1999/763/EC: Commission Decision of 17 March 1999 on the measures, implemented and proposed, by the Federal State of Bremen, Germany, in favour of Lürssen Maritime Beteiligungen GmbH & Co. KG (notified under document number C(1999) 756) (Text with EEA relevance) (Only the German text is authentic)
Date: 1999-03-17
Institutions: European Commission
Subjects: Bremen, State aid, bankruptcy, control of State aid, public safety, shipbuilding

L 301/8

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Official Journal of the European Communities

24. 11. 1999

COMMISSION

COMMISSION DECISION

of 17 March 1999

on the measures, implemented and proposed, by the Federal State of Bremen, Germany, in favour
of Lürssen Maritime Beteiligungen GmbH & Co. KG

(notified under document number C(1999) 756)

(Only the German text is authentic)

(Text with EEA relevance)

(1999/763/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 called on interested parties to submit their comments
pursuant to the provisions cited above (1) and having regard to
those comments,

Whereas:

I. PROCEDURE

By way of an article in Handelsblatt on 9 September 1997, the
Commission was informed that the Land Bremen, Germany,
had implemented the financial measures with which this
Decision is concerned, in favour of Lürssen Maritime Beteili-
gungen GmbH & Co. KG. The Commission requested informa-
tion on the measures in its letter dated 15 September 1997,
and Germany supplied the information by letter dated 24
October 1997.

By letter dated 30 March 1998, the Commission informed
Germany of its decision to initiate the procedure laid down in
Article 93(2) of the EC Treaty in respect of those measures.
Germany submitted its comments by a letter dated 19 May
1998.

The Commission decision to initiate the procedure was
published in the Official Journal of the European Communities (2).
The Commission invited interested parties to submit
their
comments on the measures.

The Commission has
from interested
parties. It has forwarded them to Germany, which was given

received comments

(1) OJ C 252, 11.8.1998, p. 4.
(2) See footnote 1.

the opportunity to react; its comments were received by letter
dated 21 October 1998.

II. DETAILED DESCRIPTION OF THE MEASURES

The Bremen Vulkan Verbund AG,
the maritime industrial
holding with subsidiaries mainly in the shipbuilding but also
the machine-building and electronic equipment sectors based
in the Federal State of Bremen (hereinafter referred to as ‘BVV’)
into acute financial difficulties in late 1995. On 1 May
fell
1996 the responsible Court initiated bankruptcy proceedings
under the German Konkursordnung. BVV held a 100 % share
in BVM Beteiligungs GmbH, which itself was the sole share-
holder of Bremer Vulkan Marine Schiffbau GmbH (hereinafter
referred to as ‘BVM’), a small engineering company active in
acquiring orders for the construction of naval vessels. It was
founded mainly to participate in the tendering procedure for
the German ‘F 124’ frigate programme, entailing a volume up
to DEM 3 billion in cooperation with Preussag and Thyssen.
This company was not subject to bankruptcy proceedings in
connection with the breakup of the group.

Given the prospects of BVM for engagement in the construc-
tion of the new frigates, the Lürssen Maritime Beteiligungen
GmbH & Co. KG (hereinafter referred to as ‘LMB’) decided to
acquire the company's shares. LMB is the holding company for
Friedrich Lürssen Werft GmbH (hereinafter referred to as ‘Lürs-
sen’), a shipyard located in the north of Bremen. Lürssen is a
medium-sized shipyard, primarily active in naval shipbuilding,
specialising in smaller naval vessels (minesweepers, combat
boats and multipurpose boats) and occasionally in the
construction of large yachts and commercial passenger ships.
Between 1988 and 1998 [...] (*) of the turnover of Lürssen
came from naval shipbuilding.

(*) Parts of this text have been edited to ensure that confidential infor-
mation is not disclosed; those parts are enclosed in square brackets
and marked with an asterisk.

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Official Journal of the European Communities

L 301/9

In the course of negotiations involving the Bremen authorities,
LMB agreed to employ 100 former workers and up to 10
trainees. These consist of workers both of BVM and of workers
employed in naval shipbuilding by the former Bremer Vulkan
Werft GmbH (hereinafter referred to as ‘BVW’). LMB claimed
that these workers would only be needed to work on the F 124
project, which was postponed until 2000. Bremen then agreed
to contribute DEM 4,6 million (EUR 2.3 million) towards the
costs of employing them.

ments were not part of a restructuring of Lürssen and there
was no intended capacity reduction but an increase of capacity
of Lürssen which may potentially be used for commercial
shipbuilding falling under the seventh Directive.

For these reasons, the Commission doubted whether the aid
measures might be considered compatible with the common
market under the provisions of the EC Treaty and the seventh
Directive on shipbuilding.

Furthermore, the Hanseatische Industrie Beteiligungen GmbH
(hereinafter referred to as ‘HIBEG’), a company solely controlled
by the Federal State of Bremen, waived claims of DEM 5
million (EUR 2,5 million) plus interest of an unknown amount
arising from a loan granted to BVM. The amount was used to
increase the equity capital of BVM so as to reduce its over-
indebtedness.

In addition, the Federal State of Bremen declared its willingness
to grant aid of DEM 900 000 (EUR 450 000) for intended
investments (15 % of the total investment of DEM 6 million).

The Commission concluded that the above financial measures
taken by the Federal State of Bremen constitute state aid within
the meaning of Article 92(1) of the EC Treaty and Article 1(d)
of Council Directive 90/684/EEC of 21 December 1990 on aid
to shipbuilding (3) (hereinafter referred to as ‘the seventh direc-
tive’). The Commission considered the contribution of the State
of Bremen towards the costs of the employment by LMB of
workers of BVM and former workers of BVW, and HIBEG's
waiving of its claims, to be operating aid, and regarded the
intended contribution towards the costs of planned invest-
ments as investment aid. The aid was considered to benefit
Lürssen, which through the acquisition of the shares in BVM
had extended its
shipbuilding capacity and enjoyed the
prospect of involvement in future vessel construction for the
German navy.

III. COMMENTS FROM INTERESTED PARTIES

LMB and BVM submitted joint comments to the Commission.
They supported Germany's comments submitted in a letter
dated 19 May 1998, and stated that all financial measures
taken are to be considered measures that Germany can take in
accordance with Article 223(1)(b) of the EC Treaty for the
protection of the essential interests of its security. Naval ship-
building is considered part of the essential security interests of
Germany and, wherever Article 223 of the EC Treaty applies,
neither the provisions of Article 92 of the EC Treaty nor those
of the seventh Directive on shipbuilding are applicable.

IV. COMMENTS FROM GERMANY

As regards the DEM 4.6 million (EUR 2,3 million) contribu-
tion by the State of Bremen towards the employment costs,
Germany explains that BVM is an undertaking that was, and
indeed in future will be exclusively active in naval shipbuilding.
The additional 100 workers were employed only with a view
to the future participation in the building of three frigates for
the German navy, the F 124 programme, and those workers
were needed for carrying out the frigate order. The workers
were taken over in October 1997.

to Article 5 of

the seventh
Operating aid may, pursuant
Directive, only be considered compatible with the common
market if it does not exceed the maximum contract-related aid
calculated in proportion to the turnover to the yard and if the
Member State concerned furnishes evidence to the extent that
the aid is necessary to maintain a shipyard in operation. In the
present case no information to that extent was forwarded and
the German authorities did not claim that the operating aid
was intended to help Lürssen to maintain its operations.

Since the building of the frigates will not take place before
2000, these workers would be underemployed for a certain
period of
time. Bremen had paid the DEM 4,6 million
EUR 2,3 million) to ensure the employment of those workers
and to compensate for the costs resulting from their under-
employment. However, this amount does not cover all the
costs borne by the yard during the time when these workers
are not, or not yet, fully employed by the frigate order.

Pursuant to Article 6 of the seventh Directive, investment aid
can only be granted as part of a restructuring plan that does
not involve any increase in capacity or if it is directly linked to
a corresponding irreversible capacity reduction in the capacity
of other yards in the same Member State. The intended invest-

(3) OJ L 380, 31.12.1990, p. 27; Directive as last amended by Direc-

tive 94/731/EC (OJ L 351, 31.12.1994, p. 10).

To reduce the loss due to the idleness or underuse of those
additional workers during the period when they could not, or
not fully, be engaged in naval shipbuilding and especially by
the frigate order, they were partly employed during 1997/1998
in the construction of special fast ferries for Indonesia. Had
they not been available for this task, Lürssen would have
needed to hire workers for the peak periods that could not
have been covered by other, permanent workers of the yard.
The costs for hiring workers are 50 % less than the full costs of
workers that the yard has to bear for workers taken over.

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Official Journal of the European Communities

24. 11. 1999

As regards the waiver of the DEM 5 million (EUR 2,5 million)
loan, Germany explains that HIBEG had granted a loan of
DEM 5 million to BVM at the end of 1997 so as to increase
BVM's equity and thus make it possible for BVM to continue its
participation in the F 124 programme. This amount was paid
to BVM. The loan agreement provided that the loan, plus
interest, would be deemed to have been forgiven if it was not
paid back or, in the event of a third-party acquisition of BVM
shares, where the sale proceeds were insufficient for full repay-
ment. This was the case when LMB acquired the shares in BVM,
since neither was the loan paid back nor was the sale amount
enough for its repayment and consequently, according to the
terms of the loan agreement, the loan repayment was waived.

As regards the investment aid, Germany explains that LMB had
bought from the administrator of the former BVW yard in
Bremer-Vegesack a complete site, consisting of a dockhall, piers
and equipment. This site was designed to be used by BVM
solely for naval shipbuilding, and the planned investments were
to be used only for that purpose. According to Germany, LMB
had expressly committed itself to not using the acquired dock-
hall and related area, either for the building, or for the repair or
conversion of merchant vessels. LMB had also committed itself
to carrying on naval shipbuilding in Bremer-Vegesack at least
until 31 December 2002. Consequently, the entire capacity of
the former BVW for the building, repair and conversion of
merchant vessels has been closed down.

a

Germany refers to Commission Decision 97/616/EC of 21 May
1997 on the closure aid granted to Bremer Vulkan Werft
GmbH (4), where it is stated that ‘the bankruptcy administrator
is currently engaged in selling the shares in Bremer Vulkan
Marineschiffbau GmbH,
subsidiary of Bremer Vulkan
Verbund AG, together with a dock owned by the yard, to
Friedrich Lürssen Werft GmbH; Germany, on behalf of the
bankruptcy, administrator has given assurances that this dock
will only be used for activities not qualifying as shipbuilding
activities pursuant to Directive 90/684/EEC. The dock is to be
used by Friedrich Lürssen Werft GmbH for building naval
vessels and yachts, which fall outside that Directive.... Even the
fact that the dock is likely to be sold to Friedrich Lürssen Werft
GmbH does not change the principle that the capacity reduc-
tion will be genuine and irreversible. The dock will be only
used for naval shipbuilding and for yachts, activities not falling
within the scope of Directive 90/684/EEC’.

Germany stresses that BVM is only active in naval shipbuilding.
It also contests the Commission's opinion that the aid measures
benefit Lürssen. In Germany's opinion, the financial measures
benefit BVM only as an undertaking specialised in naval ship-
building. These measures aim only to make it possible to
continue activities in the field of naval shipbuilding, especially
through participation in the F 124 frigate programme. For
these reasons, Germany asserts that the financial measures in

(4) OJ L 250, 13.9.1997, p. 10.

question constitute measures that Germany is permitted by
Article 223(1)(b) of the EC Treaty to take, for the protection of
the essential

interests of its security.

Germany explains that the safeguarding of the essential security
interests of the Federal Republic means that a minimum indus-
trial capacity for the military core capabilities in the building of
naval combat ships is to be guaranteed. This minimum
capacity was achieved in 1994 through the inclusion of
Lürssen. Germany refers to the letter from the Ministry of
Defence of 26 May 1998 to the Freie Hansestadt Bremen, in
which it is stated that ‘there are security and defence interests
involved in maintaining the existing core capabilities in naval
shipbuilding as a basis for an autonomous and adequate
fitting-out of the German navy. These naval shipbuilding capa-
bilities are further relevant to the ability to cooperate with
other NATO and EU Member States and also with other
friendly and economically allied states’.

Consequently, according to Germany, naval shipbuilding is
considered part of the essential security interests of Germany
and in the context of Article 223 of the EC Treaty, whereas
neither the provisions of Article 92 of the EC Treaty nor those
of the seventh Directive on shipbuilding are applicable.

V. ASSESMENT OF THE MEASURES

The financial measures taken and to be taken by the Federal
State of Bremen are measures granted through state resources
favouring a particular undertaking engaged in business that is
subject to trade between Member States. These measures relieve
the undertaking of part of its operating and investment costs
and thereby afford it an economic advantage over companies
not receiving such financial support. Therefore the measures
constitute state aid within the meaning of Article 92(1) of the
EC Treaty and Article 61(1) of
the EEA Agreement. The
Commission notes that the measures were not notified to the
Commission pursuant to Article 93(2) of the EC Treaty.

The Commission notes that not only Germany but also the
interested parties, BVM and LMB, have in their comments
argued that Article 223(1)(b) of the EC Treaty was applicable to
the financial measures in question. Article 223(1)(b) reads as
follows:

The provisions of

‘1.
application of the following rules:

....

this Treaty shall not preclude the

(b) any Member State may take such measures as it considers
necessary for the protection of the essential interests of its
security which are connected with the production of or
trade in arms, munitions and war material; such measures
shall not adversely affect the conditions of competition in
the common market regarding products which are not
intended for specifically military purposes’.

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L 301/11

The Commission notes that according to the information
submitted to it by Germany, Lürssen is a yard almost exclu-
sively engaged in naval shipbuilding: [...] * of its turnover for
1988 to 1998 derives from naval construction. BVM, which
became a subsidiary of Lürssen after acquisition by LMB, is a
yard exclusively concerned with naval shipbuilding and is
currently participating in the frigate programme for
the
German navy. The additional 100 workers taken over by LMB
are former workers of BVM and workers formerly employed in
naval shipbuilding in BVW, which implies that they have the
field. According to
experience and skills needed in this
Germany and the interested parties, those workers were neces-
sary for carrying out the frigate order. The loan granted to
BVM by HIBEG was designed to enable BVM to continue its
participation in the frigate programme. The investment aid
planned for LMB is to be used exclusively for the upgrading of
the dock bought by LMB from the former BVW in order to
make it suitable for naval shipbuilding by 31 December 2002.
Consequently, all the measures relate to naval shipbuilding, and
especially the frigate programme of the German navy.

According to Germany, maintaining a minimum capacity in
naval shipbuilding is part of safeguarding its essential security
interests. This argument has been confirmed in the letter of the
Ministry of Defence to the Freie Hansestadt Bremen. The
Commission accepts this argument, provided that the financial
measures in question do not adversely affect the conditions of
competition in the common market regarding products which
are not intended for specifically military purposes.

according

to information
that
The Commission notes
submitted to it by Germany, the only non-naval shipbuilding
task that the workers employed for carrying out the frigate
order have been involved in, and will in future be involved in,
is the work on the three fast ferries for Indonesia in 1997/
1998. This is a development aid project approved by the
Commission on 27 March 1996 (5). Had these workers not
been available for the task, Lürssen would have needed to hire
workers outside at half the cost of the employers taken over
from BVM and BVW: the aid in question covers less than the
difference in cost. Consequently, Lürssen obtained no economic
advantage in using these workers. Therefore,
the measures
taken do not adversely affect the conditions of competition in
the common market
regarding products which are not
intended for specifically military purposes.

regarding products which are not intended for specifically mili-
tary purposes.

As regards the investment aid planned to be granted for
upgrading the dock and the related area acquired from the
former BVW, Commission Decision 97/616/EC of 21 May
1997 on the closure aid granted to Bremer Vulkan Werft
GmbH (6) expressly states that the dock and the area related to
it are to be used only for naval shipbuilding or building of
vessels which do not fall under the seventh Directive on ship-
building. The planned aid is only to be used for these activities.
Consequently, as far as the investment concerns the use of the
dock in naval shipbuilding, the measure is considered not to
have any effect on competition as regards products not
intended for military purposes.

Nevertheless, as far as the investment relates to the use of the
dock and the surrounding area for building other vessels, the
measure is considered to have an effect on competition as
regards these vessels.

According to Germany, the dock in question will only be used
for construction, conversion and repair of naval ships and large
yachts. A notarial contract ensures that no commercial ship-
building will be carried out in Bremen-Vegesack until at least
31 December 2003. After that date, any commencement of
commercial shipbuilding in the area is subject to the approval
of the Commission. This ensures that the closure of the former
Bremer Vulkan Werft for commercial shipbuilding is final, in
conformity with Decision 97/616/EC.

the undertakings of

the German
The Commission notes
Government, according to which the dock in question will only
be used for the construction, conversion and repair of naval
ships and large yachts, which do not fall under the scope of the
seventh Directive. Therefore, as far as the dock is used for
yachts, the investment aid is to be assessed in accordance with
the provisions of Article 92 of the Treaty.

The Commission further notes that the planned investment aid
of DEM 900 000 (EUR 450 000) is based on the approved
regional aid scheme known as Gemeinschaftsaufgabe Verbes-
serung der regionalen Wirtschaftsstruktur (GRW) (7), repre-
investment of DEM 6
senting 15 % of
million. Therefore, as far as the investment aid relates to yachts,
it is compatible with the common market within the meaning
of Article 92(3)(c) of the EC Treaty.

the planned total

As far as the waiver of the loan granted to BVM by HIBEG is
concerned, the Commission notes that the loan was granted to
BVM, which is an undertaking engaged solely in naval ship-
building, and the loan was granted to make it possible for BVM
to continue its participation in the frigate programme for the
German navy. Therefore, the measure taken does not adversely
affect the conditions of competition in the common market

For these reasons, the Commission concludes that the scope of
Article 223(1)(b) of the EC Treaty covers the measures taken
and to be taken by the Federal State of Bremen in favour of
naval shipbuilding and in favour of Lürssen Maritime Beteili-
gungen GmbH & Co. KG. Therefore, Article 92(1) of the EC
Treaty is not applicable to those measures.

(5) Aid N 87/96, (OJ C 215, 25,7.1996).

(6) See footnote 4.
(7) OJ C 341, 11.11.1997, p. 4.

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In this context, the Commission wishes to draw Germany's
attention to Article 11(2) of Council Regulation (EC) No 1540/
98 of 29 June 1998 establishing new rules on aid to ship-
building (8). That provision provides that in case of shipyards
engaged in both commercial and military shipbuilding, ship
repair or ship conversion, the regular reports shall be accompa-
nied by an attestation by the statutory auditor certifying the
apportionment of the overheads to these two fields. In addi-
tion, separate information is to be submitted on the turnover in
the commercial and military fields.

VI. CONCLUSIONS

The Commission finds that the financial measures taken and to
be taken by the Federal State of Bremen, Germany, in favour of
naval shipbuilding are measures necessary for the protection of
the essential interests of Germany's security within the meaning
of Article 223(1)(b) of the EC Treaty. Consequently, Article
223(1)(b) applies to these measures. Since application of Article
223 of the EC Treaty precludes application of other Articles,
Articles 92 and 93 of the EC Treaty are not applicable to the
measures.

The investment aid of DEM 900 000 (EUR 450 000), as far as
it relates to the building, conversion or repair of yachts,
is
compatible with the common market pursuant
to Article
92(3)(c) of the Treaty,

HAS ADOPTED THIS DECISION:

Article 1

The measures which Germany has implemented and will
implement in favour of naval shipbuilding and in favour of
Lürssen Maritime Beteiligungen GmbH & Co. KG, totalling
DEM 10,5 million (EUR 5,25 million), are measures necessary
for the protection of Germany's essential security interests
within the meaning of Article 223(1)(b) of the EC Treaty.
Accordingly, Articles 92 and 93 of the EC Treaty are not
applicable to those measures.

The investment aid of DEM 900 000 (EUR 450 000), as far as
it relates to building, conversion or repair of yachts, is compat-
ible with the common market pursuant to Article 92(3)(c) of
the Treaty.

This Decision is addressed to the Federal Republic of Germany.

Article 2

Done at Brussels, 17 March 1999.

For the Commission

Karel VAN MIERT

Member of the Commission

(8) OJ L 202, 18.7.1998, p. 1.