EN Official Journal of the European Union L 268/1

COMMISSION DECISION (EU) 2017/1861

of 29 July 2016

on State aid SA33983 (2013/C) (ex 2012/NN) (ex 2011/N) — Italy — Compensation to Sardinian airports for public service obligations (SGEI)

(notified under document C(2016) 4862)

(Only the English text is authentic)

(Text with EEA relevance)

THE EUROPEAN COMMISSION,

Having regard to the Treaty on the Functioning of the European Union, and in particular the first subparagraph of Article 108(2) thereof,

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

Having called on interested parties to submit their comments pursuant to the provisions cited above (1) and having regard to their comments,

Whereas:

1. PROCEDURE

(1) On 30 November 2011 Italy notified a compensation scheme in favour of Sardinian airport operators for public service obligations (hereinafter ‘PSOs’) with the aim of strengthening and developing air transport. That notification was made via the electronic notification system of the Commission.

(2) The Commission requested Italy to provide additional information on the notification by letters dated 30 January 2012, 24 April 2012 and 12 July 2012. Italy replied to those requests by letters dated 24 February 2012, 30 May 2012 and 9 August 2012.

(3) On the basis of the information received that Italy might have put the measure into effect before the Commission had taken a decision authorising it, the Commission has decided to investigate the measure under chapter 3 of Regulation (EU) 2015/1589 (2) regarding unlawful State aid.

(4) On 30 November 2012, Italy asked the Commission to indicate the timing for the decision and for certain clarifications concerning the procedure. The Commission replied by letter transmitted to Italy on 7 December 2012.

(5) By letter dated 23 January 2013, the Commission informed Italy of its decision to initiate the procedure provided for in Article 108(2) of the Treaty (‘Opening Decision’) with regard to the notified scheme.

(6) Italy provided its comments on the opening decision on 21 March 2013 (with annexes received on 22 March 2013).

(7) The Opening Decision was published in the Official Journal of the European Union on 30 May 2013. The Commission invited interested parties to submit their comments on the alleged aid measures.

(8) On 10 April 2013, the Commission received comments on the case from Ryanair Ltd, as interested party. The Commission transmitted those comments to Italy by letter dated 3 May 2013. Italy has not submitted any observations on the comments from Ryanair.

(9) The Commission subsequently received comments from the following interested parties: (a) Ryanair and a consultancy firm acting on its behalf, on 28 June 2013; (b) GEASAR S.p.A., the airport operator of Olbia airport, on 1 July 2013; (c) SOGEAAL S.p.A., the airport operator of Alghero airport, on 29 July 2013; (d) SOGAER S.p.A., the airport operator of Cagliari airport, on 30 July 2013 and 2 August 2013; (e) easyJet, on 30 July 2013.

(10) On 31 July 2013, the Commission forwarded the non-confidential versions of the comments from GEASAR and SOGEAAL to Italy, which was thus given the opportunity to react. The Commission forwarded the comments from SOGAER and Ryanair to Italy on 2 August and those from easyJet, on 7 August.

(11) On 27 September 2013, Italy informed the Commission that it had no observations on the comments from the three airport operators. On 20 and 21 November 2013, Italy sent its observations to the Commission regarding of Ryanair's comments. Italy did not provide any observations regarding easyJet's observations.

(12) On 20 December 2013, Ryanair provided further comments, which were forwarded to Italy on 9 January 2014. Italy did not provide any observations on those comments.

(13) On 17 January 2014 and 31 January 2014, Ryanair provided further comments, which were forwarded to Italy on 12 January 2015. Italy did not provide any observations regarding these comments.

(14) By letter dated 25 February 2014, the Commission informed Italy of the adoption of the 2014 Aviation Guidelines (3) on 20 February 2014 and of the fact that those guidelines would become applicable to the case at hand from the moment of their publication in the Official Journal. The Commission gave Italy the opportunity to comment on the guidelines and their application within 20 working days of their publication in the Official Journal.

(15) By letters dated 24 February 2014, the Commission also informed interested parties of the adoption of the 2014 Aviation Guidelines and of the fact that those guidelines would become applicable to the case at hand from the moment of their publication in the Official Journal. The Commission gave interested parties the opportunity to comment on the guidelines and their application within 20 working days of their publication in the Official Journal.

(16) The 2014 Aviation Guidelines were published in the Official Journal on 4 April 2014. They replaced the 1994 Aviation Guidelines (4) as well as the 2005 Aviation Guidelines (5).

(17) On 15 April 2014 a notice was published in the Official Journal inviting Member States and interested parties to submit comments on the application of the 2014 Aviation Guidelines to this case within 1 month of their publication (6).

(18) On 13 June 2014, SOGAER provided comments on the case in the context of the adoption of the new guidelines. GEASAR and SOGEAAL provided their comments on 16 June 2014 and easyJet on 4 July 2014. The comments from SOGAER, GEASAR, SOGEAAL and easyJet were transmitted to Italy by the Commission on 9 July 2014. Italy has not submitted any observations on those comments.

(19) On 12 and 26 September 2014 Ryanair provided further comments on the case. The Commission forwarded those comments to Italy on 28 October 2014. Italy has not submitted any observations on those comments.

(20) On 26 January 2015, Ryanair and a consultancy firm acting on its behalf provided further comments, which were forwarded to Italy on 4 February 2015. Italy has not submitted any observations on those comments.

(21) On 27 February 2015 and 2 March 2015, Ryanair and a consultancy firm acting on its behalf provided further comments, which were forwarded to Italy on 24 March 2015. Italy has not submitted any observations on those comments.

(22) On 18 March 2015, the Commission requested Italy to provide additional information on the case. Italy replied on 11, 18 and 19 May 2015.

(23) On 31 March 2015, easyJet provided additional comments completing its original submission of 30 July 2013. On 1 and 14 May 2015 easyJet and a consultancy firm acting on its behalf provided further comments on the case. On 1 June 2015, easyJet provided additional comments on the case. All those comments were forwarded to Italy on 6 July 2015. On 17 September 2015, Italy submitted its observations on the comments from easyJet and the consultancy firm acting on its behalf.

(24) On 29 June 2015, the Commission requested additional information from Italy. Italy replied partially on 14 July 2015 and sent the annexes to that reply on 10 September 2015.

(25) On 17 July 2015 the Commission requested additional information from Italy. Italy replied on 11 September 2015.

(26) On 8 and 14 October 2015, the Commission requested additional information from Italy. Italy replied on 5 November 2015.

(27) On 24 November 2015, Italy provided further information on the case.

(28) On 24 November 2015, the Commission requested additional clarifications from Italy. Italy replied on 27 November 2015.

(29) On 4 December 2015, Ryanair and a consultancy firm acting on its behalf provided further information on the case, which was forwarded to Italy on 8 December 2015. Italy replied on 16 December 2015, indicating that it had no observations on those documents.

(30) On 11, 16 and 17 December 2015, Italy submitted further comments on the case.

2. DETAILED DESCRIPTION OF THE AID

2.1. TITLE AND OBJECTIVES OF THE MEASURE

(31) The notified scheme provides compensation for public service obligations to operators of airports located in Sardinia, with the aim of strengthening and developing air transport. Italy claims that those public service obligations relate to a service of general economic interest (hereinafter ‘SGEI’). The scheme has been established pursuant to Article 3 of Regional law of Sardinia of 13 April 2010, No 10 (7), (hereinafter ‘Law 10/2010’).

(32) This article defines the purpose of that scheme, which consists in strengthening air transport to and from Sardinia by extending flight operations, both in terms of frequencies in winter periods and the number of new destinations served. For this purpose, Sardinian airports were to channel this public financing to airlines as public service compensation.

(33) The broader objective of the scheme is strengthening the regional economy by increasing flows of tourists, in particular outside the summer season.

2.2. GRANTING AUTHORITY

(34) The Region of Sardinia (hereinafter ‘the Region’) is the granting authority. The Region benefits from the special status of autonomous region in Italy.

2.3. LEGAL FRAMEWORK

(35) Article 3 of Law 10/2010 provides for funding in the form of compensation for public service obligations to Sardinian airport operators for the period 2010-2013. Law 10/2010 is implemented by decisions adopted by the Regional Executive.

(36) Regional Decree No 122/347 of 17 May 2010 (8) states that the amounts defined by Law 10/2010 are at the charge of the regional budget.

(37) The Sardinian Regional Executive has adopted several implementing acts, which define the conditions and arrangements for access to funding under Law 10/2010, as follows: (a) Sardinia's Decision No 29/36 of 29 July 2010 (9) defines the criteria, nature and duration of transport service for which funding could be granted, and sets out the guidelines for the drafting and assessment of the airports' plans of activities (‘programmi di attività’). (b) Sardinia's Decision No 43/37 of 6 December 2010 (10) approves the plans of activities submitted by the airport operators for 2010 and the specific amount to be granted to each of them for 2010. (c) Sardinia's Decision No 52/117 of 23 December 2011 (11) establishes the annual amounts to be granted from the Region to the airport operators for the period 2011-2013 on the basis of the plans of activities presented by the airport operators in 2011.

(38) Regional law of 19 January 2011, No 1 (12) reduced the contributions to be granted from the Region to the airports, as defined by Law 10/2010, to EUR 21 100 000 for 2011 and EUR 21 500 000 for 2012 and 2013.

(39) Regional law of 30 June 2011, No 12 (13) establishes a mechanism of financial advances to be operated through the constitution of an ad hoc financial fund inside SFIRS (14). SFIRS is the financial in-house company of the Sardinian Region, which, as financial broker and operational branch of the Region, has been entrusted by the Region to set up and manage the regional fund aimed at granting financial advances as interest-bearing shareholder's financing (15). SFIRS is placed under direct control of and managed by the Region. Its role is to manage plans, policies and programs set out by the Region for the economic and social development of the territory. Its board of directors is appointed by the Region. The entrustment act No 15 of 9 August 2011 (16) entrusts SFIRS with the constitution and management of the ‘airports regional fund’ (17) (‘the regional fund’) aimed at granting financial advances to the contributions of the Region. Decision No 500 of 9 August 2011 (18) approves the detailed rules for implementation of the regional fund. Decision No 22 of 30 January 2012 (19) completes the rules set out in Decision No 500 of 9 August 2011.

(40) Regional law of 7 August 2012, n. 15 (20) amends the regional law of 30 June 2011. Decision No 694 of 2 October 2012 (21) implements the regional law of 7 August 2012 and completes and amends the rules for implementation of the regional fund, by extending the application of the law of 30 June 2011 for the years 2012 and 2013.

(41) Decision No 4/34 of 5 February 2014 (22) modifies the allocation of the regional contributions for the year 2013, taking into account the reduction of the regional contributions decided in the context of the budget of the Region allocated to the financing of the activities pursuant to Law 10/2010 and the effective costs sustained by the three airport operators.

2.4. THE SCHEME

(42) The notified scheme intends to develop air transport and make air connections to and from Sardinia less seasonal, which contributes to the overarching objective of attracting tourism and strengthening the regional economy. To that end, Law 10/2010 provides for funding in the form of compensation for public service obligations to Sardinian airport operators for the period 2010-2013.

(43) The implementing decisions clarify that the objective of Law 10/2010 — to reduce seasonality — consists of extending the period during which flights are operated. This entails increasing the frequency of flights during the so-called mid-season (that is to say, the months flanking the summer season — April, May, September and October) or the winter season, and also the opening up of new routes to and from places not yet connected to Sardinia. The reasoning behind the scheme is to promote a regional air transport policy that strengthens the economic, social and territorial cohesion of the communities concerned by addressing the accessibility disadvantages facing Sardinia as an island.

(44) The decisions referred to in Section 2.3 establish the three following activities: (a) Increase of air traffic by airlines (‘activity 1’). Airlines and airport operators have to define, within detailed ‘plans of activities’, strategies to increase air traffic and favour de-seasonality of touristic flows, by defining routes of strategic interest, frequencies, capacity offer and subsequent traffic objectives. If those targets are met, financial compensation is received; if the targets are not met, penalties must be paid. (b) Promotion of Sardinia as a touristic destination by airlines (‘activity 2’). In the aforementioned ‘plans of activities’, airlines and airport operators should also define specific marketing and advertising activities aimed at increasing the number of passengers and at promoting the catchment area of the airport. (c) Further promotional activities entrusted by airport operators to third service providers other than airlines (23) on behalf of the Region (‘activity 3’).

(45) Once the Region has approved the plans of activities, assessing the activities proposed therein on the basis of their economic impact on the airport and the Sardinian economic activity as a whole, it distributes accordingly the financial resources available for each year and each airport.

(46) Compensation to airport operators is calculated on the basis of the estimated costs borne by airlines for flying the strategic routes, national or international, and meeting the passenger targets per year. Once the passenger targets have been defined, airport operators select the airlines requested to operate the services in question. Selected carriers receive the compensation which covers the difference between their operating costs and the actual or presumed revenues from passenger tickets.

(47) The notification document from Italy mentions that the Region should approve the tender process organised by airport operators to select the interested airlines. The Commission has not been informed of any tender organised by airport operators. According to Italy, airlines have been selected on the basis of the most attractive commercial offers submitted to airport operators upon publication of notices on their websites. As regards airports, the aid scheme is conceived to coordinate the development of the regional airport system by placing regional airports on a complementary position with each other (24).

2.5. MARKETING ACTIVITIES UNDERTAKEN BY AIRLINES

(48) The Law 10/2010 provides that, in the context of activity 2, airport operators have to conclude marketing agreements with airlines with a view to promoting Sardinia as a touristic destination. The plans of activities must therefore define specific strategies of marketing and advertising aimed at increasing the number of passengers and at promoting the catchment area of the airport.

(49) Two different types of agreement have been entered into by airport operators, depending on the airline: either a single agreement including both airport services and marketing services or two separate contracts, as in the case of Ryanair, where there is an airport services agreement with Ryanair and a marketing services agreement with its fully-owned marketing company AMS (Airport Marketing Services). The agreements combine and link traffic increase and marketing measures and are based on a premium system according to the success of the traffic increase measures. Under the agreements, the carrier has to operate a defined flights programme and at the same time develop a marketing and advertising plan.

(50) The marketing is based on a dedicated page on the airport destination on the carriers' website which sometimes includes a travel guide. The marketing is aimed at promoting the tourist and business attractions in the region and maximising the share of inbound foreign originating travellers.

2.6. AIRPORTS CONCERNED

(51) In 2010, Sardinia counted five airports: (a) Alghero, the airport operator of which is SO.GE.A.AL S.p.A. (‘SOGEAAL’) (b) Cagliari-Elmas, the airport operator of which is So.G.Aer. S.p.A. (‘SOGAER’) (c) Olbia, the airport operator of which is GEASAR S.p.A. (‘GEASAR’) (d) Tortoli, the airport operator of which is GE.AR.TO. S.p.A. (‘GEARTO’) (e) Oristano, the airport operator of which is SO.GE.A.OR. S.p.A. (‘SOGEAOR’)

(52) All these companies are limited liability companies. SOGEAAL and SOGAER are publicly held. GEASAR is controlled by the air carrier Meridiana.

(53) Italy confirmed that, although Law 10/2010 refers to all Sardinian airports, the two minor airports of the island, Oristano and Tortolì-Arbatax (which have less than 200 000 passengers per year (25)), did not receive any financing pursuant to Law 10/2010.

(54) Alghero is located in the north-west of Sardinia, Olbia in the north-east and Cagliari in the south. Distances and travel times by road between those airports are the following (26): Cagliari-Alghero 247 km — 2h40 Cagliari-Olbia 273 km — 2h51 Olbia-Alghero 136 km — 1h53

2.6.1. CAGLIARI AIRPORT

(55) The airport operator SOGAER is publicly owned, as the chamber of commerce of Cagliari (C.C.I.A. Cagliari) owns the majority of shares, as indicated in Table 1. The Region does not control the Cagliari chamber of commerce (27), which is financed autonomously thanks to an annual fee paid by company members. The chamber of commerce is an autonomous public entity which is in charge of providing miscellaneous services the company members (28). Table 1 Shareholdership structure of SOGAER (29): (%) C.C.I.A. Cagliari 94,35 S.F.I.R.S. SpA 3,43 Banco di Sardegna SpA 1,05 Regione Autonoma Sardegna 0,72 Meridiana SpA 0,21 C.C.I.A.A. Oristano 0,10 Corsorzio Sardegna Costa Sud 0,06 Associazione Industriali Province della Sardegna Meridionale 0,04 CONFAPI Sardegna 0,03 Editorial Airon 0,01 Fima SpA 0,01

(56) In 2014, the airport handled 3 639 627 passengers (30). It is located in the southern part of the island and constitutes its main airport in terms of traffic. Since 2007 SOGAER has owned the entire concession for the airport management. The airport operates domestic and international flights and the main airlines present at the airport are Ryanair, Meridianafly, Alitalia CAI, Airone, easyJet, Volotea and AirBerlin. During the period 2007-2009, 69 % of the passenger traffic at the airport was recorded between April and October.

(57) At 31 December 2013 SOGAER recorded a turnover of EUR 26,8 million and a positive net result of EUR 1,7 million. Total assets amounted to EUR 125,5 million.

2.6.2. ALGHERO AIRPORT

(58) The airport operator of the Alghero airport, SOGEAAL, is 80,20 % owned by the Sardinian Region and 19,80 % owned by SFIRS SpA (in-house company owned by the Region) (31). SOGEAAL started its activity in 1995 through a partial and temporary concession, which was transformed into a full concession in 2007 (32).

(59) The airport is located in the north-west part of the island. According to Italy, its catchment area covers approximately 35 % of the island and includes 450 000-600 000 inhabitants within the provinces of Sassari, Oristano and Nuoro. In terms of commercial passenger traffic, Alghero is the third airport of Sardinia, with a total of 1 639 374 passengers in 2014 (33).

(60) Three types of airlines operate at the airport: traditional ones such as Alitalia, Meridiana, Iberia and Lufthansa, low-cost ones such as easyJet and Ryanair and charter companies such as Tui Fly and Jet Time. During the period 2007-2009, 75 % of the passenger traffic at the airport was recorded between April and October.

(61) At 31 December 2013 SOGEAAL recorded a turnover of EUR 15,9 million and a negative net result of EUR 1,5 million. Total assets amounted to EUR 42,0 million.

2.6.3. OLBIA AIRPORT

(62) The operator of Olbia airport, GEASAR, has a majority of private shareholders (34), as indicated in Table 2. Table 2 Shareholdership structure of GEASAR (%) Meridiana S.p.A. 79,79 C.C.I.A.A. di Sassari (Camera di Commercio) 10,00 C.C.I.A.A. di Nuoro (Camera di Commercio) 8,42 Regione Sardegna 1,59 Consorzio Costa Smeralda 0,20

(63) GEASAR started its activity in 1989 with a partial concession for the management of Olbia airport. Olbia is located in the north-east part of Sardinia. The airport hosts traditional airline companies, such as Alitalia and Lufthansa, low-cost airlines such as easyJet and Vueling, and charter companies such as Smartwings and Mistral Air.

(64) The airport had 2 127 718 passengers in 2014 (35). It is mainly dedicated to passenger commercial traffic, domestic and international. The airport has a touristic vocation, as it serves the highly touristic Costa Smeralda. Therefore traffic is mostly concentrated between May and October: during the period 2007-2009, 84 % of the passenger traffic at the airport was registered between April and October.

(65) At 31 December 2013 GEASAR recorded a turnover of EUR 27,0 million and a positive net result of EUR 2,8 million. Total assets amounted to EUR 57,3 million.

2.7. MECHANISM AND STRUCTURE OF THE FINANCING PUT IN PLACE BY THE SARDINIAN REGION

2.7.1. GLOBAL AMOUNT OF THE CONTRIBUTIONS COMMITTED BY THE SARDINIAN REGION

(66) Originally, Article 3 of Law 10/2010 authorised the Region to grant airport operators EUR 19 700 000 for 2010 and EUR 24 500 000 for each of the subsequent years 2011, 2012 and 2013.

(67) Throughout the period, taking into account its own resources and the plans of activities presented by the airports, the Region progressively reduced the amounts originally committed to financing of the scheme as set out in Table 3. Table 3 Compensation committed in favour of Sardinian airports — 2010-2013 (EUR) 2010 2011 2012 2013 Total Alghero 9 960 000 10 559 913,00 9 094 919,77 8 029 737,87 37 644 570,64 Cagliari 5 000 000 4 777 320,33 8 405 080,23 9 261 925,37 27 444 325,93 Olbia 4 000 000 3 057 654,00 4 000 000,00 4 208 336,76 15 265 990,76 Oristano 300 000 — — — 300 000 Total 19 260 000 18 394 887,33 21 500 000 21 500 000 80 654 887,33

(68) Decision No 4/34 of 5 February 2014 modified the regional contribution for 2013 and provides for a global amount of EUR 17 500 000 for 2013 for the three airport operators as set out in Table 4. Table 4 Compensation committed in favour of Sardinian airports — 2013 (according to Decision No 4/34 of 5 February 2014) (EUR) Year 2013 Alghero 8 235 603 Cagliari 5 264 397 Olbia 4 000 000 Total 17 500 000

(69) The final contributions resulting from the various modifications, actually granted by the Sardinian Region to the three airports, are set out in Table 5 (36). Table 5 Final compensation committed in favour of Sardinian airports — 2010-2013 (EUR) 2010 2011 2012 2013 Total Alghero 9 960 000 10 559 913 9 094 920 8 235 603 37 850 436 Cagliari 5 000 000 4 777 320 8 405 080 5 264 397 23 446 797 Olbia 4 000 000 3 057 654 4 000 000 4 000 000 15 057 654 Oristano 300 000 — — — 300 000 Total 19 260 000 18 394 887 21 500 000 17 500 000 76 654 887

(70) The measure takes the form of direct grants from the Region to the Sardinian airport operators, which will then transfer the sums involved to the airlines and other entities involved. The grants are directly financed from the regional budget. Airport operators have to manage separate accounts to keep track of the amounts received.

2.7.2. THE PLANS OF ACTIVITIES AND THE ROUTES OF STRATEGIC INTEREST

(71) The operators of the Sardinian airports are required to draft plans of activities and submit them to the Region for approval. Those plans of activities have to include the activities consisting in developing point-to-point air connections, with national and European destinations to and from Sardinian airports, to be achieved through agreements with airlines. To that end, the plan itself must indicate which initiatives, from among those listed (37), the airport operators consider feasible in terms of the objectives of enhancing and making air transport less seasonal laid down by Law 10/2010.

(72) The plans have to identify the routes of strategic interest (domestic and international) and the targets per year concerning flight frequency, load factor, new routes, number of passengers and marketing activity.

(73) The plans of activities have to respect the following principles: (a) The routes of strategic interest cannot overlap with the routes already operated under a PSO regime (38) on the basis of Regulation (EC) No 1008/2008 of the European Parliament and of the Council (39). (b) The financial contribution for each of the subsidised routes should decrease over time. (c) The financial agreement concluded with airlines should include a plan for promotion of the local territory that should be consistent with the tourism-related communication strategy of the Region. (d) Where the total compensation requested by the airports is higher than the total amount authorised by the regional budget, preference is given to international connections vis à vis domestic routes (except for destinations serving more than 3 million inhabitants), routes connecting major hubs, routes with a great traffic potential, routes for which services are to be provided throughout the year rather than on a seasonal basis and companies deciding to create an operational base in the local airport.

(74) Operating the routes of strategic interest represents the SGEI that airlines should provide in exchange for compensation (subject to targets set for passenger traffic being met). The plans of activities should be backed up by appropriate economic and financial forecasts that illustrate the prospects for the profitability of the initiatives in question and indicate the financial requirements associated with those activities for each year concerned. These requirements include an indication of the level of own resources invested by the airport operator as well as the investment level of third parties benefiting from the traffic increase.

(75) The actual ‘plans of activities submitted by Italy during the formal procedure comply with the requirements set out in recital 73. They contain the mandatory information required by the Region such as a presentation of the subsidised transport offer, a detailed calculation of the compensation to be granted and the expected economic benefits of the public support.

(76) Once the activity plans have been approved, the Region decides accordingly to grant annual financial resources to each airport, assessing the activities undertaken on the basis of the valuation of their economic impact on economic activity in Sardinia.

(77) The financing of the plans is as follows: (a) the beneficiary airport operator will receive a first instalment as an advance payment equal to 20 % of the total amount foreseen in the plans; (b) 60 % of the total funding will be paid as an interim payment on receipt of a quarterly report; (c) the payment of the last instalment will be paid within 60 days of receipt of the relevant documentation, after verification by the Region of the activity carried out, the results achieved and the costs incurred.

(78) The plans of activities have been approved by two decisions of the Region: (a) Sardinian Decision No 43/37 of 6 December 2010 approved the plans of activities for 2010 submitted by the operators of Cagliari, Olbia, Alghero and Oristano and the specific amounts to be granted to each of them (40). (b) Sardinian Decision No 52/117 of 23 December 2011 approved the plans of activities submitted by the operators of Cagliari, Olbia and Alghero for the period 2011-2013. The annual passenger targets per airport and the breakdown of the compensation amongst the three airports are specified. The Decision further clarifies that the plans for 2011 have to be considered definitive since they concern activities already carried out, whilst the plans for the following 2 years, 2012 and 2013, are subject to change.

2.7.3. THE MONITORING PROCESS

(79) It is for airport operators to prepare the plans of activities in accordance with the provisions of Law 10/2010 and its various implementation acts. They have to interact with airlines in the course of that preparation and the final plan has to be approved by the Region. Should the Region disagree or notice inconsistencies with the provisions of Law 10/2010, it can require changes to the plans of activities.

(80) Airport operators are required by the Region to monitor the performance of airlines and to apply penalties for non-fulfilment of the targets defined ex-ante, in particular in terms of frequencies and passengers. This penalty mechanism must be provided for in the agreements with airline companies.

(81) The decisions of the Regional Executive implementing the Law 10/2010 envisage a monitoring mechanism to be set up by the Region, to avoid overcompensation for the annual cost forecasted for the activities in question. The Region has to define ex-ante actions of control, check and eventually recover any over-compensation in particular by monitoring the actual number of flights and passengers.

(82) The Region monitors the real costs sustained by airport operators for the implementation of the activities in question by checking the apposite documentation and reporting of the annual costs (invoices from airline companies to the airport operators). Airport operators have to report the financing of the activities to the Region, based on the invoices received from contractors (airline companies for activities 1 and 2 and other companies for activity 3). It also checks that the route subject to compensation is not a route subject to PSO under Regulation (EC) No 1008/2008.

(83) The regional financing pursuant to Law 10/2010 can only be granted in the context of the afore-mentioned plans of activities, which have to be approved by the Region. As those plans were drawn up before the activities provided for by Law 10/2010 were carried out, there may be some variations in their implementation. Therefore, the mechanism organised by the Region provides that it should adapt its final contribution to variations in the implementation of the activities or in the costs sustained by airports (41). Therefore the final contribution decided by the Region takes into account the actual implementation of the plans of activities and the consistency of the activities for which financing is requested with the objectives of Law 10/2010 and with the touristic marketing plan of the Region. Where discrepancies are revealed, the final contribution is adapted by the Region (42).

(84) The documentation submitted by Italy shows that airport operators have indeed reported to the Region on the public funding received (including supporting evidence such as invoices relating to the costs incurred) and provided evidence of marketing and promotion actions. The Region has checked that information and paid the remaining instalment to the airport operators.

2.7.4. FINANCIAL ADVANCES AND THE ROLE OF THE REGIONAL FUND

(85) As already mentioned in Section 2.3, the Regional law of 30 June 2011 establishes the regional fund (43) managed by SFIRS and financed by the Region.

(86) The financial mechanism set up by the Region pursuant to Law 10/2010 is the following: (a) The financial resources relating to the implementation of the three activities are advanced by the airport operators to the airlines at the airports concerned (in the case of activities 1 and 2) and to the other service providers concerned (in the case of activity 3). (b) Every year, following requests for pre-financing by airport operators, the Region decides that SFIRS — through the regional fund — should grant financial advances to the airports. The regional fund then grants the airport operators, upon request, financing against remuneration (commission fee and interest) as advance payment of the amount apportioned pursuant to Law 10/2010. The advance payment should correspond to a maximum of 85 % (44) of the contribution committed by the Region to airport operators. The financial advance is subject to interest (Euribor 6 M + 2 % for 2010 and Euribor 6 M + 1,5 % for 2011-2013) and commission fee (1 % for 2010 and 0,50 % for 2011-2013), paid by airport operators to SFIRS. (c) The Region subsequently confirms the definitive amounts to be granted to airport operators (‘the contribution’ of the Region), within the limits of its available resources and taking into account the amounts actually paid by the airport operators in the context of the implementation of the three activities. To that end, airport operators submit appropriate reports which: (i) indicate the results achieved and include an impact analysis; (ii) specify in detail the costs actually incurred by the airport for the initiatives carried out, also providing the necessary supporting documents (invoices or similar). (d) From the amount of the regional contribution, the regional fund deducts a 4 % withholding fee, which is paid back to the Region. Once the final contribution has been decided, the regional fund grants the remaining part of the financing (45) to the airport operator. The fund is supposed to grant the remaining part to the airport operator within a maximum of 6 months after the conclusion of the plans of activities.

2.8. FINANCIAL FLOWS

2.8.1. FINANCIAL FLOWS FROM THE REGION TO THE AIRPORT OPERATORS

(87) Although the Region had committed to grant a total of EUR 76 654 887 throughout the period 2010-2013 (see Table 5), it actually transferred EUR 68 510 256 to airport operators for the financing of the three activities pursuant to Law 10/2010 (46) (see Table 6, column A): EUR 35 516 988 for SOGEAAL, EUR 19 250 617 for SOGAER and EUR 13 742 651 for GEASAR.

(88) The total financial advances transferred from the regional fund to airport operators amount to EUR 42 987 645 (Table 6, column B). The commission fee and interest charge are calculated from the financial advance and deducted by the fund when the financial advance is disbursed to the airport operator. The withholding fee represents 4 % of the contribution committed by the Region and is deducted by the fund from the contribution amount when disbursing the remaining part of the sum granted by the Region to the airport (after the financial advances have been paid) (47).

(89) Therefore, the net amount to be received by the airport operator (Table 6, column C) can be calculated as the contribution of the Region less the three financial charges (commission fee, interest charge and withholding fee). The amounts communicated by Italy as being the net amounts actually received by the airport operators (Table 6, column D), are slightly different from the theoretical amounts: (a) In the case of SOGEAAL, Italy explains that the airport operator should still receive EUR 167 661 from the Region in respect of the 2013 contribution. (b) The regional contributions to SOGAER and GEASAR for 2013 (EUR 4 946 576 and EUR 3 795 930 respectively) were decided on by the Region on 19 June 2014 and 10 June 2014 respectively, but were never paid (48): Italy recognises that the regional decision constitutes a legally binding commitment to pay the amounts in question, which can be invoked before a national court. Nevertheless Italy decided to wait until the ongoing State aid proceedings have ended. Table 6 Effective financial flows from the Region to the airport operators SOGEAAL — ALGHERO (EUR) Reference activity period Contribution fixed up by the Region (A) Financial advance (B) Financial charges Amount to be received by the airport operator (C) Net amount effectively received by the airport operator (D) Difference (C) — (D) Amount Date of commitment Amount Date of payment Withholding fee 4 % Commission fee Interest charge 2010 8 517 963 7/11/2012 […] (*1) 20/09/2011 […] […] […] […] […] […] 2011 9 041 162 12/11/2012 […] 8/02/2012 & 23/08/2012 […] […] […] […] […] […] 2012 9 062 413 3/06/2013 […] 22/10/2012 […] […] […] […] […] […] 2013 8 895 449 27/10/2014 […] 17/10/2013 […] […] […] […] […] […] Total 35 516 988 […] […] […] […] […] […] […]

SOGAER — CAGLIARI (EUR) Reference activity period Contribution fixed up by the Region (A) Financial advance (B) Financial charges Amount to be received by the airport operator (C) Net amount effectively received by the airport operator (D) Difference (C) — (D) Amount Date of commitment Amount Date of payment Withholding fee 4 % Commission fee Interest charge 2010 4 657 311 7/11/2012 […] 10/09/2012 […] […] […] […] […] […] 2011 4 777 320 7/11/2012 […] 15/06/2012 […] […] […] […] […] […] 2012 4 869 410 13/06/2013 — — […] — — […] […] […] 2013 4 946 576 19/06/2014 — — […] — — […] […] […] Total 19 250 617 […] […] […] […] […] […] […]

GEASAR — OLBIA (EUR) Reference activity period Contribution fixed up by the Region (A) Financial advance (B) Financial charges Amount to be received by the airport operator (C) Net amount effectively received by the airport operator (D) Difference (C) — (D) Amount Date of commitment Amount Date of payment Withholding fee 4 % Commission fee Interest charge 2010 3 972 223 7/11/2012 […] 19/09/2011 […] […] […] […] […] 0 2011 2 945 363 7/11/2012 […] 1/06/2012 […] […] […] […] […] 0 2012 3 029 135 12/06/2013 — — […] — — […] […] 0 2013 3 795 930 10/06/2014 — — […] — — […] […] […] Total 13 742 651 […] — […] […] […] […] […] […]

2.8.2. FINANCIAL FLOWS FROM THE AIRPORT OPERATORS TO AIRLINES AND THIRD SERVICE PROVIDERS FOR THE FINANCING OF THE THREE ACTIVITIES

(90) The airport operators of Alghero, Cagliari, and Olbia have financed airlines and third service providers for the implementation of activities 1, 2 and 3 over the period 2010-2013. According to Italy, the compensation received by airport operators from the Region during the period 2010-2013 for the financing of activities 1, 2 and 3 has been passed on to airlines and third service providers. Airlines received financing for activities 1 and 2 and have been selected on the basis of the ‘most attractive commercial offer’ (49). Third service providers in charge of marketing measures, such as advertising or tourist agencies, received financing for activity 3.

(91) Table 7 summarises the financial flows from airport operators to airlines and third service providers for the financing of activities 1, 2 and 3. Table 7 Financial flows from the airport operators to airlines and third service providers for the financing of activities 1, 2 and 3 SOGEAAL — ALGHERO (EUR) Reference activity period Financing of the activities activities 1 & 2 activity 3 Total (A) 2010 […] […] 8 517 963 2011 […] […] 9 041 162 2012 […] […] 9 062 413 2013 […] […] 8 895 449 Total […] […] 35 516 987 (100 %)

SOGAER — CAGLIARI (EUR) Reference activity period Financing of the activities activities 1 & 2 activity 3 Total (A) 2010 […] […] 4 657 311 2011 […] […] 4 977 946 2012 […] […] 4 869 410 2013 […] […] 4 946 576 Total […] […] 19 451 243 (100 %)

GEASAR — OLBIA (EUR) Reference activity period Financing of the activities activities 1 & 2 activity 3 Total (A) 2010 […] […] 3 972 223 2011 […] […] (50) 2 945 500 2012 […] […] 3 029 160 2013 […] […] 3 795 935 Total […] […] 13 742 818 (100 %)

(92) Table 8 summarises the payments by the airport operators to airline companies for the financing of activities 1 and 2. Table 8 Financial flows from the airport operators to airline companies for the financing of activities 1 and 2 SOGEAAL — ALGHERO (EUR) 2010 2011 2012 2013 Total Ryanair […] […] […] […] […] AMS […] […] […] […] […] easyJet — — […] […] […] Volotea — — — […] […] Alitalia […] — — — […] Meridiana […] — […] — […] Wizzair — — […] […] […] Total […] […] […] […] 35 221 513

SOGAER — CAGLIARI (EUR) 2010 2011 2012 2013 Total Ryanair […] […] […] […] […] AMS […] […] […] […] […] easyJet […] […] […] […] […] Germanwings — — […] — […] Tourparade — — […] — […] Air Berlin — — — […] […] Vueling — — — […] […] Volotea — — […] […] […] Total […] […] […] […] 19 018 170

GEASAR — OLBIA (EUR) 2010 2011 2012 2013 Total Meridiana Fly […] […] […] […] […] Air Italy […] […] — — […] Air Berlin […] […] […] […] […] easyJet […] […] […] […] […] Norwegian […] […] […] […] […] Jet2.com — […] […] […] […] NIKI — — […] — […] Vueling — — — […] […] Air Baltic — — — […] […] Volotea — — […] […] […] Total […] […] […] […] 12 683 623

2.8.3. CONCLUSION

(93) As set out in Table 6, the financing provided by the Region has been fully transferred to airport operators, which themselves have even provided more financing than they received from the Region for the implementation of activities 1, 2 and 3 under their plans of activities. (The difference between the funding actually provided for the implementation of activities 1, 2, 3 (column B of Table 9) and the amount actually received from the Region by airport operators for carrying out these activities (column C of Table 9) amounts to EUR 12 733 760). Table 9 Comparison between the financing provided by the Region and the amounts financed by airport operators for the implementation of the three activities pursuant to Law 10/2010 (EUR) Contribution fixed up by the Region (A) Total amount financed by airports for the three activities (B) Difference (A) – (B) Net amount effectively received from the Region by airport operators (C) Difference (B) – (C) Alghero 35 516 988 35 516 987 1 33 028 346 2 488 641 Cagliari 19 250 617 19 451 243 – 200 625 13 607 197 5 844 045 Olbia 13 742 651 13 742 818 – 167 9 341 744 4 401 074 TOTAL 68 510 256 68 711 048 – 200 792 55 977 287 12 733 760

(94) In addition, as regards airlines, as set out in Table 8, the financing provided by the Region through airport operators to airlines for activities 1 and 2 has been passed on to the following companies: (1) Ryanair (2) AMS (3) Meridiana Fly (4) Air Italy (5) Air Berlin (6) easy Jet (7) Norwegian (8) Jet2.com (9) NIKI (10) Vueling (11) Air Baltic (12) Volotea (13) Tourparade (14) Alitalia (15) Wizzair (16) Germanwings.

3. GROUNDS FOR INITIATING THE PROCEDURE AND THE INITIAL ASSESSMENT BY THE COMMISSION

(95) According to the Opening Decision, the scope of the formal investigation procedure encompasses the following activities: (a) financial compensation from the Region to the three airport operators (SOGEAAL, GEASAR and SOGAER) throughout the period 2010-2013 for the financing of activities 1, 2 and 3; (b) financial compensations provided by the three airport operators to airline companies for the financing of activities 1 and 2 throughout the period 2010-2013 (51).

(96) The opening decision noted that since the Commission was investigating possible unlawful aid granted by the operator of Alghero airport in Case SA.23098 (52), the present case covers only aid measures not examined in that case (53).

(97) Regarding the financial compensation from the Region to the three airport operators, the Commission reached the preliminary conclusion that the compensation granted to Sardinian airports constitutes State aid within the meaning of Article 107(1) of the Treaty and that, Italy had not respected the standstill obligation in Article 108(3) of the Treaty with respect to that compensation.

(98) The Commission expressed its doubts on the compatibility of the compensation scheme for the airport operators with the internal market. In particular, the Commission reached the preliminary view that the compensation at issue could not be seen as compensation for a genuine SGEI entrusted to airport operators.

(99) Regarding the financial compensation provided by the three airport operators to airline companies for the financing of activities 1 and 2, the Commission considered that it may involve State aid within the meaning of Article 107(1) of the Treaty and that it might be considered illegal under Article 108(3) of the Treaty, given that it appears to have been granted to the beneficiaries in violation of the standstill obligation. In particular, the Commission considered that the Region exercised control over the resources under consideration, which had been clearly committed in the regional budget for the precise purpose, among others, of subsidising air transport routes to and from the airports. Therefore the Commission considered that the transfers from the airport operators to the airlines were imputable to the State and involved State resources. The Commission also considered that the funding received by airlines reduces the costs that they would otherwise have to bear from their own resources if they were to operate the same flight schedule, and concluded that there was an economic advantage for airlines.

(100) Furthermore, the Commission expressed its doubts whether the financial compensation paid to airlines operating at the airports of Alghero, Cagliari and Olbia can be considered compatible with the internal market pursuant to Article 107(3)(c) of the Treaty. In particular the Commission expressed its doubts regarding compatibility in accordance with the 2011 SGEI Decision (54) in conjunction with Regulation (EC) No 1008/2008, the 2011 SGEI Framework (55) in conjunction with Regulation (EC) No 1008/2008, and the 2005 Aviation Guidelines.

4. COMMENTS FROM ITALY ON THE OPENING DECISION

4.1. THE LAW 10/2010

(101) Italy justifies the financial intervention based on Law 10/2010 for the period 2010-2013 by the development of air transport between Sardinia and domestic and European destinations with the aim of increasing touristic flows, in particular outside of the summer season, which is of great importance for the Sardinian economy.

(102) The law assigns airports operators specific responsibility for fulfilling its objective and designing its conditions and criteria. In particular, airport operators have to elaborate ‘plans of activities’ subject to approval of the Region, which specify the actions to be undertaken to favour de-seasonality and increase of air transport. Those ‘plans of activities’ include a financial business plan, which presents the expected results and the financial resources needed to reach the objective.

(103) The plans of activities have to respect the following conditions: (a) the routes covered by the plan have to be different from those already covered by public service compensation, (b) an adequate promotion of the island has to be envisaged in the case of new routes or an increase in the operational period of flights.

(104) When the financial resources needed exceed the budget of the Region, the required funds should be allocated according to the criteria defined in Sardinia's Decision No 29/36 of 29 July 2010 (56) (priority to international routes, important hubs served, de-seasonality, highest flight frequency …).

(105) The Law 10/2010 provides for the three categories of activities to be financed by the Region, as referred to in recitals 44 et seq.

(106) The various activities prepared by the airport operators are described in detail in the plans of activities of each airport and Italy has provided the Commission with tables summarising the activities carried out and the relevant regional financing. Italy argues that the activities had a positive impact for the Region, as in the period in question air traffic and related passengers inflows have increased.

(107) Italy specifies that the main beneficiaries of the regional financing pursuant to Law 10/2010 are airlines: indeed, Law 10/2010 foresees the financing, throughout Sardinian airports, of airline companies willing to open or increase new routes and provides for the de-seasonality of existing routes in the period 2010-2013.

4.2. FINANCIAL ADVANCES

(108) Regional law of 30 June 2011, No 12 (57) states that the financial advances provided for by Law 10/2010 should bear interest. For this purpose, on 9 August 2011 (58), the Region entrusted SFIRS with creating and managing a regional fund to manage those financial advances.

(109) Italy argues that those advances are loans provided at market conditions: according to the rules governing the fund, financial loans bear an interest rate of Euribor 6M plus a 2 % spread for 2010 and a 1,50 % spread for 2011 and 2012. In addition, airport operators have to pay a management fee of 1 % of the financial advance for 2010 and 0,5 % for 2011. Italy is of the opinion that the market conditions of the financial advances have to be assessed using the Synthetic Cost Indicator (ISC) (59), which takes into account all costs linked to the loans to be charged to the airport. Italy has provided the Commission with a table setting out details of the ISC for each financial advance granted. The ISC related to the financial advance to SOGAER is higher than the other ones and also higher than market conditions, as the financial advance was granted in September 2012 and the ISC calculation done for the whole year 2012.

(110) Italy has provided the information set out in Table 10 regarding financial advances granted to the three airport operators for 2010 and 2011 and concludes that the financial advances were granted on financial conditions which were in line with conditions of similar operations on the market. Italy specifies that, for 2010 and 2011, the loans were intended to compensate airport operators for the amounts they had already transferred to airlines for the performance of the activities 1 and 2. Table 10 Financial advances granted to the three airport operators for 2010 and 2011 Anticipazioni annualità 2010 Società di gestione sede Importo erogato Data di erogazione Interessi addebitati sino al 2012 Commissioni addebitate Costo complessivo ISC al 2012 SOGEAAL SPA Alghero […] 01/07/2011 […] […] […] […] SOGAER SPA Cagliari […] 25/09/2012 […] […] […] […] GEASAR SPA Olbia […] 27/09/2011 […] […] […] […] Anticipazioni annualità 2011 Società di gestione sede Importo erogato Data di erogazione Interessi addebitati sino al 2012 Commissioni addebitate Costo complessivo ISC al 2012 SOGEAAL SPA Alghero […] 02/01/2012 […] […] […] […] SOGAER SPA Cagliari […] 05/07/2012 […] […] […] […] GEASAR SPA Olbia […] 20/07/2012 […] […] […] […]

4.3. OTHER INFORMATION

(111) Italy points out that Regional Decree No 122/347 of 17 May 2010 (60) is the administrative instrument which allows the funds allocated by Law 10/2010 to be effectively registered in the regional budget.

(112) Italy specifies that, although Law 10/2010 refers to all Sardinian airports, the airport operators which were interested in benefitting from the activities are the operators of Alghero, Olbia and Cagliari. On 22 September 2010, the Oristano airport operator presented a plan of activities and financing of EUR 300 000 for 2010 was approved by the Region. However, the Oristano airport operator was wound up in May 2011 and the airport is now closed.

(113) Italy has provided the Commission with tables summarising the activities undertaken and the relevant regional financing as well as the contracts concluded between SFIRS and airport operators.

(114) Italy submits (61) that State intervention was needed, as the airports would not have been able to cover the costs sustained for the financing of the activities pursuant to Law 10/2010. The three airport operators would not have been able to implement and finance the activities provided for by Law 10/2010, either through their own resources, or through bank financing. (a) Cagliari airport: the economic performance of the company was negative during the period 2007-2009 and, despite a positive EBITDA (62), the business activity did not cover the depreciation costs, which lead to a negative EBIT (63). The company was characterised at that time by a constant economic and financial imbalance, which jeopardised its creditworthiness. In 2008, a capital increase of EUR 4,4 million was necessary to cover the accumulated losses. Because of this difficult financial situation, the airport operator was not able to cover the costs sustained for the implementation of the activities pursuant to Law 10/2010 with its own resources. Nor was it able to contract further external financing from financial institutions, which it would not have been able to reimburse because of insufficient generation of financial cash flows. During the period 2010-2013, the operational margin of the airport operator decreased slightly by 40 % in terms of EBIT and the 2013 annual financial report notes the under-capitalisation of the company and a financial situation which would become critical if the anticipated funding from the Region for 2014 was not paid (64). (b) Alghero airport: the period 2007-2009 showed serious economic and financial difficulties with a negative net result higher than the shareholders' equity, the reason for a recapitalisation of the company which took place in 2009. The financial advances system managed by the Region was primarily targeted for SOGEAAL, in order to implement the activities provided for by Law 10/2010 without imposing any further burden on the company. The airport's EBITDA was positive only in 2007 and its EBIT was negative throughout the whole period, worsening to a level of EUR – 11,3 million in 2009. Equity had been continuously decreasing over the period concerned, reaching a negative amount of EUR – 4,8 million in 2009. The company was therefore not able to finance the activities in question with its own resources, nor to make further use of external bank financing because of its incapacity to reimburse the potential debt contracted. The period 2010-2013 saw a continuing negative operational margin in terms of EBIT, which changed from EUR – 3,6 million in 2010 to EUR – 1,5 million in 2013. The capital structure deteriorated during the period, as equity decreased by more than half to reach a level of EUR 2,4 million in 2013 for total assets of EUR 41,9 million (65). (c) Olbia airport: throughout the period 2007-2009, the airport operator registered a significant economic slowdown mainly linked to the reduction in the number of passengers. EBITDA decreased by 22,8 % and EBIT by 41,3 % over the period. Despite positive net results, the company did not generate positive net cash flows because of an increase of the working capital and a substantial investment program in the period 2007-2009 (EUR 13,2 million). Global indebtedness increased by EUR 2 million over the period and further debt towards financial institutions was highly improbable as it might have jeopardised the financial balance of the company (66). In addition, the financial situation of the airport operator meant it was not able to finance the activities with its own resources, as the generation of financial cash flows was not sufficient to cover the investments in working capital and fixed assets. A third option could have been a capital increase from the shareholders, in order to guarantee the necessary liquidity to finance the three activities provided for by Law 10/2010. To assess whether this would have been a valuable option, the investment required has been assessed from the point of view of a market economy investor. The analysis carried out by GEASAR (67), on the basis of a standard methodology for the profitability assessment of an investment, shows that the Net Present Value (NPV) and the Internal Rate of Return (IRR) calculated on the agreements concluded between the airport operator and the airline companies were negative, which excludes any interest in a potential capital increase from the shareholders. The period 2010-2013 saw a relative stagnation in terms of EBITDA at a level of EUR 5,9 million. Although the EBIT margin and the net result slightly improved over the period, the company still had difficulty in generating positive net cash flows because of increases in the working capital and investments (68).

5. COMMENTS FROM INTERESTED PARTIES

5.1. COMMENTS FROM RYANAIR

5.1.1. COMMENTS ON THE OPENING DECISION

5.1.1.1. General considerations

(115) Ryanair points out that it flies only to Alghero and Cagliari and not to other Sardinian airports. The company stresses that its right to submit comments is hampered by the absence of a reasonably detailed description of the alleged aid to Ryanair, particularly regarding Cagliari airport. AMS and Ryanair are therefore unable to submit comments that fully address the arrangements between Ryanair, AMS and Cagliari airport.

(116) Ryanair commissioned a consultancy firm to prepare a detailed MEIP (69) comparator analysis, demonstrating that the charges paid by Ryanair at Cagliari airport are in line with or exceed those paid by Ryanair at comparable private or public-private airports, therefore complying with the MEIP.

(117) Ryanair argues that they were not aware of the existence of Sardinian Regional Law 10/2010 when entering into arrangements with Cagliari and Alghero. Ryanair argues that AMS negotiated with the airport operators on a commercial basis, with reference to the terms applicable at comparable airports around Europe (in the case of Ryanair) and taking into account the relevant AMS rate card applicable at the time (in the case of AMS).

(118) Ryanair argues that the Sardinian airports were the direct beneficiaries of the alleged aid, whereas the airlines were indirect beneficiaries. Ryanair notes that the Commission assumes that the aid has been provided to the airports following a formula, however only the components of that formula are provided in the Opening Decision, not the formula itself. This lack of information denies Ryanair its right to make comments in this respect.

(119) Furthermore, even if the airports have received aid, the Commission cannot simply conclude that this has been passed on to the airlines, without any specific evidence supporting this assumption. Ryanair specifies that the Commission has not identified any element in the contracts between Cagliari Airport and Ryanair/AMS that could consist of State aid.

(120) Finally, Ryanair contests the use of the 2005 Aviation Guidelines in the Opening Decision to determine whether aid was granted to the airports. In fact, the 2005 Guidelines do not provide a reliable reference framework for the assessment of alleged State aid to airports and low cost airlines.

5.1.1.2. Ryanair's arrangements with airports

(121) Regarding agreements with airports, Ryanair stresses the fact that it negotiates with airports on a genuinely commercial basis, which explains why the outcome of those negotiations varies from airport to airport. In assessing Ryanair's arrangements with airports, Ryanair points out that the Commission has to: (a) consider all relevant factors by assessing the agreements with airports, considering the implication of non-aeronautical revenues and network externalities; (b) rely on comparator airports; (c) take into account the market position of regional airports in Europe which remain more exposed to strong competition from neighbouring airports, while being barely conceived and managed on a commercial basis; (d) consider the airports' long-term planning: regional airports do not respond to the application of a standard 5-year business plan; (e) apply the single till approach, taking into account airport revenues generated both from aeronautical and non-aeronautical activities; (f) integrate network externalities: an increased number of users of an airport makes it more valuable to other potential users and therefore increases its overall value; (g) take into account that Ryanair's agreements with airports are not concluded on an exclusive basis: usually the airports under investigation have ample spare capacity to accommodate other airlines.

(122) In assessing the fees paid by Ryanair to airports for the various services it receives, the significantly reduced needs of Ryanair compared to other airlines, due to its business model, have to be taken into consideration, as well as the substantial non-aeronautical revenues generated by airports thanks to Ryanair.

5.1.1.3. Marketing agreements

(123) Ryanair reiterates that AMS's marketing agreements with airports are negotiated and concluded separately from Ryanair's agreements with the same airports. In particular, Ryanair and AMS specify that there is no advantage for AMS since AMS concludes marketing agreements with public and private airports. Public and private parties therefore compete for the limited space available for advertisement on Ryanair.com. Thus, AMS does not benefit from any advantage for the purpose of State aid law, as MEIP is satisfied throughout the conclusion of those agreements.

(124) Moreover, Ryanair argues that the Commission failed to present any legal or factual basis to question the commercial rationale of the decision of the operators of Alghero and Cagliari airport to advertise on Ryanair.com, in circumstances where AMS offers its services at a market price. As a result, AMS is not in a position to exercise its right of defence.

(125) Ryanair also presented two more studies on the changing trend of airport revenues. Over the years, airports have significantly increased their revenues from non-aeronautical services. According to Ryanair, advertising on Ryanair's website increases the proportion of inbound passengers and, therefore, the non-aeronautical revenues.

(126) Ryanair states that marketing and advertising on the websites of all airlines has become a mainstream practice; this is particularly the case of airport companies, who have started to promote their brand on the internet especially through airlines' websites.

(127) Ryanair specifies that AMS does not discriminate between airports, public authorities and other non-airport clients. Privately owned or controlled airports and other private parties have concluded agreements with AMS based on similar, non-discriminatory terms.

5.1.1.4. State aid issues

(128) Ryanair is of the opinion that there is no imputation to the State in the measures at stake: simple approval by the Sardinian authorities of the airport's plans of activities is not sufficient for the imputation of a measure to the State.

(129) Ryanair stresses that the selection of airlines on the basis of commercial bids — presented to airport operators following the publication of notices on their websites — represents itself a tender procedure. Moreover, there is no need for a tender when the airport-airline deal satisfies the MEIP and there is no SGEI/PSO applicable to the airline, as in this case.

(130) Ryanair also raises doubts on the selective criteria challenged by the Commission, since any airline wishing to enter into arrangements with Alghero or Cagliari Airport could have done so.

(131) Ryanair concludes by asserting that the situation in Sardinia arises out of the inadequacy of the rules governing public service obligations routes under Regulation (EC) No 1008/2008 and their application by the Italian authorities. As a result, Italian airports are faced with the following choices: (i) serving routes with public service obligations operated by traditional airlines, using small aircrafts and delivering small numbers of passengers at the cost of high subsidies (which would nevertheless not be sufficient to ensure low ticket prices); or (ii) entering into business relationships with low cost carriers, with guarantees on passenger volumes, use of large aircraft, delivery of large numbers of passengers, no subsidies and low ticket prices. Faced with such a choice, any market economy investor would have selected the second option.

(132) In the light of those observations, Ryanair concludes that neither Ryanair nor AMS have been a beneficiary of State aid and that the Sardinian airports acted in line with the MEIP.

5.1.2. ECONOMIC MEIP ASSESSMENT WITH REGARD TO CAGLIARI INTERNATIONAL AIRPORT (70)

(133) Ryanair instructed a consultancy firm to prepare a detailed MEIP comparator analysis, demonstrating that the charges paid by Ryanair at Cagliari airport are in line with or exceed those paid by Ryanair at comparable private or public-private airports, therefore complying with the MEIP. The consultancy firm acting on Ryanair's behalf sent the fully confidential version of that report directly to the Commission.

(134) The analysis shows that the overall level of charges paid by Ryanair at Cagliari airport is, on average, higher than the comparable level of charges paid by the airline over the same period at the comparator airports. Specifically, the average charge paid by Ryanair at Cagliari Airport is 2,3 to 2,4 times higher that paid by Ryanair at the comparator airports, on both a per-passenger and per-turnaround basis, over the period between 2006/07 and 2012/13.

(135) The study concluded that the various agreements considered in the procedure were compatible with a level of charges that would have been offered to Ryanair by an airport-owning market economy investor in similar circumstances.

5.1.3. IDENTIFYING THE MARKET BENCHMARK IN COMPARATOR ANALYSIS FOR MEIP TESTS (71)

(136) The consultancy firm acting on Ryanair's behalf believes that the Commission's approach of only accepting comparator airports in the same catchment area as the airport under investigation is flawed.

(137) It argues that market benchmark prices obtained from comparator airports are not polluted by State aid given to surrounding airports. Therefore, it is possible to robustly estimate a market benchmark for the MEIP tests, as: (a) comparator analyses are widely used for MEIP tests outside of the field of State aid; (b) companies affect each other's pricing decisions only if their products are substitutes or complements; (c) airports in the same catchment area do not necessarily compete with each other, and the comparator airports used in the reports submitted face limited competition from State-owned airports within their catchment area (< 1/3 of commercial airports within the catchment area of comparator airports is fully State owned, and none of the airports within the same catchment area as comparator airports was subject to on-going State aid concerns (as of April 2013)); (d) even where comparator airports face competition from State-owned airports within the same catchment area, there are reasons to believe their behaviour is in line with the MEIP (for example, where there is a large private ownership stake or where the airport is privately managed). (e) market economy investor airports will not set prices below incremental cost.

5.1.4. PRINCIPLES UNDERLYING PROFITABILITY ANALYSIS FOR MEIP TESTS (72)

(138) The consultancy firm acting on Ryanair's behalf argues that its profitability analysis submitted to the Commission follows the principles that would be adopted by a rational private sector investor and reflects the approach apparent from Commission precedents. Indeed, the Terminal Value can be adjusted by a conservative assumption on the probability of whether the agreement will be renewed with Ryanair or whether similar terms will be agreed with other airlines. Incremental profitability of Ryanair agreements to the airports should be assessed on the basis of estimates of the NPV or IRR measures.

5.1.5. BRAND BUILDING: WHY AND HOW SMALL BRANDS SHOULD INVEST IN MARKETING (73)

(139) The study aims to set out the commercial logic underlying regional airports' decisions to buy advertising on Ryanair.com from AMS.

(140) Since there is a large number of well-known and habitually used airports, weaker competitors must overcome static buying behaviour of consumers by finding a way to consistently communicate their brand message to a wide audience. Nevertheless, traditional forms of marketing communication require expenditure beyond their resources.

(141) Instead, advertising via AMS: (i) offers an opportunity to reach a significant audience, consisting of consumers who are already considering a travel purchase; (ii) entails relatively low costs (rate card at commercial rates for online communication); (iii) allows communication during the purchasing phase; (iv) offers the possibility of creative advertising.

5.1.6. RYANAIR'S SUBMISSION OF 20 DECEMBER 2013

(142) Ryanair submitted comments on 20 December 2013, regarding the payments to AMS, Ryanair's wholly owned web advertising subsidiary.

(143) Ryanair disagrees with the Commission's assessment of payments to AMS as costs to the airport as this approach disregards the value of AMS' services to the airport. Ryanair furthermore believes that the purchase of valuable marketing services at market rates should be considered separately from a related airport-airline contractual arrangement for the purposes of the market economy operator analysis.

(144) In support, Ryanair submits an analysis from a consultancy firm acting on its behalf benchmarking the prices charged by AMS with the prices of comparable services offered by other travel websites. The analysis concludes that the prices charged by AMS were either lower than the average or within the mid-range of prices charged by comparator websites.

(145) According to Ryanair, this shows that AMS' prices are in line with the market prices. The decision by a public airport to purchase AMS' services is therefore in line with the market economy operator test.

(146) Ryanair asks the Commission to reassess its approach adopted for the analysis of AMS' contracts. Ryanair believes that AMS arrangements should be considered separately from Ryanair's airport services arrangements, being therefore subjected to a separate market economy operator test. Should the Commission insist on including AMS arrangements and Ryanair's airport services arrangements in a joint market economy operator test, the value of AMS services to the airport should at least not be disregarded.

(147) The report of the consultancy firm acting on Ryanair's behalf of 20 December 2013 on AMS prices refers to the conclusions drawn in previously submitted reports by marketing advisers Mindshare (2004) and Zenobie Conseil (2011), as well as Professor McLoughlin's report (2012) outlining the importance of advertising for small brands. Those reports confirm that Ryanair has a strong pan-European brand, capable of applying a premium price for its advertising services.

(148) In the analysis, AMS rates were compared with the advertising prices applied by a sample comparators' websites for the period 2004-2005, when the AMS rate card was first introduced, and 2013. The results show that ryanair.com has more than twice as many monthly visitors as the next most popular travel website, and that visitors are more likely to enter into other e-commerce transactions. These unique characteristics combined with high brand awareness allow Ryanair to charge a premium.

(149) In conclusion, for both periods and across sectors, AMS rates were found to be lower than or within the range of prices charged by websites in the comparator sets.

(150) In support, Ryanair submitted data on traffic to its United Kingdom homepage between November 2012 and November 2013, and in the period 2009-2012, as well as data on AMS services bought by several airports and AMS' agreements with those airports.

(151) The Annex B.4 to Ryanair's submission of 20 December 2013 consists in the AMS Contract dated 27 March 2009. In particular, the contract states that ‘Airport Marketing Services will provide a package of marketing services for the period 29 March 2009-28 March 2010 for the value of EUR 1 600 000,00. For the period from 29 March 2010 until 28 March 2014, the value of the internet services will amount to EUR 2 000 000,00 per annum and will be based on the Airport Marketing Services current Rate Card. […]’

5.1.7. RYANAIR SUBMISSION OF 17 JANUARY 2014

(152) Ryanair submitted a report prepared by a consultancy firm concerning the principles that it believes should apply to a market economy operator profitability test encompassing both the air services agreements concluded between Ryanair and the airports and the marketing agreements concluded between AMS and the same airports. Ryanair emphasises that this does not prejudice its position that AMS agreements and air service agreements should be subjected to separate market economy operator tests.

(153) The report states that AMS-associated income should be included on the revenue side in a joint profitability analysis, where AMS expenditure is included on the cost side. In order to do so, the report proposes a cash-flow-based methodology, by which expenditures on AMS would be treated as an incremental operating expense.

(154) The report submits that marketing activities contribute to creating and enhancing brand value, which is likely to generate business and profits over the duration and beyond expiry of the marketing agreements. Because of an agreement with Ryanair, other airlines are more likely to be attracted to the airport, increasing the flow of commercial operators and the airport's non-aeronautical revenues. Were the Commission to undertake a joint profitability analysis, those benefits should be taken into account by treating expenditure on AMS as an incremental operating expense, with incremental profits calculated net of AMS payments. In addition, a terminal value could be included in projected incremental profits in order to capture value accruing beyond expiry of its term.

(155) In support of this approach, the report submits a summary of the results of studies that demonstrate how advertising can build brand value and improve customer loyalty. In particular, advertising on ryanair.com increases brand exposure for an airport. Specifically, smaller regional airports aiming to increase their traffic base can build their brand value by entering into advertising agreements with AMS.

(156) Finally, the cash-flow approach is argued to be in line with State aid and non-State aid Competition decisions from the Commission, namely the case of BayernLB, where the Commission indicated that it would use a dividend discount valuation model to estimate cash flows and then assign a terminal value based on projected dividend growth, and the margin squeeze case relating to Telefónica, where the Commission incorporated a terminal value into its discounted cash flow analysis.

5.1.8. OXERA'S REPORT 31 JANUARY 2014: HOW SHOULD AMS AGREEMENTS BE TREATED WITHIN THE PROFITABILITY ANALYSIS AS PART OF THE MARKET ECONOMY OPERATOR TEST? PRACTICAL APPLICATION

(157) On 31 January 2014 Ryanair communicated on the Commission State aid investigations in which it is currently involved. On the basis of studies commissioned to a consultancy firm, Ryanair discusses the practicalities of incorporating AMS within a joint AMS-ASA (74) profitability analysis (75) and argues how, in principle, under its understanding of the Commission's approach, AMS agreements can be incorporated within a joint AMS-ASA profitability analysis.

(158) The approach adopted takes into account the potential for the ASA and AMS Agreements to sustain an airport's profits beyond the scheduled end of the ASAs.

(159) Ryanair argues that Ryanair's presence at an airport could attract other passengers or airlines to use the airport. Advertising and promotion, as a result of the AMS Agreements, could lead to a greater traffic of Ryanair or non-Ryanair passengers, after the scheduled expiry of the ASA with Ryanair. Furthermore, it could also increase the non-aeronautical revenues of the airport. In Ryanair's opinion, this is an intuitive result, since almost all businesses in the economy will invest in marketing to improve profitability via product differentiation. Given the typical benefits of marketing, and the network effects associated with growth within airports, it would be therefore incorrect to assume that the only incremental revenues associated with AMS marketing will be Ryanair passengers using the airport during the lifetime of the ASA.

5.1.9. COMMENTS BY RYANAIR OF 12 SEPTEMBER 2014

(160) Ryanair points out that the examination of the airport-airline arrangement must involve a Market Economy Operator analysis, as recognised by Section 3.5 of the 2014 Aviation Guidelines.

(161) Furthermore, Ryanair argues that the ‘capacity approach’ to the allocation of investment costs is both legally correct under the ex-ante profitability test, and also correct as a matter of economics. Indeed, the ‘actual usual approach’ fails to reflect the fact that MEO profitability analyses must be carried out on an ex-ante basis.

5.1.10. ALLOCATION OF INVESTMENT COSTS (76)

(162) The report of the consultancy firm acting on Ryanair's behalf highlights paragraph 64 of the new Aviation Guidelines and states that, in fact, the hypothetical new terminal or facilities are not required only for one specific airline but other airline companies also can benefit from them. It points out that it is not fair to attribute 100 % of the costs to one company even if it is the only company that operates in the airport, whereas the calculation of the costs based on the utilisation of the capacity created by the investments could be a good way.

(163) Ryanair stresses the critical difference in measuring utilisation with respect to capacity, rather than share of traffic. The airport of Angouleme is taken as an example, where Ryanair represented 95-97 % of traffic, but only 25-28 % of the capacity utilisation.

(164) The consultancy firm provides the Commission with several examples, including the Alghero case (77). In 2004 a new passenger terminal opened at Alghero Airport that significantly increased the airport's passenger capacity from about 0,8 million to 2,5 million. This increase in terminal capacity was reflected in SOGEAAL's business plans through increased rotations and passenger departures from 2004 onwards.

(165) In conclusion, the note reports that the appropriate way to allocate investment costs is in relation to the expected share of capacity represented by a given airline agreement.

5.1.11. EVALUATION OF THE WIDER IMPACT OF AMS AGREEMENTS ON AIRPORT TRAFFIC (78)

(166) The consultancy firm acting on Ryanair's behalf has examined the expected incremental profitability of the agreements from the airport's perspective, by analysing not only the costs of the AMS payments, but also the benefits, in terms of the increased attractiveness of the airport, and the potential both for higher levels of non-Ryanair passenger traffic and correspondingly higher levels of non-aeronautical revenues.

(167) In order to demonstrate the wider impact of the AMS agreements, the Alghero Airport has been handled as a case study by the consultancy firm. The results of that analysis reveal a positive impact on SOGEAAL thanks to the marketing agreements signed with AMS. In particular the airport benefitted from (i) a possible increase in attractiveness for other airlines, (ii) a limited decline in passenger numbers due to the financial crisis and (iii) a potential audience of AMS advertising more than 50 times greater compared to similar arrangements with Alitalia.

(168) Finally, the report argues that, in the absence of any empirical analysis of the impact of advertising on ryanair.com, it is incorrect to conclude that the only benefits of advertising on ryanair.com are to increase levels of Ryanair traffic, and that the benefits of the AMS agreements do not persist beyond the expiry date of the agreements.

5.1.12. THE ROLE OF COMPARATOR ANALYSIS IN MEOP (79) ASSESSMENTS (80)

(169) Ryanair argues that the Commission has not undertaken any assessment of the efficiency of the airports' costs when carrying out the profitability analyses. Therefore, they stress the fact that Ryanair is not in a position to know whether the deal is expected to be profitable for the airport.

(170) The analysis conducted by the consultancy firm acting on Ryanair's behalf highlights the importance of a comparator analysis to understand the real costs of an airport. It introduces many examples of comparator analysis used by the Commission in recent years and stresses the fact that the Commission itself states that comparator analysis has a great importance in MEOP assessments.

(171) In conclusion, Ryanair suggests using the comparator analysis at least as a cross-check on the results from the profitability analysis.

5.1.13. ECONOMIC MEOP ASSESSMENTS: COMPARATOR ANALYSIS INCLUDING AMS (81)

(172) The study provided by Ryanair demonstrates how the results of the 2012 and 2013 at Lübeck and Cagliari airports do not change after the inclusion of AMS payments within the comparator analysis.

(173) It concludes that, over the period under consideration (2007-2013), net charges paid by Ryanair at Cagliari Airport have been, on average, higher than the average at the comparator airports. This implies that a market economic operator would have been likely to have offered similar arrangements to Ryanair. In particular, they argue that the result is not sensitive to the treatment of AMS payments, and is robust to various sensitivity checks.

5.1.14. ECONOMIC MEOP ASSESSMENT: CAGLIARI AIRPORT, PROFITABILITY ANALYSIS (82)

(174) The study aims to demonstrate, through an ex ante analysis, that the ASA agreements of January 2007, December 2007 and December 2009 were considered profitable by SOGAER SpA (operator of Cagliari airport) and would have also been considered profitable by any other management company, in accordance with the 2014 Aviation Guidelines.

(175) In particular, the profitability analysis based on the NPV calculation shows a positive outcome of the index for the whole period (2007 and 2009). Consequently the arrangements at CAG appear to be market-conform.

(176) The evidence indicates that, under similar circumstances, a market economy operator of the Cagliari airport would have found it profitable to have been offered similar arrangements to those that were agreed between Ryanair and Cagliari Airport.

5.1.15. THE IMPACT OF RYANAIR'S OPERATIONS ON AIRPORTS' NON-AERONAUTICAL REVENUES (83)

(177) The consultancy firm acting on Ryanair's behalf considered that the start of Ryanair's operations had a significant positive impact on the level of per passenger non-aeronautical revenues of the airport. On this basis, the report claims that the approach used to date in its MEOP profitability analysis as well as in the Commission's analysis (84) were conservative, as they did not include this increase in the airport revenues.

(178) The report undertakes an empirical analysis using a sample of 57 European airports meant to be as similar as possible to the airports assessed in the present investigation. The result is that the start of Ryanair's operations (85) in 29 of those airports led to an increase of around 12,0-13,7 % in non-aeronautical revenues per departing passenger in real terms (over and above inflation), this effect being statistically significant. This is likely to be due to Ryanair passengers spending more than passengers from other airlines, partly as a result of limited catering facilities provided on-board low-cost carriers, and as a result of the start of Ryanair's operations resulting in the development of the terminal—for example, by attracting additional retail outlets.

(179) The report also finds that this effect held for low-cost carriers more generally. Due to the growth in the low-cost carrier industry with strong brands that carry significant levels of passenger traffic, the start of a low-cost carrier's operations at an airport could result in significant development of the airport and hence higher non-aeronautical revenues on a per-passenger basis. Based on the sample of airports considered, the start of operations by full-fare carriers, in contrast, does not have a significant impact on airports' non-aeronautical per passenger revenues.

(180) According to that report, the results highlight the conservative nature of the approach used to date in its MEOP profitability analysis as well as in the Commission's analysis. These analyses do not assume any accelerated growth in airports' non-aeronautical revenues on a per passenger basis and hence do not capture the wider benefits of Ryanair's operations from airports, but only uprated estimates of non-aeronautical revenues per departing passenger by the much lower rate of inflation. The consultancy firm therefore expected its MEOP analysis and the Commission's analysis to underestimate the expected profitability of Ryanair's arrangements at the airport.

5.2. COMMENTS FROM EASYJET

5.2.1. COMMENTS ON THE OPENING DECISION

5.2.1.1. easyJet operations in Sardinia

(181) During the period 2010-2013, easyJet operated from Cagliari and Olbia airports.

The contract with Cagliari airport

(182) The contract with Cagliari airport operator was signed on 14 December 2010, and was valid from 29 March 2010 to 28 March 2013 (86). The total value of the Cagliari contract was EUR […]: the contract provides that the airport operator of Cagliari airport should pay easyJet EUR […] for the first year, EUR […] for the second year and EUR […] for the third.

(183) The contract with Cagliari airport clarifies that, in order to boost the Region's economy and gain a suitable economic return, the Region decided to increase its marketing investments in the tourism industry and thus provided airport operators, year by year, with an amount to be spent for that purpose. easyJet committed to provide marketing activities, operate point to point flights, and reach passenger targets as indicated in the contract.

(184) The contract includes a 3-year business and media plan prepared by easyJet and passenger targets to be reached by the airline company. An economic impact study — commissioned to an external consultant — is attached to the contract and measures the return of the investment, resulting from marketing activities.

(185) Failure by easyJet to comply with the commitment to operate the routes and frequencies agreed would entitle SOGAER not to pay the corresponding amount. easyJet gave a commitment to pay all relevant and standard airport fees and taxes to SOGAER. Failure to pay the aforementioned fees and taxes would have been considered a breach of its obligations to SOGAER, which would have had the right to terminate the contract.

(186) Article 5 of the contract with Cagliari airport specifies that the provision of financial support is made conditional upon the granting of the relevant funds by the Region.

Contracts with Olbia airport

(187) The first contract with GEASAR was signed on 17 March 2011 and covered the period from 28 March 2010 to 27 March 2011 (EUR […] one off payment). The second contract was signed on 25 January 2012 and covered the period from 27 March 2011 to 30 March 2013 (87) (up to EUR […] for the summer season 2011-winter season 2011/2012 and up to EUR […] for the summer season 2012-winter season 2012/2013). The last contract with Olbia airport was signed on 1 March 2013 and covered the period from 27 March 2013 to 30 March 2014 (up to EUR […]).

(188) The contracts do not mention that the public funds granted for the development of air transport are from the Region.

(189) easyJet states that the aim of the contract signed on 25 January 2012 was to further increase its operations within the airport by: (i) opening a new connection between Olbia and Madrid during summer season 2012; (ii) increasing the weekly frequency of transport from and to Berlin during winter season 2012/13; and (iii) developing the traffic flows in transit especially in the international markets, during the medium and low season. The purpose of the contract was to develop a marketing and advertising program with the financial participation of GEASAR.

(190) easyJet prepared a business plan, examined by GEASAR, which produced its own business plan with the purpose of verifying the financial viability of the contract. The airport operator verified the value of the investment based on the outcome of its own business plan (88).

5.2.1.2. Elements of State aid

(191) In order to understand whether the measure in question has to be deemed State aid, easyJet goes through each of the criteria set out in Article 107(1) of the Treaty.

State resources

(192) easyJet states that, although the contract with SOGAER specifically refers to the Sardinian regional Law 10/2010, pursuant to which the Region would grant such funds to the airport operator, there is no evidence that the funds received by easyJet from SOGAER and GEASAR were the same as those granted directly from the Region to the airport operators.

(193) Firstly, easyJet argues that the reference to the regional law in the contract between SOGAER and easyJet in itself does not demonstrate a direct link between Sardinian regional funds and easyJet. Moreover, the fact that that reference was not made in the contract between GEASAR and easyJet further demonstrates that the Law 10/2010 mentioned in the other contract was not material in the relationship between the airport operators and easyJet.

(194) easyJet believes that the Commission should make a specific assessment pertaining to the easyJet contracts in order to verify whether the funds easyJet received from the airport operators effectively came from the Region before reaching the conclusion that the measure in question is State aid.

The distortion of competition within the internal market

(195) easyJet states that the compensation received is not sufficient to adversely affect competition. This is due to two main factors: the relatively low amount of compensation and the absence of airlines operating on the same routes as mentioned in the contracts.

(196) easyJet is the only airline that operates all the routes mentioned in the contract with SOGAER and almost all the routes mentioned in the contract with GEASAR. Airport operators invited other airlines to operate the same routes through the publication on their websites of the invitation for airlines to provide business plans to operate routes from/to Cagliari and Olbia, but only easyJet acted upon this opportunity.

(197) Since easyJet is the only airline operator on the relevant routes, no competitor can be harmed by the alleged aid. Thus, according to easyJet, there is no distortion of competition.

Absence of any economic advantage

(198) easyJet states that the measure does not involve any economic advantage in its favour and bases its argumentation on the private investor principle.

(199) easyJet states that SOGAER and GEASAR were able to assess on an ex ante basis the positive economic return of the contracts. The economic return is based on two factors: (i) easyJet gave a commitment to provide the marketing activities, operate the point-to-point flights, and reach the passenger targets provided for in the contracts; (ii) easyJet provided the airport operator with business plans that cover the period of the contracts as well as media plans, in order to allow the airport operator to verify the profitability; and (iii) the airport operator confirmed the return on the investment, resulting from the marketing activities.

(200) Concerning the first point, easyJet clarifies that in both the Cagliari and Olbia contracts, it gave a commitment to operate a minimum schedule of operations and frequencies for the relevant routes.

(201) Concerning the second point, the business plans provided by easyJet describe easyJet's offer in detail, so that airport operators may assess the profitability of the investments. easyJet clarifies that, on the basis of the information available at the time, both the airport operators concluded that the investments resulted in a significant economic return for the airports.

(202) SOGAER based its decision to operate with easyJet on the result of an economic impact study, certified by an external consultant, which verified the return on the investment, concluding that it was very likely to result in a significant economic return and development for the airport. GEASAR declared in the contract that it had examined easyJet's business plan, evaluated the assumptions and the expected results and had produced its own business plan, confirming the economic interest in operating with easyJet.

(203) The contracts with SOGAER and GEASAR significantly increased the number of passengers at Cagliari and Olbia airports, thus granting stable and increasing revenue from aeronautical and non-aeronautical activities.

(204) easyJet believes that the contracts with SOGAER and GEASAR are based on purely commercial terms. Therefore the measure at hand cannot be considered State aid due to the fact that SOGAER and GEASAR acted as private investors looking for economic benefits.

5.2.1.3. Compliance with the Altmark test and/or Article 106(2) of the Treaty

(205) easyJet affirms that the compensation granted to easyJet does not constitute illegal State aid as it fulfils all four criteria defined by the Court of Justice of the European Union in the Altmark judgment (89) to establish whether public service compensation constitute State aid.

(206) The measure constitutes compensation for the commitment to operate specifically identified strategic international routes to/from Cagliari and Olbia airports and provide the related marketing and advertising services, notably during the unprofitable off-peak season,. Furthermore its funding under the scheme is limited to (partial) compensation for the costs actually borne by easyJet in fulfilling its public service mission, and eventually allows easyJet to obtain a reasonable profit.

(207) easyJet believes that the first Altmark condition (entrustment with a well-defined public service obligation) is met since the task of operating strategic international routes has been conferred on EasyJet by the State, and that public service task has been precisely defined. easyJet entered into binding contracts with SOGAER and GEASAR as a result of the Sardinia Law 10/2010 and subsequent implementing acts,. Such contracts impose specific obligations on easyJet to ensure that the principle of territorial continuity is upheld and that a sufficient number of flights is provided to carry passengers to/from Sardinia also during the off-season. The compensation under scrutiny relates to SGEI assigned to easyJet by the Region through SOGAER and GEASAR.

(208) In analysing the second condition (parameters for calculating the compensation are defined in advance in an objective and transparent manner), easyJet submits that the contracts entrusting easyJet with the task of providing air transport services on the strategic routes sufficiently specify, in advance, the compensation for fulfilment of the task, since they indicate a fixed amount per year specifically relating to the operation of the routes concerned throughout the year.

(209) With reference to the third condition (compensation received does not exceed what is necessary to cover the costs and achieve a reasonable profit), easyJet states that the provision of air transport services specified in the contracts with SOGAER and GEASAR entails major fixed and operating costs for easyJet. […] easyJet confirms that without the support received from the airports, it would never have operated any routes from Sardinian airports, except for during the peak season.

(210) easyJet states that even the fourth Altmark condition is met (the compensation received does not exceed the costs of a well-run undertaking that is adequately equipped with the means to provide the public service). easyJet submits that it can be considered a typical undertaking, well run and adequately equipped with the means to provide the public service. What easyJet wants to highlight is that it is one of the best-run European airlines and is able to offer customers low fares due to its focus on efficiency, and reliance on high utilisation of fleet and intensive use of IT, which all drive down the cost per passenger.

(211) Should the Commission consider that the Altmark conditions are not met, easyJet considers that all the conditions of Article 106(2) of the Treaty are met and that the activities were necessary for the fulfilment of services of general economic interest. The activities may therefore still be justified as compatible under the exception provided by Article 106(2)of the Treaty.

5.2.1.4. The balancing test

(212) According to easyJet, even if the scheme falls outside the scope of regulations and guidelines, the positive outcome of the balancing test makes it fully legal, irrespective of the amount of aid or the size of the beneficiary. Aid is considered to have undue negative effects when: (a) it is granted to inefficient or dominant companies in declining sectors; (b) it displaces private investment or research efforts; (c) it discriminates against certain companies or technologies.

(213) None of the competitive distortions that are commonly associated with problematic State aid are to be found in this case: (i) the recipients have not captured market shares at the expense of potentially more efficient competitors; (ii) foreign competitors have not been discriminated against to the advantage of ‘national champions’; (iii) consumers have not lost out from not having access to cheaper or better products.

(214) easyJet states that the scheme in question fulfils the requirements of necessity and proportionality. The scheme is necessary because easyJet would not otherwise operate the routes throughout the year. The scheme is proportional, because the contribution represents only a fraction of easyJet's operating costs.

5.2.1.5. Conclusion

(215) easyJet concludes that it did not receive any illegal State aid from either Sardinian airports or Sardinian authorities during the period under investigation.

5.2.2. COMMENTS PROVIDED ON THE APPLICATION OF THE 2014 AVIATION GUIDELINES TO THE MEASURES AT STAKE

(216) easyJet asserts that it has already demonstrated that it received no illegal State aid for a number of reasons, which are unaffected by the new guidelines. easyJet stresses that there are two methods, at Section 3.5 of the 2014 Aviation Guidelines, for determining whether agreements between airports and airlines satisfy the market economy operator test and, thus, are free of State aid.

(217) The first is the benchmark method, but the Commission dismisses this method due to the substantial presence of State subsidies in the airpor