95/466/EC: Commission Decision of 26 July 1995 concerning aid granted by the Flemish Region to the Belgian airline Vlaamse Luchttransportmaatschappij NV (Only the Dutch and French texts are authentic) (Text with EEA relevance)
Date: 1995-07-26
Institutions: European Commission
Subjects: Flanders (Belgium), State aid, air transport, control of State aid, loan, restriction on competition













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31995D0466

95/466/EC: Commission Decision of 26 July 1995 concerning aid granted by the Flemish Region to the Belgian airline Vlaamse Luchttransportmaatschappij NV (Only the Dutch and French texts are authentic) (Text with EEA relevance)  


Official Journal L 267 , 09/11/1995 P. 0049 - 0054 





COMMISSION DECISION of 26 July  1995 concerning aid granted by the Flemish Region to the Belgian airline Vlaamse  Luchttransportmaatschappij NV (Only the Dutch and French texts are authentic) (Text with EEA  relevance) (95/466/EC)THE COMMISSION OF THE EUROPEAN COMMUNITIES, Having regard to the Treaty establishing the European Community, and in particular the first  subparagraph of Article 93 (2) thereof, Having regard to the Agreement on the European Economic Area, and in particular Article 62 (1) (a)  thereof, Having given notice to the parties concerned to submit their comments, as it is required to do by  those Articles, and having regard to those comments, Whereas: THE FACTS I On 25 March 1994 Cityflyer Express Ltd ('Cityflyer`) lodged a complaint with the  Commission against a State aid measure; Cityflyer alleged that the Flemish Region had granted or  was preparing to grant State aid to the airline Vlaamse Luchttransportmaatschappij NV ('VLM`), in  the form of an interest-free loan of Bfrs 20 million. The Commission brought the allegation to the  attention of the Belgian authorities, by letter dated 25 May 1994; in order to enable it to examine  the transaction in the light of the State aid rules in Articles 92 and 93 of the Treaty, it asked  them to answer the following questions: -  What is the content of the documents (statuten) setting up Vlaamse Luchttransportmaatschappij  NV. Who holds the equity in the company? -  On what terms (amount, rate of interest, duration, etc.) has the Flemish Region granted or does  it propose to grant a loan to Vlaamse Luchttransportmaatschappij NV? If the transaction has already  taken place, please supply a copy of the loan contract and of any documents annexed to it (other  conditions, decisions of the Flemish Region, etc.). No reply was received within the one month allowed, and on 14 July 1994 the Commission sent the  Belgian authorities a reminder. By letter of 3 August 1994 the Belgian authorities sent the Commission answers to the questions set  out above. In reply to the question regarding the founding documents, they supplied a copy of VLM's  statuten or constitution. It appears that VLM is a public limited company set up under Belgian law,  with its registered office at Van Tichelenlei 49, 2610 Wommelgem, Belgium. It was formed on 21  February 1992, for an unlimited duration, with an initial capital of Bfrs 10 million. The capital  has since been increased on several occasions; by the end of 1993 it stood at Bfrs 75 million. It  is divided between nine shareholders, made up of five companies, governed by private law, and four  individuals. It would thus appear to be an entirely private company. Its objects are stated to be  'the purchase, sale, exchange, leasing, operation, repair and maintenance of aircraft, on its own  account and for others, in Belgium and abroad. The operation of aircraft on scheduled and  non-scheduled services`. Turning to the terms of the loan, the Belgian authorities' answer was as follows: 'Amount: Bfrs 20 million. Rate of interest: 0  %. Schedule of repayments: two, three, four, five  and six years after payment of the loan, instalments of Bfrs 4 million each`. No other documents were supplied; in particular, there was no copy of the loan contract. It should  be noted that the transaction had taken place without the Commission's being informed in advance,  as is required by Article 93 (3) of the Treaty. On 16 November 1994 the Commission decided to initiate proceedings pursuant to Article 93 (2) of  the Treaty. The misgivings which motivated this step sprang from two considerations: an  interest-free loan certainly constitutes State aid within the scope of Article 92 of the Treaty and  Article 61 of the EEA Agreement, and on the face of if the loan in question here did not appear to  qualify for any of the exemptions pursuant to Article 92 (2) and (3) and Article 61 (2) and (3). On 6 December 1994 the Commission wrote to the Belgian authorities informing them that it was  initiating proceedings, and giving them notice to submit their observations. This letter was  published in the Official Journal of the European Communities, with an invitation to other Member  States and interested parties to submit observations in accordance with Article 93 (2)  (1). II Two interested parties, the airlines British Airways and Cityflyer, submitted observations  following the publication of the notice in the Official Journal of the European Communities. Both argued that the loan constituted State aid within the scope of Article 92 (1). Cityflyer  enclosed copies of VLM's balance sheets and profit-and-loss accounts for 1992 and 1993, and  contended that no rational private investor would have granted VLM such a loan, especially given  its losses in 1993. According to both airlines the aid distorted competition on the routes operated  by VLM, in particular the Antwerp-London route, where VLM was in competition with Cityflyer. They  also submitted that VLM did not appear to have given any special guarantee of repayment of the  loan, in the form of a security, mortgage or the like, and that the amount of aid involved was  therefore not the total interest which VLM would have had to pay if the loan had been granted by an  investor operating under normal market conditions, but rather the full amount of the loan itself. British Airways and Cityflyer accordingly asked the Commission to find that the aid was  incompatible with the common market. British Airways argued the aid did not qualify for any of the  exemptions provided for in Article 92 (2) and (3). Cityflyer further asked the Commission to order  the recovery of the aid. The Commission wrote to the Belgian authorities on 1 February 1995 (in French) and 10 February 1995  (in Dutch), providing full details of the observations submitted by British Airways and Cityflyer,  and suggesting that they, in turn, might wish to reply to those observations. III By letter dated 23 January 1995 Belgium submitted its observations in response to the  decision to initiate proceedings and to the Commission's letter of 6 December 1994. First, Belgium contended that the loan did not constitute State aid pursuant to Article 92 (1),  because it did not affect trade to an extent contrary to the common interest, and did not distort  competition between Community airlines. The loan had indeed helped VLM to set up the connection  between Antwerp and London (London City Airport), but that route constituted a market separate from  the Antwerp-London (Heathrow) and Antwerp-London (Gatwick) routes, which were operated by Sabena  and Cityflyer respectively. Belgium also argued that this was not restructuring aid intended to  cover operating losses, but indirect aid to the initial investment made by a new regional airline.  The measure was in reality a form of capital injection which satisfied the test of the national  investor in a market economy: it did not bring a return in the form of interest or dividends, but  it brought the Flemish Region indirect benefits in terms of employment and the improvement in the  situation of business through the establishment of a direct link between Antwerp and London City  Airport. The benefits exceeded the return a private investor could expect from a capital  investment, and likewise exceed the benefit which might have been obtained from interest paid by  VLM. Secondly, Belgium argued that if the loan did contain an aid component the aid could be exempted,  for two reasons. It was compatible with the common market pursuant to Article 92 (3) (c), being  intended to facilitate the development of certain economic activities: that exemption necessarily  covered investment in new airlines in a competitive and highly capital-intensive industry.  Moreover, the aid involved was limited, being below the ceiling which the Commission had set for  aid to small and medium-sized enterprises. IV On 2 May 1995 the Commission wrote to the Belgian authorities to ask them once again for a  copy of the loan contract, and seeking further details of any guarantee given to the lender, the  Flemish Region, by the borrower, VLM. It also asked the Belgian authorities for details of VLM's  turnover in 1992, 1993 and 1994, and for copies of its balance sheets and profit-and-loss accounts  for the same years. No reply was received within the time allowed, and on 13 June the Commission  sent the Belgian authorities a reminder. Belgium answered the Commission's request for information in a letter dated 16 June. On the  question of guarantees it had this to say: 'During the currency of the contract the company must obtain the Flemish Region's prior consent in  order to transfer or mortgage its movable and immovable property or to transfer certain stated  assets. The same condition apples to any chage in the structure of shareholdings or reduction of the  capital. If these requirements are infringed the contract may be terminated immediately and immediately  repayment of the advance demanded.` The letter also supplied the draft of a submission putting forward the following main arguments: -  The transaction did not constitute State aid: the test of the rational investor in a market  economy was satisfied, given the small size of VLM, the small scale of the investment and hence of  the risk, and the company's good prospects of profitability. -  Even supposing that the transaction did constitute State aid, it was compatible with the common  market, because it would enable a new entrant to compete against the established large companies in  a market which had become highly competitive; because, owing to its small scale, it would not  affect trade to an extent contrary to the common interest; and because it was in the interests of  consumers and of the region. Lastly, it had to be allowed the benefit of the de minimis rule. By letter of 14 July 1995 the Belgian authorities also sent copies of the balance sheets and  profit-and-losss accounts to the Commission, as requested. In addition, on 24 July 1995 they  supplied a copy of the loan contract. It was found to be dated 17 December 1993 and to stipulate  that the money was to be made available to the beneficiary within 60 days thereafter. LEGAL ASSESSMENT V According to Article 92 (1) of the Treaty and Article 61 (1) of the EEA  Agreement, any aid granted by a State or through State resources in any form whatsoever which  distorts or threatens to distort competition by favouring certain undertakings or the production of  certain goods shall, in so far as it affects trade between Member States or Contracting Parties, be  incompatible with the common market and the functioning of the Agreement. The loan of Bfrs 20 million which the Flemish Region has granted to VLM constitutes 'aid` within  the meaning of these provisions. First, that the transaction is public in character is shown by the fact that the loan was granted  by a regional authority, the Flemish Region. The Court of Justice has held that State aid includes  all aid granted by central, regional or local authorities in a Member State, 'or by public or  private bodies established or appointed by it to administer the aid` (1). Secondly, the loan does distort competition, and does affect trade between Member States: it  benefits a single company, whose business - air transport - extends over several Member States and  potentially over the entire EEA, and which by its nature directly relates to trade. This is  particularly so since the entry into force of the third air transport package, on 1 January 1993,  which completed the process of liberalization and greatly increased the scope for competition. VLM  is a Community airline company holding an operating licence granted in accordance with Council  Regulation (EEC) No 2407/92  (2). Pursuant to Article 3 of Council Regulation (EEC) No 2408/92  (3)  and Article 5 of Council Regulation (EEC) No 2409/92  (4), the Member State or Member States,  concerned must, except where otherwise expressly provided in the same Regulations, permit VLM to  exercise traffic rights on routes within the Community and setting its fares freely. In its judgment of 21 March 1991 in Case C-303/88, Italy v. Commission  (1), the Court of Justice  held that 'aid may be such as to affect trade between the Member States and distort competition  where the recipient undertaking competes with producers in other Member States, even if it does not  itself export its products. Where a Member State grants aid to an undertaking, domestic production  may thereby be maintained or increased with the result that undertakings established in other  Member States have significantly less chance of exporting their products to the market in that  Member State. Furthermore, even aid of a relatively small amount is liable to affect trade between  Member States where there is strong competition in the sector in question (judgment in Case 259/85,  France v. Commission [1987] ECR 4393, at paragraph 24)`. In the present case, given the intense  competition in the liberalized Community air transport business, the fact that VLM may be the only  airline operating on the Antwerp-London route into and out of London City Airport is irrelevant to  the Commission's assessment: the aid received will in any event reduce the chances of competitors,  actual or potential, who wish to penetrate the market in that particular route, and will thus  distort competition to that extent at least. Nor is there anything to prevent VLM from making use  of the assistance to launch operations on other routes. As for the Belgian authorities' claim that  the transaction does not adversely affect the common interest, it seems clear that that argument is  not relevant at this stage in the assessment, where the object is to ascertain whether the aid is  within the scope of Article 92 (1) of the Treaty and Article 61 of the EEA Agreement. Thirdly, there can be no doubt that there is an aid component: no private investor or bank  operating under normal market conditions would grant an interest-free loan to a company in which it  had no holding and which was in financial difficulties less than two years after its information.  VLM's balance sheets and profit-and-loss accounts show that it made an operating loss of Bfrs 13  million in 1993, its first full year in operation. Its net losses in that year amounted to Bfrs  11,52 million, equal to 15  % of the equity. Nor can the Commission accept the Belgian authorities'  argument that the benefit to the economy of the Flemish Region means that the test of the rational  investor in a market economy is satisfied. The Flemish authorities, as public authorities, may wish  to take account of the advantage to the Flemish economy of a direct connection between Antwerp and  London City Airport; but that has nothing whatsoever to do with the behaviour of a rational  investor operating in a market economy. Turning to the amount of the aid, the Commission, in its communication entitled 'Application of  Articles 92 and 93 of the EC Treaty and Article 61 of the EEA Agreement to State aids in the  aviation sector` (2), considers that the aid component in such cases amounts to 'the difference  between the rate that the airline would pay under normal market conditions and that actually paid.  In the extreme case where an unsecured loan is made to a company which under normal circumstances  would be unable to obtain financing, the loan effectively equates to a grant and the Commission  would evaluate it as such`. That VLM should have made losses over its first year of operation,  which were fairly moderate all things considered, is not unusual in air transport, given the  special features of the business. In early 1994, such losses were not such as to prevent access to  the financial market, especially as 1993 had been a particularly difficult year in civil aviation,  and prospects for 1994 were brighter. VLM's losses did in fact fall to Bfrs 8,6 million in 1994,  and its activities continued to develop. Furthermore, the lender has in fact a form of guarantee  for its claim, because in return for the loan the Flemish Region is allowed to intervene in the  running of the company: its consent must be obtained before certain assets can be transferred or  mortgaged, and before any reduction in the capital of the company or any change in the structure of  the shareholdings. It should be noted that by late 1993 VLM held tangible assets worth Bfrs 7,3  million and financial resources worth Bfrs 16 million. Furthermore, in 1994 a further increase of  Bfrs 25 million in the company's equity capital has now brought the total up to Bfrs 100 million.  It is clear from Articles 6 and 7 of the loan contract, first, that the transaction may be  rescinded immediately should VLM fail to comply with the terms and conditions agreed in the  contract, and secondly, that VLM is subject, for the duration thereof, to inspection by the  Inspectorate of the Ministry of Economic Affairs of the Flemish Community and also by the Flemish  Committee for the Supervision of Business Management (Vlaamse Commissie voor Preventief  Bedrijfsbeleid). The Commission accordingly takes the view that the amount of aid is equal to the  interest which VLM would have had to pay in normal market conditions. For a six-year loan, the base rate in Belgium at the beginning of 1994 (Belgian State debt,  entailing no risk) was 7,3  %. A risk premium would usually be added to this base rate, reflecting  the characteristics of the company and the industry and the solidity of the guarantee offered for  the claim. Inquiries made by the Commission in the banking sector indicate that in the present case  the risk premium could be estimated at 100 basic points, or 1  %, if the guarantee accepted by the  Flemish Region gave it every assurance of recovering its claim. But that is not the case, because  the claim is not secured against movable or immovable property, as it would be if there were a  mortgage for example. The risk premium ought therefore to be estimated at 200 basic points, or 2   %. This gives a normal commercial rate of interest of 9,3  %. The amount of aid is consequently the  sum of the interest payments which would be arrived at by applying this rate to the sum borrowed. VI The aid was not granted under any approved scheme of assistance, and ought to have been  notified to the Commission in accordance with Article 93 (3) of the Treaty. By omitting to notify  the measures in advance, that is to say before putting it into effect, Belgium failed to fulfil the  obligations imposed on it by Article 93 (3). The aid was accordingly granted unlawfully. VII Let us now consider the compatibility of the aid with the common market pursuant to Article  92 (2) and (3) of the Treaty and Article 61 (2) and (3) of the EEA Agreement. Points (a), (b) and (c) of Article 92 (2) and Article 61 (2) do not apply: the aid is not aid  having a social character, granted to individual consumers, nor aid to make good the damage caused  by natural disasters or exceptional occurrences, nor aid granted to the economy of certain areas in  Germany. Article 92 (3) and Article 61 (3) list forms of aid which may be considered to be compatible with  the common market. The assessment has to be made in the context of the Community, and not of a  single Member State. The exemptions provided for apply only where the Commission is satisfied that  the unaided effects of market forces would not be enough to incite the recipient to undertake some  action conducive to one of the objectives for which the exemptions exist. In order to safeguard the proper operation of the common market, and the principles enshrined in  Article 3 (g) of the Treaty, the exemptions from the prohibition in Article 92 (1) of the Treaty  which are provided for in Article 93 (3) must be interpreted strictly in the assessment of any aid  scheme or individual aid measure. Given the more intense competition which has come with the  gradual liberalization of air transport as a result of the third air-transport package, the  Commission must pursue a policy of rigorous control of State aid in order to prevent it from  producing effects contrary to the common interest. Article 92 (3) (a) and (c) of the Treaty and Article 61 (3) (a) and (c) of the EEA Agreement allow  the exemption of aid to promote or facilitate the development of certain areas. The loan granted to  VLM by the Flemish Region does not qualify for exemption under these provisions, because the  arrondissement of Antwerp does not satisfy the tests of eligibility for regional aid, and because  the loan is a one-off measure in respect of a single enterprise, rather than a part of a part of a  general scheme for the benefit of all Flemish undertakings. Indeed, the Belgian authorities have  not invoked these provisions. Article 92 (3) (b) and Article 61 (3) (b) do not apply either, as the aid is not designed to  promote the execution of an important project of common European interest or to remedy a serious  disturbance in the economy of a Member State. The Belgian authorities have relied on Article 92 (3) (c) of the Treaty and Article 61 (3) (c) of  the EEA Agreement which allows the exemption of 'aid to facilitate the development of certain  economic activities`. They contend that the loan must be regarded as facilitating the development  of economic activities, because it benefits a new airline in a competitive and highly  capital-intensive industry. The Commission cannot accept this argument. It is prepared to allow  this exemption only in favour of aid to enterprises which are to be restructured  (1), and even  then there are a number of conditions which must be met, the main one being that there must be a  restructuring programme which the Commission has approved. In this case the Belgian authorities  have themselves said that the loan is not intended to assist restructuring; and they have made no  reference to a restructuring programme. Thus the exemption provided for in Article 92 (3) (c) and  Article 61 (3) (c) is in any event inapplicable here. The Belgian authorities have also argued that the amount of the aid is below the ceiling set by the  Commission for aid to small and medium-sized undertakings. Here they are doubtless referring to the  Community guidelines on State aid for rescuing and restructuring firms in difficulty  (1), which  set a de minimis figure of ECU 50  000. But those guidelines specify that 'The de minimis facility  is not available in sectors subject to special Community rules on State aid`. Air transport is  indeed subject to spectal Community rules on State aid. Those special rules also set a de minimis  figure, but only for procedural purposes, in order to determine whether a measure qualifies for an  accelerated clearance procedure: the figure there has no bearing on whether a measure constitutes  State aid or whether, if it does so, it qualifies for exemption. The Belgian authorities are  therefore wrong in claiming that a de minimis rule might apply here. Thus the measure does not fall within the scope of any of the exemptions provided for in Article 92  (2) and (3) and Article 61 (2) and (3). Belgium must accordingly be required to put an end to it. VIII If aid is not compatible with the common market, Article 93 (2) of the Treaty empowers the  Commission to require the Member State to order its recovery, as the Court of Justice has confirmed  in Case 70/72, Commission v. Germany  (2) and Case 310/85, Deufil v. Commission (3). The Belgian  authorities should accordingly be required to recover the aid unlawfully granted to VLM, that is to  say interest chargeable at a rate of 9,3  % on the amount of the loan, within two months. The aid  is to be recovered in accordance with national law, including the rules concerning interest due for  late payment of amounts owing to the government, the interest to run from the date of the award of  the aid. This measure is necessary in order to restore the status quo by withdrawing all the financial  benefit which has unduly accrued to the recipient of the unlawful aid since the aid was granted, HAS ADOPTED THIS DECISION: Article 1 The interest-free loan of Bfrs 20 million granted by the Flemish  Region to the airline Vlaamse Luchttransportmaatschappij NV ('VLM`) in 1994 includes an aid  component which is unlawful because it was granted in breach of the requirements of Article 93 (3)  of the EC Treaty. The aid component is incompatible with the common market for the purposes of  Article 92 of the Treaty and Article 61 of the EEA Agreement. Article 2 Belgium is hereby required to order that interest at 9,3  % is henceforth payable on  the loan of Bfrs 20 million granted to VLM by Flemish Region. Article 3 Belgium is hereby required to order that the aid component, equal to interest charged  at 9,3  % on the loan of Bfrs 20 million granted to VLM by the Flemish Region since the date on  which the loan was granted, be repaid within two months of notification of this Decision. The money  is to repaid in accordance with Belgian law, including the provisions concerning interest due for  late payment of amounts owing to the State or public authorities. The rate of such interest is to  be the reference rate used in the evaluation of regional aid measures, the interest running from  the date on which the aid was awarded. Article 4 Belgium shall inform the Commission within months of the date of notification of this  Decision of the steps it has taken to comply with it. Article 5 This Decision is addressed to the Kingdom of Belgium. Done at Brussels, 26 July 1995. For the Commission Neil KINNOCK Member of the Commission (1)  [1991] ECR I, p. 1433, point 27.  (2)  OJ No C 350, 10.12.1994, p. 5, point 32.  (1)  See footnote 7, section V of that communication.  (1)  OJ No C 368, 23.12.1994, p. 12, points 2.3 and 4.1.  (2)  [1973] ECR, p. 813.  (3)  [1987] ECR, p. 901.