % market share in 2000 in passenger transport by sea to Tunisia. This share has gone down, with the transport increase catered for by CTN. On links between France and Tunisia alone, SNCM's market share is 50 %. The best way for SNCM to increase its overall market share is to start running services to Tunisia from Italy, provided that its fares are competitive.

(81) According to the market survey, sea transport to Tunisia will continue to grow, reaching over [...] passengers in 2006. SNCM's services from Italy will enable it to also increase its market share: the market survey considers a [...] % market share a realistic target for SNCM for 2006.

2.2.3. Balancing supply and demand

(82) A quick look at the gross figures for supply and demand could lead one to conclude that there is excess capacity on all the links studied. According to the market survey, however, things are not as simple as they seem.

(83) It is not possible to fine-tune maritime transport supply to demand. To Corsica, the minimum unit is a passenger cargo ship with between 200 and 500 places for passengers. On the Maghreb link, there are virtually no more ferries with less than 1500 to 2000 places. The supply benchmark for a regular service is therefore between 1500 and 2000 places a week.

(84) The substantial seasonal variation(29), with monthly or daily(30) peak volumes that can reach 10 times those of the lowest off-peak months, oblige operators to run a fleet of sufficient capacity to absorb peak traffic. Half the turnover is in general achieved in July and August alone. Moreover, there is an imbalance according to travel direction, even during peak periods. For instance, early July crossings from the mainland to Corsica reach a peak and return sailings to the mainland run virtually empty, with the phenomenon reversing at the end of August. At some weekends in summer and at particular holiday weekends, the combined fleet of all shipping companies operating services to Corsica is insufficient to absorb peak passenger traffic.

(85) For services to Corsica, in particular to Corsica's secondary ports necessitated by the island's weak transport infrastructure, the public service constraints in fact create an excessive supply of places in relation to demand during the low season. Moreover, all operators practise "exclusive"(31) sales for cabin places, which strongly reduces the apparent occupancy coefficients of ships.

(86) In 2001, moreover, Corsica Ferries embarked upon an aggressive policy to conquer a larger share of the market. Under this strategy, it offered overcapacity for one or two years to attract new customers.

(87) The market survey concludes that there is no structural excess capacity on links between mainland Europe and Corsica or to the Maghreb and that the apparent surplus of places is intrinsically linked with the nature and characteristics peculiar to this business.

2.3. The restructuring plan

(88) The restructuring plan has, on the one hand, an operational component covering the sale of four ships, the closure of two subsidiaries, staff cuts, reduction of services to Corsica and increase of services to the Maghreb and, on the other hand, a financial component covering the refund, through recapitalisation, of a part of the debts borne by SNCM. Apart from the initial notification, SNCM's restructuring plan(32) presented by the French authorities consists of a set of documents referred to in section 1.1 which were transmitted to the Commission both before and after the opening of the procedure. The content of this set of documents is described in more detail in the present section.

(89) Following the observations made by the Commission in its decision of 19 August 2002, the French authorities, in their letter of 31 January 2003, provided a description of improvements made to the restructuring plan on the following points:

- commitments and details concerning wage policy,

- a plan for reducing costs in intermediate purchases,

- a commitment that SNCM will not initiate a fares war with its competitors operating services to Corsica.

2.3.1. Analysis of factors that have led to the company's financial difficulties

(90) The French authorities have mentioned four factors to explain the company's financial difficulties.

- Since 1996, SNCM has faced competition between Corsica and the French mainland, which is something the public company never had to face in the past and which has led to chronic operating deficits as a result of the rigidity of the public service agreements of the period.

- SNCM, constrained by its public service obligations between 1976 and 2001, has also had to cope with two external shocks: suspension of sealinks with Algeria in 1995 and the strong drop in services to Corsica in 1995 and 1996.

- SNCM has had to "face heavy social demands and conflicts harming it economically and slowing down its growth".

- Its growth has reportedly been disrupted by complicated proceedings before the French administrative courts in connection with the allocation of the public service delegation contract.

(91) The Commission notes that the French authorities have been unable to quantify the extent to which these factors have contributed to the company's operating losses, nor have they investigated through cost analysis whether there were any other causes explaining the main sources of the company's losses.

(92) In response to the argument adduced in the decision of 19 August 2002 that the ship acquisition policy may have had an impact on SNCM's accounts and have led to difficulties(33), the French State transmitted the following observations to the Commission in its letter of 8 October 2002.

(93) According to the French authorities, by taking these steps to renew its fleet SNCM was only acting in line with a general trend towards modernisation of the Mediterranean fleet, thus ensuring that it could continue to operate its links on these markets without excessive risk of being marginalised. The French authorities emphasise that the fleets of other major Mediterranean shipping companies have improved in quality: Corsica Ferries, Grimaldi, Tirrenia, Moby Lines, Trasmed and CTN in particular have acquired and continue to acquire medium- or high-capacity fast ships and car ferries that are increasingly well equipped.

(94) The French authorities argue that by renewing several of its ships SNCM has merely pursued the clear strategic objective required to offer a high-quality service from Marseilles in accordance with the distinctive features of this link and with the expectations of Corsica, the authority allocating the public service and a high-speed shuttle service from Nice.

(95) According to the French authorities, the commercial results obtained by these ships have been convincing. At Nice, SNCM's high-speed ships have, together with the "Corsica Express" of Corsica Ferries, significantly increased traffic on the Nice-Corsica link: from 304000 passengers in 1995 to 780000 - of whom 550000 on high-speed ships - in 2001. As for the Napoléon Bonaparte, its occupancy rates in summer bear out its excess, even after the arrival of Corsica Ferries at Toulon in 2002(34). The quality level offered by this ship has in fact enabled SNCM to consolidate and indeed improve its passenger revenue in this segment of an extremely competitive market marked by a downward trend in prices.

(96) According to the French authorities, it was therefore the "increase in competition and concomitant fleet renewal" that brought SNCM into financial difficulties, without the company having any alternative options.

2.3.2. Reduction of capacity

(97) In its restructuring plan, SNCM makes provision for laying up and selling four of its vessels in 2002:

- the Napoléon(35),

- the Liberté,

- the Monte Rotondo,

- the high-speed ship Asco.

(98) All these ships have now been sold, except for the Asco. To these disposals should be added the disposal, currently in progress, of the Southern Trader, a ship leased by SMIP, one of SNCM's subsidiaries, under a time charter.

(99) The expected proceeds from these disposals were EUR 40 million, representing a cash injection (net proceeds of disposal) of EUR 21 million, taking account of residual refunds. The Monte Rotondo and Napoléon were disposed of in 2002 for EUR [...] million net proceeds and EUR [...] million appreciation. The Liberté and Southern Trader(36) have been or will be disposed of in 2003 for net proceeds and appreciation of EUR [...] million. The total net proceeds of the disposal of these four vessels was EUR 1,2 million in excess of the sum expected. The high-speed ship Asco, expected to yield EUR [...] million in net proceeds and EUR [...] million appreciation has not yet been disposed of.

(100) These disposals have been partly offset by the entry into service in June 2002 of the car ferry Danielle Casanova, with lease financing, the passenger cargo vessel Paglia Orba, converted for its new duties in 2002 and delivered in 2003, and the passenger cargo vessel Pascal Paoli, ordered in January 2001, likewise lease-financed and delivered in May 2003.

(101) At the same time, the company had in its restructuring plan intended to dispose of the movable assets present in its subsidiaries (Marseilles offices). These were disposed of for EUR 12 million in 2003, with EUR 5,1 million appreciation.

2.3.3. Reorganisation of services

(102) The reduction, with effect from 2002, of the public service activity and the increase in competition have led SNCM to substantially limit the services it supplies.

(103) The restructuring plan provides for a reduction in the number of crossings from 4138 in 2001 (3835 by SNCM and 303 by Corsica Marittima) to 3410 in 2003, i.e. an overall decrease of 18 %, with the following changes to its services:

- adaptation of services operated between Marseilles and Corsica to the requirements of the new specifications laid down in the public service contract,

- withdrawal of the Toulon-Corsica(37) link, which can still be run with occasional crossings depending on the availability of the Napoléon Bonaparte and the Danielle Casanova during the transition period to deal with delays on rotations between Marseilles and Corsica,

- reduction of services between Nice and Corsica(38),

- closure of the Livorno-Bastia line with dedicated equipment(39),

- expansion of services to Algeria and Tunisia with the Méditerranée, the Ile de Beauté and the Corse,

- suspension of services between Genoa and Tunis.

(104) Overall, as shown in table 3, the restructuring plan seeks to reduce the number of crossings by 18 % and places by 28 % through:

- 20 % and 37 % reductions, respectively, on services to Corsica,

- 23 % and 43 % increases, respectively, on services to the Maghreb.

TABLE 3

Trend in SNCM services

>TABLE>

(105) The redeployment of services to the Maghreb will generate EUR 9 million additional costs for the company, of which EUR 6 million for technical adaptations on the Danielle Casanova and the Île de Beauté and EUR 3 million for the costs of promoting the new services.

2.3.4. Closure of subsidiaries

(106) Under its restructuring plan, SNCM intended to close two of its subsidiaries in January 2002 which had become redundant following the reorganisation of its services: the Compagnie Maritime Toulonnaise, which operated overland services to Toulon, and the Corsica Marittima company, which operated links between Corsica and Italy. The limited range of remaining activities of these companies are run by SNCM itself.

2.3.5. Reduction of staff costs

(107) The restructuring plan seeks to reduce staff from 2430 to 2130 in 2003 on the basis of the following measures:

- reduction in size of the fleet (cutting [...] full-time jobs),

- increase in crew productivity (cutting [...] jobs),

- effects of changing over to 35-hour week (increase by [...] jobs),

- developing new "tourist" activities (increase by [...] jobs),

- reduction of onshore personnel through natural wastage or early retirement and mobility leave (reduction by [...] jobs).

(108) Staff is reduced through natural wastage and early retirement on the basis of age criteria (early cessation of work), mobility leave and non-replacement of temporary contracts. However, for SNCM they entail an estimated cost of EUR 20,4 million.

(109) The figures supplied by the French authorities show the following expected trend in productivity:

TABLE 4

Expected trend in productivity of SNCM

>TABLE>

(110) Accordingly, staff productivity appears to be up by 17,8 % while the company has to remedy the adverse effects of an initial drop in activity in 2002 and 2003 and consequently weaker coverage of the fixed costs generated.

(111) Following the decision of 19 August 2002, the French authorities provided, by letter of 10 February 2003, additional details on management of staff expenditure:

- there has been no general increase in onboard personnel since 1999, with average wages having risen only between 0,8 and 1 % a year since 2000, and the average wage of onboard personnel of SNCM, i.e. EUR 33345 a year, is also within the average of earnings recorded for three other French shipping companies,

- for onshore personnel, average earnings have increased from 1,7 to 2 % a year since 2000, basically as a result of progression in seniority and technical qualifications(40), as general increases have been limited to 0,06 %, 0,75 % and 0,77 % for 2000, 2001 and 2003 respectively.

(112) Overall, staff costs have dropped from EUR 116,9 million in 2001 to EUR 114,4 million in 2002. Staff numbers have followed the same trend, dropping from 2423 to 2392 full-time equivalents. The measures referred to in recitals 107 and 108 should make it possible to reduce costs from EUR 61,8 million in 2001 to EUR [...] million on average from 2003 to 2006. Onshore staff costs would move from EUR 50,3 million in 2001 to EUR [...] million over the same period.

2.3.6. Reduction in purchase cost of intermediate consumption

(113) In their letter of 10 February 2003, the French authorities enhanced the restructuring plan by making firmer commitments with regard to managing intermediate consumption. In this framework, SNCM has undertaken upon specific action with the help of specialised consultants.

- The first action, called "Buy better", is intended to manage purchase costs through better control of the purchase operations, training for the staff involved, redefining needs and renegotiating with suppliers. The gain expected for the whole of 2003 is EUR 3 million over a total of EUR 73 million in purchases in 2001. At the end of September 2002 the gain for the whole year was EUR 1,6 million.

- The second action, called "Consume less", is intended to limit consumption, in particular on board ships, with other factors (purchase performance, activity) remaining constant. It includes ships' crews performing particular maintenance duties previously outsourced and monitoring of seventeen expenditure headings by consumption reduction monitoring committees involving the staff concerned. The gain expected for the whole year is EUR 2 million. It has been noted that at the end of September 2002 a gain of EUR 340000 was attained through EUR 158000 investment (return on investment in less than six months).

(114) These actions, combined with fleet reduction, have already led to a reduction of maintenance expenditure from EUR 26,9 to 23 million between 2001 and 2002.

2.3.7. Fares policy

(115) In their letter of 10 February 2003, the French authorities gave a formal commitment(41), in accordance with the Commission's expectations indicated in its decision of 19 August 2002, that SNCM would not initiate a fares war, in other terms that it would not become a price leader to Corsica. The French authorities have made the following comments on this commitment.

(116) The French authorities state that "SNCM makes this commitment without reservations as it considers that a fares war would not be in line with:

- its strategic positioning,

- its interest, as it would lead to a drop in revenue,

- its usual practice and its savoir faire".

(117) According to the French authorities, the nautical resources which SNCM has built up reflect a policy of offering high-quality services, moving upmarket. These choices, largely dictated by the requirements of successive specifications of maritime public services between Corsica and mainland France and by the expectations of customers from the island, are not compatible with a low-fares policy.

(118) Consequently, SNCM will continue to implement a business policy mainly focused on socio-professional categories of an above-average level and operating prices in line with the quality of its services. It would be inconsistent for SNCM to compete on the low-fares market, given the expenditure required by the high quality of its services. Customer surveys have confirmed the importance of fares as a criterion in the customer's intermodal and intramodal choices. According to these surveys, 90 % of Corsica Ferries' customers chose this company because of its fares. SNCM has always been aware of the relative importance of this criterion and endeavoured to highlight other criteria involved in choosing a shipping company such as comfort, ease of access and availability.

(119) According to the French authorities, SNCM's attitude in recent years has always been to try to respond to Corsica Ferries' fares attacks in order to safeguard its market share. SNCM's fares for the 2002 season transmitted to the Commission show that the average fare charged by SNCM is higher than that of Corsica Ferries.

(120) According to the French authorities, the chronological sequence of decisions shows clearly that SNCM's fares policy has been confined to responding to the services offered by Corsica Ferries: launch of Corsica Ferries price offer on 15 January 2002 followed by the announcement of SNCM's price offer on 5 February 2002.

(121) With regard to freight charges, the levels are, apart from a number of details, those required by the public service delegation specifications and apply equally to SNCM and its partner CMN.

(122) According to the French authorities, price leadership status can be judged in the light of average unit revenue. When SNCM responded in 2002 to Corsica Ferries' fares attack by introducing special fares determined in accordance with the abovementioned method, its average unit revenue per passenger to Marseilles and Toulon increased from EUR 73,69 in 2001 to EUR 74,26 in 2002.

(123) There is frontal competition between SNCM and Corsica Ferries in Nice, covering very similar products with high-speed vessels supplemented by day or night ferries. According to the French authorities, SNCM had no other choice in 2002 than to approximate its fares and charges to its competitor's and highlight the specific attractive services it could offer.

2.3.8. Determining the amount of recapitalisation

(124) The French authorities intend to inject EUR 76 million into SNCM by raising the capital to be subscribed by CGMF, a company in which the French State has a 100 % share and which itself has an 80 % share in SNCM. This cash injection is intended to fund the operational restructuring measures and reduce the excessively high level of debt which the company could not settle with its own resources, even if account is taken of future financial compensation provided for in the public service delegation contract.

(125) The French authorities have presented three methods to calculate SNCM's cash requirement and have adopted the lowest figure determined through these three methods.

2.3.8.1. Method based on costs borne by SNCM

(126) This first method consists of aggregating the costs of all restructuring measures. It leads to a EUR 90,9 million financing requirement based on the following:

- accumulated debts from 1991 to 2001, totalling EUR 41,7 million(42),

- a drop in resources through exceptional depreciation in the same period, totalling EUR 24 million(43),

- appreciation of disposal generated during restructuring, namely EUR 21 million, deducted from the financing requirement,

- the cumulative effect of restructuring costs, totalling EUR 46,2 million, broken down as follows:

- the social plan of the restructuring programme: EUR 20,4 million,

- laying-up costs of vessels being sold off: EUR 1,8 million,

- costs of redeploying activities towards the Maghreb: EUR 9 million,

- depreciation of the high-speed vessel Liamone: EUR 15 million.

2.3.8.2. Method based on capital required to finance the existing fleet

(127) The second method consists of determining which would be the amount of capital required by the banks for the entire fleet, given that for financing of the purchase of a ship the banks in general require capital corresponding to 20 to 25 % of the ship's value. On the basis of the total sum of EUR 843 million representing the past cost of ships acquired for the fleet, the French authorities have calculated a capital requirement of between EUR 157 and 196 million. After deducting existing capital at the end of 2001, this method leads to a recapitalisation requirement of EUR 101 to 140 million.

2.3.8.3. Method based on a comparison with the level of capitalisation of other, similar shipping companies

(128) This last method consists of calculating the financing requirement on the basis of the average capital/debt ratio recorded in 2000 for five European shipping companies. Even though the balance sheets of these companies show substantial disparities, the average adopted by the French authorities is 79 %. The French authorities maintain that the financial model leads to an average of 77 % for the period 2002 to 2007, before dividend, with capital reaching EUR 169 million in 2007. The French authorities point out that it is in fact such a level of capital that should be attained through this EUR 76 million recapitalisation in 2002 and, of course, the success of the measures provided for in the restructuring plan.

(129) In their letter of 3 July 2002, the French authorities added two new firms to the panel of shipping companies, as a result of which the average capital/debt ratio was 83 % instead of 79 %.

(130) Since the figure of EUR 76 million is the lowest produced by the three methods, it was adopted by the French authorities in determining the amount of recapitalisation.

2.4. Results expected from the restructuring aid

(131) The French authorities have examined not only the results expected from the restructuring plan according to various scenarios but also the consequences which a reduction of public service obligations would have beyond 2007.

2.4.1. Expected results of the restructuring plan

(132) The French authorities have studied the likely trends in SNCM's financial position according to three different scenarios summed up in table 5: a best-case, worse-case and intermediate scenario corresponding to the restructuring plan adopted.

2.4.1.1. Best-case scenario

(133) For services to Corsica, this scenario assumes an improvement of the island's attraction through investment and communication policies. In this way, Corsica would remain a favourite tourist destination. The shipping component increases compared with air transport (longer stay of families with car) and French sea transport benefits from the frequency and variety of services on offer.

(134) The result is very good price and traffic volume performance generating higher net revenue than expected. However, the increase on the Nice-Corsica link is limited by the reduction of capacity undertaken by SNCM.

(135) For services to the Maghreb, this scenario envisages no major disruptions of the growth trend in Maghreb markets. The qualitative and quantitative improvement of supply combined with a more expanding market enables SNCM to expect higher net revenue than forecast in the restructuring plan, mainly during the high season. Here, too, the capacity on offer during peak periods limits possibilities for growth.

(136) In its restructuring plan, SNCM envisages the sale of half of its capacities on offer. In this case, SNCM could market two-thirds of all possible links thanks to its growing reputation on the key markets for mini-cruises and business travel and the beneficial effects of the entry into service of a new ship and a sizeable capacity enabling SNCM to reach targets previously beyond its reach. The best-case scenario would improve:

- the current result which on average rises from EUR [...] million to EUR [...] million,

- the company's capital at the end of the period in question, rising from EUR [...] million to EUR [...] million.

2.4.1.2. Worst-case scenario

(137) This scenario assumes a downturn in the economic and social situation in France. Trade with Corsica and the Maghreb stagnates. Traffic is lower than expected.

(138) In such a scenario, SNCM could market only one-third of all possible links. On top of this negative trend in traffic, there would from 2003 be a 9 % increase in the price of fuel. This scenario would lead to a deterioration:

- in the current results, on average dropping from EUR [...] million to EUR [...] million,

- in the company's capital at the end of the financial year, dropping from EUR [...] million to EUR [...] million. In this scenario, SNCM replaces the Ile de Beauté by a second-hand vessel and does not replace the Corse, lengthening the period in which it remains in service.

2.4.1.3. Examination of the different scenarios

(139) The best-case and worst-case scenarios may appear very similar, but the following points should be stressed:

- on the one hand, the assumptions regarding traffic make it possible to meet the objectives of the restructuring plan without altering either the programme of services or the fleet used. A greater decrease or increase in traffic would exceed these limits and necessitate other combinations of services and consequently a different composition of the fleet. If this led, in particular, to economic disruption of the public service delegation, the safeguard clause laid down in the public service delegation contract might be activated, leading to a redefinition of the corresponding service;

- on the other hand, services to Corsica and to the Maghreb follow different criteria. Their trends may be convergent or divergent. For instance, the Corsican market may depend on the situation on the island. Serious disturbances there may immediately impact on the growth of trade with Algeria. The Tunisian market seems to be more stable but competition there is fierce. Overall, it is not very likely that all these markets will show a trend in the same direction. Accordingly, the assumptions on the whole seem to present a situation that is quite representative of possible developments.

(140) The profit budgets of the best- and worst-case scenarios have been drawn up with supply remaining constant in order to highlight clearly the effects of economic trends. Of course, staying within the general framework adopted, i.e. 11 ships and maintenance of the links operated, the company will fine-tune its supply to demand in order to retain its balance. This could be the case in particular in the worst-case scenario on the Nice/Corsica and Maghreb lines. A number of possible measures are given below by way of example:

- increased use in June and September of the small high-speed vessel replacing the Liamone: improvement of result by EUR [...] million,

- reduction in the number of vessels operated during particular weeks in winter: improvement of result by EUR [...] million,

- on crossings to Algeria, reduction of the number of trips during the low season (one every two weeks): improvement of result by EUR [...] million.

TABLE 5

Hypotheses in the scenarios

>TABLE>

(141) The different scenarios lead to the following simulations which the French authorities have transmitted to the Commission. These simulations show that SNCM should become profitable again in each of the three scenarios.

TABLE 6

Trend of the main financial indicators of SNCM

>TABLE>

2.4.1.4. Expected trend in SNCM's financial situation in the scenario adopted

(142) In their restructuring plan, the French authorities have included a more detailed financial model for the period 2002 to 2007 based on the intermediate scenario adopted, with the following relatively conservative assumptions: forecast growth of gross internal product 1,5 %, borrowing rate 5,5 %, rate of investment income 4,5 % and rate of short-term debts 5 %. This model, presented in table 7, presents forecasts for the profit and loss accounts and balance sheets for the next six years between 2002 and 2007. It shows a return to profitability from 2003.

TABLE 7

Financial model for 2002 to 2007

>TABLE>

Figures for 2000 and 2001 taken from SNCM's annual report 2001.

2002 results taken from provisional accounts transmitted by SNCM on 15 May 2003.

(143) In this scenario, turnover relating to activities to the Maghreb would rise from about EUR [...] million in 2001 to EUR [...] million from 2003(44). The current result of this network should be maintained at a level of EUR [...] to [...] million over the period 2002-2005.

(144) The turnover for the Nice-Corsica network, where competition is strongest, is around EUR [...] million, to which must be added about EUR 5 million in public compensation from social assistance. Because of its high quality level and consequently the proportionately high purchase price of the main vessel used on this service, the high-speed vessel Liamone, proceeds from operating this link would not cover all the amortisation costs of the vessel (included in lease paid) and would produce a current result of EUR [...] to [...] million. The exceptional EUR 14,8 million depreciation on the vessel, included in the restructuring plan and in the 2001 annual accounts, will adjust its use value for the company and offset the future lease annuities by EUR 1,8 million, more or less balancing the Nice-Corsica services(45). The company has indicated that the alternative solution to disposing of the Liamone would not, on closer examination, be favourable because of the market situation and losses associated with early termination of the lease.

(145) For the company's traditional activity on the line between Marseilles (and, for the record, Toulon) and Corsica, expected turnover was EUR 84 million in 2002 and should vary between EUR [...] and [...] million during the following years. It should be noted that the overall turnover of services to Corsica is expected to drop by EUR 9 million, i.e. 8 %, in 2002 compared with 2001. The 2002 accounts confirm this expected drop (EUR 10 million less in passenger revenue). As a result, SNCM's market share diminishes by 4 percentage points (from 25,9 % to 21,8 %) from 2001 to 2002 to the benefit of its competitors (5,6 point increase to 16,8 %).

(146) For services from Marseilles, which is now the only one covered by the public service delegation, the expected subsidy should have been limited to about EUR 69 million in 2002, dropping to EUR 61-63 million during the period covered by the plan, representing a notable decrease compared with the EUR 87 million obtained in 2001. However, the current result of the network dedicated to public service, which was negative in 2001 and 2002, should rise to EUR [...] million in 2003, then to about EUR [...] million in 2004 to 2005 and finally EUR [...] million in 2006.

(147) In 2002, the current result attained by the company would reportedly be - EUR 5,8 million, in line with that of 2001 but lower than the figure indicated in the restructuring plan. Apart from variations in some headings of the profit and loss account, this current result could be explained from the absence of a refund of the maritime professional tax (EUR 2,4 million), for which there will be an abatement at source in 2003, and the partial refund of employers' Assedic contributions (unemployment insurance contributions) and family allowances, i.e. a EUR 3,5 million shortfall.

(148) According to the French authorities, the EUR 76 million cash injection and the turnaround to profitability, expected from 2003, should make it possible to raise the company's capital from its current level of about EUR 30 million to EUR 120 million in the short term (2003) and then to EUR [...] million at the end of the period covered by the plan (2006 to 2007). This will lead to a reduction of indebtedness from its current level (EUR 145 million) to levels of EUR [...] million from 2003 to 2005. In the last years of the plan, an increase in indebtedness is forecast by the company because of the renewal (fully owned) of one or two vessels.

2.4.2. Scenarios beyond the restructuring plan

(149) It is important to know what will be the company's competitive position in 2006 at the end of the current public service delegation contract and how viable the company will be. The fact is, however, that it is difficult today to foresee the content of the future public service delegation contract after 2006.

(150) For SNCM, compared with the current situation in which it operates four cargo passenger ships and two car ferries, a situation in which, for instance, a [...] would no longer be needed would generate revenue losses of EUR [...] million (and EUR [...] million in subsidy). Reducing labour costs, other operating costs and capital costs (amortisations and financial charges) would make it possible to limit the drop in results to about EUR [...] million, i.e. [...] of the profit planned for the end of the period. From a financial viewpoint, the costs of restructuring, which are estimated at EUR 20 million for 260 employees, would be more than compensated by the sale of the vessel concerned, e.g. the [...] whose disposal would generate EUR [...] million in cash and EUR [...] million depreciation before tax.

(151) The French authorities have also devised a more extreme scenario with only [...] cargo passenger ships, i.e. [...] of resources currently used on the Marseilles-Corsica line, which would continue to be covered by the public service delegation contract, plus one car ferry operated on a competitive basis with social assistance(46). In this case, expected revenue losses would be EUR [...] million (and EUR [...] million in subsidy), i.e. [...] % of total revenue for the Marseilles-Corsica service. The reduction in labour costs, other operating costs and capital costs (amortisations and financial charges), however, would be insufficient to guarantee a positive result: with about EUR [...] million less than the plan, SNCM would suffer a limited loss of about EUR [...] million. Restructuring costs, estimated at EUR 34 million for 450 employees, however, would be compensated for by the sale of two vessels, e.g. the [...] and the [...] whose disposal would generate EUR [...] million in cash and EUR [...] million depreciation before tax.

(152) The French authorities did not want to study more austere scenarios, considering that any scenario leading to a reduction of more than 50 % of SNCM's activity would call into question the object of the company. However, the French authorities have stressed that this plan should make it possible to prevent an extreme situation by swiftly making the company competitive and thus enable it to acquire at least a part of a future public service obligation contract.

2.5. Other aid for SNCM

(153) SNCM has in the past received the following individual aid:

- operating grants to compensate for its public service obligations amounting to EUR 787 million for the period 1991 to 2001. This aid was approved by the Commission on 30 October 2001 for this period(47),

- rescue aid in the form of a refundable advance of EUR 22,5 million which was approved by the Commission on 17 July 2002(48) and has in the meantime been fully refunded by SNCM.

(154) SNCM currently receives financial compensation for performing its public service obligation on lines between Marseilles and Corsica for the period 2002 to 2006 under its contract(49), with a total sum which may reach up to EUR 321,5 million for the entire period.

(155) It has in the past received, and should in the future receive, funds under the following aid schemes which are open to all shipping companies:

- indirect aid under the individual social assistance scheme for shipping services to Corsica intended for particular categories of passengers, a scheme which was approved by the Commission in 2002(50);

- the business tax refund scheme for shipping companies(51).

2.6. Grounds for initiating the procedure

2.6.1. Doubts on the relevance of the restructuring plan

(156) In its decision of 19 August 2002, the Commission expressed doubts on the restructuring plan as it provided no analysis of the causes of the company's losses. In particular, the Commission raised questions concerning the following points:

- the connection between the company's losses and its public service obligation,

- the impact of SNCM's policy of ship purchases on its profit and loss account,

- the measures planned to enhance the company's productivity.

(157) The Commission also pointed to certain gaps in the restructuring plan:

- the absence of specific measures to reduce the amount of intermediate consumption,

- the absence of any indications concerning SNCM's future fares policy.

2.6.2. Doubt about the relevance of the calculation of the amount of aid

(158) The Commission also wondered not only about the relevance of the calculation method adopted by the French authorities to determine the amount of recapitalisation but also about particular hypotheses adopted for financial simulations. The method adopted by the French authorities to justify the amount of EUR 76 million for capitalisation is based on a financial simulation which does not clearly bring out all the underlying hypotheses and does not show how the capital/long-term indebtedness ratio leads on average to the reference ratio of 79 %.

3. COMMENTS FROM INTERESTED PARTIES

3.1. Comments from Corsica Ferries

3.1.1. First letter with comments

(159) By letter of 8 January 2003(52), the law firm Scapel, Scapel-Grail and Bonnaud sent their observations to its client, Corsica Ferries.

(160) First, Corsica Ferries disputes that SNCM is a firm in difficulty within the meaning of the guidelines. It points out that the public service delegation contract allocates a public grant to the company of EUR 64,3 million on average a year, making a total of EUR 321,5 million over five years. It argues that Article 5 of the public service delegation contract guarantees for SNCM a EUR 72,8 million cashflow. Moreover, Corsica Ferries stresses that of the EUR 40,6 million losses recorded by SNCM in 2001, EUR 15 million relate to the depreciation of the high-speed vessel Liamone.

(161) Second, Corsica Ferries questions SNCM's capacity to become profitable on its non-subsidised lines. Moreover, Corsica Ferries notes that, contrary to what is announced in the restructuring plan(53), services to Livorno are still operational. About the services from Nice and Toulon, Corsica Ferries expresses doubts on SNCM's capacity to make these lines profitable. With regard to services to the Maghreb, it notes that SNCM will have to face fierce competition from CTN and ENTV. On the subject of cost reduction, Corsica Ferries regrets that it does not have access to particular components of the restructuring plan. However, it asks the Commission to see that the questions which the latter raised in its decision of 19 August 2002 receive convincing answers from the French authorities.

(162) Third, Corsica Ferries stresses the need to ensure that the planned aid does not lead to undue distortion of competition. In its opinion, the aid should not serve to facilitate the struggle against competitors by allowing a more aggressive supply of services. Corsica Ferries considers the 79 % capital/debt ratio adopted by the French authorities(54) as exaggerated in relation to the ratios which it recorded itself on a panel of 10 shipping companies. These ratios vary from 23,69 % (for Moby Lines) via 49,7 % for CMN to 55,09 % (for Grimaldi).

(163) According to Corsica Ferries, the calculation leading to the amount of EUR 76 million is purely fictitious. It argues that EUR 76 million corresponds to the FRF 500 million which the company would lose from its territorial continuity grant for the new period 2002 to 2006.

(164) According to Corsica Ferries, SNCM could itself have had such an amount at its disposal by using its latent appreciation on the fleet or by selling off some of its shares.

(165) With regard to SNCM shares, Corsica Ferries notes that some of the subsidiaries are of no use to the shipping company's activities, mentioning the following specifically:

- the 50 % share in the Sud-Cargos shipping company,

- the 13 % share in Amadeus, a firm specialised in air transport booking systems,

- the 59,25 % share in CMN,

- CGTH's real estate holdings.

(166) Corsica Ferries concludes that the plan to grant aid circumvents the cabotage regulation and renders the invitation to tender for Marseilles to Corsica services meaningless. It suggests that restructuring aid should not be granted until 2007 and only if SNCM loses the next tender in 2006, which would be the only scenario that would genuinely put the public shipping company in difficulty.

(167) A considerable number of documents (copies)(55) were enclosed with the letter of 8 January 2003.

3.1.2. Second series of comments

(168) By electronic mail of 16 January 2003, the Director-General of Corsica Ferries sent the Commission a copy of a press release from Agence France Presse and a press file concerning the press conference held by the SNCM chairman on 14 January 2003 on SNCM's new scale of fares for 2003.

3.1.3. Meeting of Corsica Ferries and the Commission

(169) At a meeting held on 4 February 2003 between the Commission and representatives of Corsica Ferries convened at the latter's request, Corsica Ferries transmitted transparencies showing graphs of SNCM's potential appreciations. By letter of 21 February 2003, these documents were sent to the French authorities for comment.

(170) The representatives of Corsica Ferries stated orally that the market of sailings between mainland France and Corsica was doing well, with a 17 % increase between 2000 and 2001 and 13 % increase between 2001 and 2002. They indicated that their company did not attack Decision 2002/149/EC on compensation for public service obligations, stressing that there was no need to go back on the past but that it would give close attention to the conditions which the Commission will impose in the present case.

(171) The representatives of Corsica Ferries welcomed the Commission's efforts to liberalise the cabotage market. According to them, the cabotage regulation has made it possible to put an end to agreements which benefitted the traditional operators. It has cleared the way for competition which has led the traditional operator to raise substantially the quality of its services to Corsica. According to the representatives, the inhabitants of Corsica had suffered for too long from poor quality service onboard SNCM's ships when they were the only firm operating crossings to Corsica.

(172) The representatives of Corsica Ferries expressed their concern that SNCM would use the aid to reduce its fares between Toulon/Nice and Corsica. They stated orally that while on paper SNCM's fares and those of Corsica Ferries were more or less the same, SNCM had nevertheless greatly increased the number of days of the low-fares period.

(173) At this meeting, the representatives of Corsica Ferries highlighted the three main structural causes why, in their opinion, SNCM had to bear higher costs than Corsica Ferries:

- purchase of vessels from a shipyard with price levels above market prices,

- more costly crews because they are better paid than required by French industrial agreements,

- excessive numbers of onshore personnel: at equal traffic levels, Corsica Ferries allegedly has three times fewer employees onshore than SNCM; it argues that many of SNCM's onshore activities should be outsourced in the same way as Corsica Ferries does.

(174) At the meeting, the representatives of Corsica Ferries further criticised the restructuring plan on three points:

- the plan does not envisage any real reduction in staff numbers: staff cuts are too cautious as most of the 300 posts cut correspond to natural wastage,

- SNCM shareholdings have not been included in the restructuring endeavour: large numbers of shares in various companies are dormant in SNCM's accounts, with a market value well above the book value recorded on SNCM's balance sheet,

- appreciations on vessels have not been taken into account. Because of speeded-up amortisation of vessels, the book value of vessels in the assets of shipping companies is often lower than their market value, thus distorting the picture which the balance sheet may present. Corsica Ferries evaluates SNCM's latent appreciations on old ships at EUR 148 million. The real value of the vessels has allegedly enabled SNCM to obtain mortgage loans or lease-back contracts for sums exceeding the EUR 76 million restructuring aid.

3.2. Comments from the Stef-TFE chairman

(175) By letter of 7 January 2003(56), the chairman of the Stef-TFE group, a company specialised in cooling logistics, transmitted his comments on SNCM's restructuring plan to the Commission. He emphasises that his group was the main shareholder in CMN as it controlled the company's board. He explains that the capital links between SNCM and CMN result from a redistribution of CGMF's shares in 1992(57). According to Stef-TFE, SNCM's shares in CMN should be analysed as purely financial assets.

(176) Moreover, the letter with comments stresses that the two companies, CMN and SNCM, are independent and in competition with each other on the links other than those from Marseilles, even though both are co-contractors under the public service delegation contract. According to Stef-TFE, co-contracting has been necessary because of the structure of the tender specifications which obliged the two companies to submit a joint bid as neither of them could meet all the requirements on their own.

(177) The letter indicates that the Stef-TFE group would undertake "to buy back all or part, and preferably the whole, of SNCM's shares in CMN", whose value it estimates at EUR 15 to 17 million, if the Commission were to take the view, under conditions it could impose in its final decision, that "such a transfer is necessary to ensure that the restructuring plan is properly balanced".

(178) An overview of the past development of CMN's shareholding and the Stef-TFE group's annual report for 2001 are appended to the letter.

3.3. Comments from representatives of local authorities

(179) By letter of 18 December 2002(58), the mayor of the City of Marseilles stressed the economic importance of SNCM for the regional economy, explaining that each year the company injects EUR 160 million into the economy and that it employs 1800 workers in the Provence-Alpes-Côte d'Azur region.

(180) By letter of 9 January 2003(59), the chairman of the general council of Bouches-du-Rhône emphasised the economic importance which the SNCM has for the regional economy, expressing the wish that the Commission would approve the planned aid and thus allow SNCM to successfully complete its restructuring. Also on 9 January 2003, a general councillor of Bouches-du-Rhône was received by the Commission at his request. At this meeting, he spoke on behalf of his authority and its chairman. He highlighted SNCM's economic weight in the economy of Marseilles. He argued that only SNCM was able to run reliable services to Corsica. He acknowledged that SNCM had perhaps not been properly managed in the past but that recently it had made considerable progress towards modernisation under the guidance of its chairman, even though he felt that further progress still had to be made. On behalf of the whole political staff of the Marseilles region, he expressed the wish that the Commission would give SNCM a last chance to adapt itself to a relatively new competitive framework. He also said that SNCM, like all French companies operating passenger transport services by sea, was weighed down by the existence of more favourable social and tax schemes in other Member States, in particular Italy(60) whose flag is flown by the vessels of Corsica Ferries, its main competitor.

(181) By letter of 9 January 2003(61), the chairman of the Provence-Alpes-Côte d'Azur regional council emphasised that the procedure initiated by the Commission was designed to ascertain that the proposed restructuring plan would eventually guarantee the viability of a company which was in difficulty today. He recalled the measures provided for in the restructuring plan. He considered that the conditions for this plan to guarantee the viability of the company were met. According to this regional council, only SNCM is able to provide sufficient services to ensure territorial continuity with Corsica. Moreover, the chairman points out that SNCM's activity gives work to 2000 people in the Provence-Alpes-Côte d'Azur region and that the continuation of this company is vital for the regional economy.

(182) By letter of 9 January 2003(62), the chairman of the executive council of the Assembly of Corsica transmitted the proceedings of a debate in the Assembly of 18 December 2002. In this debate, the Assembly had delivered "a favourable opinion" on the plan for the recapitalisation of SNCM.

3.4. Comments from the Corsica transport office

(183) By letter of 10 January 2003(63), the Director-General of the Corsica transport office (OTC) emphasised, on behalf of its chairman, that the tender issued for the public service delegation contract had led to only one bid being submitted, namely that of the CMN and SNCM group. The OTC is, together with the territorial collectivity of Corsica, the awarding authority of the public service delegation contract.

(184) First of all, the OTC notes that the disappearance of SNCM "would immediately lead to a major reduction in services" as it is currently the only company capable of meeting the requirements of the contract with regard to passenger transport.

(185) It is recalled in the letter that Corsica has long suffered from inadequate shipping services and that it was only in 1976, with the implementation of the principle of "territorial continuity", that services were offered that were geared to actual needs. Wishing to maintain a reliable high-quality service, the territorial collectivity of Corsica has in its contract included financial mechanisms for compensation or correction linked with the efficiency and reliability of services.

(186) Moreover, it is noted in the letter that the territorial collectivity of Corsica has taken account of the trend since 1996 in the supply of services from ports in mainland France to limit the public service obligations to services operated from Marseilles.

(187) Finally, the letter highlights SNCM's importance for the economy of Corsica, emphasising that it is the shipping company established in Corsica "which employs the largest number of Corsican residents (600 sailors and 170 onshore personnel) and with most purchases in Corsica (according to the company's information between EUR 25 and 30 million annually)". It adds that "the Commission's rejection of the restructuring plan proposed by the French state would therefore have very grave consequences for the island's socioeconomic equilibrium".

(188) In a second letter dated 10 February 2003(64), the OTC pointed to the two areas in which it expected progress from SNCM as the authority awarding the public service delegation contract. First, the OTC expected an improvement of the internal social dialogue, pointing to an "abnormally high" number of industrial conflicts which have affected shipping services to Corsica, even though the situation has improved in recent years. In this regard, the OTC has laid down explicit provisions in the public service delegation contract for financial penalties to be imposed if the company fails to carry out particular services as a result of a cause coming under its responsibility. OTC's second concern is improving customer information during periods of disruption. The OTC adds, however, that with regard to passenger information SNCM does not show worse performance than transport companies in general, although SNCM ought to continue its efforts in this area.

4. COMMENTS FROM FRANCE

(189) The Commission has sent the following documents to the French authorities for their comments in accordance with Article 6(2) of Regulation (EC) No 659/1999:

- comments from Corsica Ferries (letters of 13 and 16 January 2003),

- comments from Stef-TFE (letter of 16 January 2003),

- comments from the Provence-Alpes-Côte d'Azur region (letter of 5 February 2003),

- comments from the territorial collectivity of Corsica (letter of 16 January 2003),

- comments from the general council of Bouches-du-Rhône (letter of 16 January 2003),

- comments from the City of Marseilles (letter of 16 January 2003),

- comments from the OTC (letters of 16 January and 21 February 2003).

4.1. Comments from France on the comments from Corsica Ferries

(190) The French authorities have indicated that some of the data submitted by Corsica Ferries concerning SNCM's services were inaccurate.

4.1.1. SNCM's fares policy

(191) By fax of 27 May 2003, the French authorities sent the Commission details to refute Corsica Ferries' allegations about SNCM's fares policy.

(192) SNCM's services on the Nice-Corsica link show the following trend:

TABLE 8

Trend of services supplied by SNCM between 2002 and 2003

>TABLE>

(193) The French authorities also point out that SNCM's fares on the Nice-Corsica link have risen slightly compared with 2002. As part of the company's business policy, the length of periods in which fares remain valid has been adjusted to reduce divergence with fares offered by Corsica Ferries. According to the French authorities, the trend in SNCM fares reported by Corsica Ferries (from - 14 % to - 24 %) bears no relation to reality and, contrary to what has been alleged, Corsica Ferries' fares are well below SNCM's.

(194) According to the French authorities, Corsica Ferries tries to show that SNCM has initiated an aggressive fares policy by fixing fares below its own. The French authorities argue that the conclusions from this analysis, which are based on very incomplete data, are wrong.

4.1.1.1. Concerning promotional fares

(195) Corsica Ferries' basic promotional fare is called the "Jackpot", which is a fixed price for two passengers and one vehicle(65). The French authorities emphasise that this fare does not appear in the documents submitted by Corsica Ferries even though it represents a significant part of its sales. This fare may cover one to four passengers travelling in the same vehicle. The supplement charged to them is that of the basic fare to which these passengers are entitled. If the additional passengers are children or young people, which is often the case in vehicles with four or five persons, the supplement paid on top of the basic fare is EUR 2,5 in each direction during the "orange" period(66). If these passengers fall in a "social" category(67), the supplement is EUR 5.

(196) This fares configuration, which is quite different from SNCM's, produces the following disparities:

TABLE 9

Comparison between SNCM's and Corsica Ferries' scales of fares in 2003

>TABLE>

(197) The promotional fares of SNCM and Corsica Ferries vary according to the yield management method. Because of the relative lack of transparency of fares charging by computerised booking systems, the French authorities cannot provide the Commission with the number of places benefiting from Corsica Ferries' special fares. Finally, the French authorities wish to draw attention to the fact that SNCM does not offer the "Plein Soleil" formula on all its crossings whereas Corsica Ferries does offer this type of product on all its sailings.

4.1.1.2. Concerning the scale of fares

(198) The French authorities note that SNCM's scale of fares for Nice-Corsica is systematically higher than or equal to that of Corsica Ferries.

(199) As regards the "colours" of fares (see table 10), it is correct that SNCM has lengthened the blue period between April and September, partly in order to close the fares gap separating SNCM from Corsica Ferries. However, it applies only to sailings in the less busy direction.

(200) The French authorities have supplied the following table 10, comparing the distribution of voyages per fares level between the two companies on the Nice/Corsica service in April to September 2003.

TABLE 10

Comparison between the lengths of fares periods between SNCM and Corsica Ferries in 2003

>TABLE>

(201) The public service delegation contract includes a safeguard clause to attenuate the possible effects of an inaccurate estimate of the additional costs of carrying out public service tasks. According to the French authorities, the contract does not remove all risks for SNCM and CMN, as Corsica Ferries has alleged, for the following reasons:

- fluctuation of revenue within a range of 2 % above or below the basic data do not give rise to any adjustment of compensation,

- adjustment of compensation for fluctuations in revenue outside this range is only partial,

- overall, adjustments are restricted to 1,66 % of financial compensation for the whole term of the contract.

(202) The French authorities note that the public service contract in no way guarantees operating profits; on the contrary, the contract provides for a maximum level of capital yield. The sole objective of the public service grant is in fact to offset the costs resulting from executing the public service task. Consequently, the grant cannot be construed as a "cashflow guarantee".

(203) In their comments, the French authorities question the well-foundedness of Corsica Ferries' statement that CMN is among Europe's most profitable shipping companies. They argue that there is no justification for this claim today: the average net result of this company during the five financial years 1997/2001 is EUR 1,27 million for an average turnover prior to compensation of EUR 36,4 million. Moreover, the company's performance is largely linked with the Marseilles/Corsica public service delegation contract in which, as co-contractor of the public service delegation, it complements SNCM's main contribution with three vessels.

4.1.2. Services to Corsica from Nice and Toulon

(204) The French authorities have drawn attention to the following:

- SNCM has discontinued regular services between Corsica and Toulon; sporadic recourse to the port of Toulon is due to technical considerations connected with the services between Marseilles and Corsica (number of Toulon-Corsica sailings: 187 in 2001; 83 in 2002; nine in the first two months of 2003),

- SNCM's Nice-Corsica sailings have been greatly reduced, in particular during the low season, which combined with SNCM's general management savings justifies expectations that the accounts for the Nice-Corsica sector will be balanced, as indicated in the financial models.

(205) According to the French authorities, the complete abolition of SNCM's services from Nice to Corsica would have the following consequences:

- disruption of the complementary relationship between Nice and Marseilles and accordingly an imbalance in SNCM's services, whereas Corsica Ferries sails to Corsica from four continental ports (Toulon, Nice, Savona and Livorno),

- disruption of the necessary complementary nature of night services (from Marseilles) and day services (from Nice) whereas Corsica Ferries supplies both of these services,

- establishment of a virtual monopoly of Corsica Ferries from Toulon to Livorno,

- simultaneous sale, difficult to implement under acceptable conditions, of three high-speed vessels.

4.1.3. Services to the Maghreb

(206) With regard to SNCM's activities in north Africa, the French authorities regard as unacceptable Corsica Ferries' unfounded, and also sometimes inaccurate, comments regarding the "indifference" of SNCM in the face of its shrinking market share or SNCM's lack of consideration for its Algerian customers.

(207) France points out that the drop in SNCM's services to Algeria basically results from decisions taken by the State which, after completely suspending maritime relations between France and Algeria at the beginning of 1995 (following the hijacking of Air France's Airbus in Marseilles), has allowed only a gradual recovery accompanied by security measures which though indispensable have placed an extra burden on this line.

(208) Finally, it has noted that the level of activity to the Maghreb which SNCM indicates in its restructuring plan is particularly cautious and consistent with the conclusions of the market survey commissioned by SNCM.

4.1.4. Cost reduction programme

(209) The French authorities note that a part of the cost reduction programme has already been implemented:

- the number of vessels has been reduced and the programme for the disposal of assets is going ahead according to plan,

- services have been redeployed,

- the action plan to reduce intermediate consumption is beginning to bear fruit,

- the employment component of the industrial plan is steadily being implemented.

(210) In 2001, SNCM earmarked EUR 21,3 million to finance restructuring measures, in particular the scheme to safeguard jobs:

- establishment and operation of a monitoring mechanism, training assistance of EUR [...] million,

- introduction of new technologies and changes to work areas to enhance the company's economic efficiency and enable job cuts of EUR [...] million,

- implementation of measures for people leaving the company (about 90 employees), mobility leave (about 30) and switching to part-time working (about 25) amounting to EUR [...] million,

- conducting procedures and negotiations and provision for litigation expenses, amounting to EUR [...] million.

(211) In conclusion, the French state is of the opinion that, contrary to the allegations of Corsica Ferries, the restructuring plan has been devised in such a way as to turn around SNCM as soon as possible and create the right conditions to ensure its medium- and long-term viability.

4.1.5. Calculation method to determine the amount of recapitalisation

(212) With regard to determining the amount of aid, the French authorities have presented two comments in response to Corsica Ferries' observations.

(213) First of all, they confirm that a 0,79 capital/debt ratio is quite typical for the balance sheets of most shipping companies, except in special situations. As an indication, the French authorities specify that this ratio is (in 2001):

- 0,847 for Lota Maritime consolidated,

- 0,835 for Corsica Ferries France SA.

(214) The 0,497 ratio announced by Corsica Ferries for CMN in 2001 is incorrect because it fails to take account of liquid assets on the balance sheet. With the appropriate correction, CMN's ratio is 0,557 [...].

4.2. Comments from France on Stef-TFE's observations

4.2.1. Comments from France on Stef-TFE's letter of 7 January 2003

(215) In their letter of 13 February 2003, the French authorities presented various comments on Stef-TFE's observations.

4.2.1.1. Partnership to carry out the public service delegation contract

(216) According to the French authorities, the decision of SNCM and CMN to enter into a joint venture in which they are jointly and not severally responsible has in no way "been rendered obligatory by the overall character of the consultation", contrary to Stef-TFE's observations. According to the French authorities, the tender issued by the territorial collectivity of Corsica fully permitted bids per shipping line or groups of lines. It was therefore legitimate for SNCM, and for CMN, to submit a bid for parts of this tender, if necessary by looking for appropriate partnerships.

(217) The decision to set up a joint SNCM-CMN venture is the result of an analysis made by the two companies which showed that bidding in this form, in this traditional and natural partnership, gave them the best chances, in particular in terms of competitiveness, to win the tender in view of the fact that Corsica Ferries had for months made it clear that it would submit a bid and in view of the possibility of other European operators doing so too.

(218) CMN's entry into this joint venture therefore resulted from a well-considered decision on its part based on an evaluation of its own interest and not on an obligation arising out of the tender as such.

(219) The French authorities explain that, contrary to Stef-TFE's observations, the two companies, SNCM and CMN,