2004/170/EC: Commission Decision of 21 October 2003 on the research and development aid to the site at Zamudio (Basque Country) which Spain is planning to implement for the company "Industria de Turbo Propulsores, SA" (ITP) (notified under document number C(2003) 3525) (Text with EEA relevance)
Date: 2003-10-21
Institutions: European Commission
Subjects: Basque Country, Spain, State aid, control of State aid, research and development, turbine

27.2.2004

EN

Official Journal of the European Union

L 61/87

COMMISSION DECISION

of 21 October 2003

on the research and development aid to the site at Zamudio (Basque Country) which Spain is
planning to implement for the company ‘Industria de Turbo Propulsores, SA' (ITP)

(notified under document number C(2003) 3525)

(Only the Spanish text is authentic)

(Text with EEA relevance)

(2004/170/EC)

THE COMMISSION OF THE EUROPEAN COMMUNITIES,

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

Having regard to Council Regulation (EC) No 659/1999 of
22 March 1999 laying down detailed rules for the application
of Article 93 of the EC Treaty (1), and in particular Article 7
thereof,

Having called on interested parties to submit their comments
pursuant to those provisions (2), (3) and having regard to their
comments,

Whereas:

(1)

(2)

(3)

1. PROCEDURE

By letter of 15 December 2000,
registered on 18
December, the Spanish authorities, acting in accordance
with Article 88(3) of the Treaty, notified a plan to grant
research and development aid to the site at Zamudio
(Basque Country). Further information was sent by letter
of 17 April 2001, registered on 19 April.

By letter of 20 June 2001, the Commission informed
Spain that it had decided to initiate the procedure laid
down in Article 88(2) of the Treaty in respect of the
planned aid.

(10)

The Commission decision to initiate the procedure was
published in the Official
the European
Communities (4). The Commission called on interested
parties to submit their comments on the aid.

Journal

of

(4)

(5)

(6)

(7)

(8)

(9)

By letter of 21 August 2001, registered on 24 August,
the Spanish authorities submitted their comments to the
Commission.

By letter of 17 October 2001, registered on 18 October,
the Federation of Turbine and Heavy Energy Plant
Manufacturers (Sytemel) submitted comments on the
planned aid to the Commission.

By letter of 29 October 2001, registered on 30 October,
the Pratt & Whitney company submitted its comments
to the Commission.

By letter of 15 November 2001,
forwarded to the Spanish authorities a copy of
comments submitted by Sytemel and Pratt & Whitney.

the Commission
the

letter of 27 November 2001,

registered on
By
the Spanish authorities requested the
28 November,
Commission to provide a Spanish translation of those
comments. The Commission satisfied that request by
letter of 21 December 2001.

By letter of 28 January 2002, the Spanish authorities
sent the Commission their response to the comments
submitted by Sytemel and Pratt & Whitney.

By letter of 13 December 2002, the Commission asked
the Spanish authorities for further
information. The
Spanish authorities provided that information by letters
of 16 January 2003,
registered on 20 January, of
27 January 2003, registered on 29 January, and of
5 February 2003, registered on 6 February.

(1) OJ L 83, 27.3.1999, p. 1.
(2) OJ C 274, 29.9.2001, p. 2.
(3) OJ C 147, 24.6.2003, p. 6.
(4) See footnote 2.

(11)

By letter of 23 April 2003, the Commission informed
Spain that it had decided to extend the procedure laid
down in Article 88(2) of the Treaty in respect of the
planned aid.

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Official Journal of the European Union

27.2.2004

(12)

(13)

By letter of 16 June 2003, registered on 16 June, the
Spanish authorities submitted their comments to the
Commission on the extension of the procedure.

The Commission decision to extend the procedure was
published in the Official Journal of the European Union (5).
The Commission called on interested parties to submit
their comments.

(14)

By letter of 24 June 2003, registered on 26 June, the
Spanish authorities forwarded to the Commission the
comments submitted by the aid recipient.

(15)

(16)

2. DESCRIPTION

The case concerns aid which the Basque Government
to the company Industria de Turbo
plans to grant
Propulsores SA (ITP).

It

turbines.

ITP specialises in the design, development, manufacture
is owned by
and maintenance of gas
Rolls-Royce (46,7 %) and by the consortium Turbo 2000
(53,3 %), the latter being itself owned 50/50 by Sener
and SEPI. The number of employees and the company's
turnover exceed the thresholds laid down in Annex I to
Commission Regulation (EC) No 70/2001 of 12 January
2001 on the application of Articles 87 and 88 of the EC
Treaty
and medium-sized
aid to small
enterprises (6) for a company to be considered an SME.

to state

(17)

The aid concerns:

— a research and development (R & D) project to be
at Zamudio (Basque
two new

site
involving the development of

carried out on the
Country),
types of low-pressure turbines,

— a tangible investment project for the Zamudio site
which would increase ITP's production capacities
and enable it to become Rolls-Royce's main supplier
of low-pressure turbines for the engine models in
service.

(18)

The administration granting the aid is
Government (regional administration).

the Basque

(A) The R & D project

(19)

The R & D project concerns the development of two
new low-pressure turbines, of high and low thrust
respectively.

— the high-thrust turbine is to be incorporated into
the Rolls-Royce Trent 500 engine, which powers the
Airbus A340-500 and A340-600 aircraft,

comprises

the whole

the turbine. This

cycle
involves

of
project
the
four
development of
the project, preliminary
stages: preparation of
design, conceptual design and realisation of
the
concept. The last stage is divided into seven steps:
trials, engine trials,
detailed design, component
aerodynamic
of
prototypes,
post-certification
activities,

validation
certification

trials, manufacture

and

— the low-thrust turbine is to be incorporated into the
Allied Signal Aero Engines (7) AS900 engine which
powers the Bombardier Continental and the BAE
Systems 146 RJX regional jet.

design of

low-pressure

The project comprises seven main tasks: general
turbine,
the
activities,
manufacturing
of
manufacture
support,
tools,
development components, manufacture of
of
component
the
and
trials
turbine. The
aeromechanic parameters of
programme also includes
tasks:
integrated logistic support activities, design of axial
compressors, and activities linked to the study of the
external behaviour of the engine.

improvement
the

three additional

by

the

(20) According to the Spanish authorities, all the activities
‘precompetitive
aid
covered
development activities' within the meaning of Annex I
to the Community framework for state aid for research
and development (8)
the
(hereinafter
R & D framework).

referred to as

constitute

(21)

The duration of the project is four years, from 1999 to
2002.

(22)

The aid is provided by the Basque Government in the
form of an interest-free loan totalling ESP 4 000 million
(EUR 24,04 million) out of
costs
amounting to ESP 10 422 million (EUR 62,64 million).
The loan is to be paid and reimbursed according to the
arrangements set out in the following table:

eligible

total

Year

1999

2000

2001

2002

Costs

1 935

4 064

2 762

1 661

(ESP million)

Payment

Reimbursement

0

2 000

1 000

1 000

(5) See footnote 3.
(6) OJ L 10, 13.1.2001, p. 33.

(7) This company recently merged with the Honeywell group.
(8) OJ C 45, 17.2.1996, p. 5.

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Official Journal of the European Union

Year

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

Total

Costs

Payment

Reimbursement

(ESP million)

0

0

0

0

100

100

200

200

200

750

2 450

4 000

(28)

10 422

4 000

(B) The investment project

(23) According to information provided by the Spanish
is not part of any current
authorities,
regional aid scheme approved by the Commission. It is
ad hoc regional aid.

the project

(24)

(25)

The project should allow the Zamudio site to become
competitive in a high-technology market where the
indirect costs are high. ITP plans to manufacture various
components on the Zamudio site for
the following
engine models: EJ-200, Trent 700 and 800, Allison 601
K, Atar 9K50 Plus, BR715, TF50 A, LM 2500, F414,
M138(FLA), MTR390 (attack helicopter), Trent 900,
Trent Industrial, Trent 500 and AS900.

The Spanish authorities consider that this project will
have positive effects on the whole of
the Basque
economy, such as industrial diversification, economic
jobs and added value, access to
impetus, creation of
advanced technologies and their incorporation into the
technological and industrial
fabric, workforce skilling,
and a multiplier effect on industry as a whole. They also
refer in particular to the creation of some 1 000 indirect
jobs in the Basque Country, and a subcontracting ratio
which could reach 30 % in 2002.

(29)

(26)

The duration of
2002).

the project

is three years (2000 to

L 61/89

(ESP million)

Buildings

Tools

2000

1 070

275

Years

2001

880

467

2002

Total

1 950

1 062

320

Machines

1 420

1 500

2 920

5 840

Total

2 765

2 847

3 240

8 852

With a reference and discount rate of 5,7 %, the total
investment,
amount
to
31 December 2000,
is ESP 8 358 million (EUR
50,23 million).

discounted

the

of

The aid is in the form of a non-repayable grant.
According to the Spanish authorities,
aid is
conditional on net
and
maintenance of the investments over a minimum period
the grant
of
is
five years. The overall amount of
ESP 1 170 million (EUR 7,03 million),
to be paid
according to the following timetable:

job creation by ITP (9),

the

Year

Grant

2000

343

2001

369

2002

458

Total

1 170

(ESP million)

With a reference and discount rate of 5,7 %, and a tax
rate of 32,5 %, this gives a total amount discounted to
31 December 2000 of ESP 1 102 million,
i.e. an aid
intensity of 13,18 % gge (gross grant equivalent) and
9,80 % nge (net grant equivalent).

(C) Background

to a

in reply

In addition,
question from the
Commission, the Spanish authorities indicated that the
recipient
received
firm had, on 27 January 1998,
investment aid in the form of a tax credit amounting to
ESP 737 272 004 (EUR 4 431 094). The investment
project, which covered the period 1997-2001, involved
(ESP 1 150 million),
the following costs: buildings
machinery (ESP 5 400 million),
installations
technical
(ESP 600 million), other installations (ESP 173 million)
and IT systems (ESP 675 million),
i.e. a total of ESP
7 998 million. The aid, with an intensity of 9,22 %, was
granted by the Vizcaya Provincial Council under
Provincial Law (Norma Foral) No 7/1996 of 26
December 1996. However, by Decision 2003/27/EC of

(27)

The total amount of the investment is ESP 8 852 million
(EUR 53,2 million), broken down as follows:

(9) ITP plans to create 272 new jobs between 2000 and 2003.

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Official Journal of the European Union

27.2.2004

11 July 2001 on the State aid scheme implemented by
Spain for firms in Vizcaya in the form of a tax credit
amounting to 45 % of investments (10), the Commission
found that the aid provided for by the Provincial Law
(45 % tax credit for investment in firms in Vizcaya) was
unlawful and incompatible with the common market
and had to be repaid.

(30)

By letter of 5 February 2003, registered on 6 February,
the Spanish authorities indicated that this aid to ITP had
not yet been repaid.

3. DESCRIPTION OF THE GROUNDS FOR INITIATING
THE PROCEDURE

(31)

In its decision of 20 June 2001, the Commission raised
a number of doubts concerning the following aspects of
the aid under examination:

— the

in

For

activities.

development

classification of

certain R & D tasks as
precompetitive
the
low-pressure high-thrust turbine project, the doubts
testing,
concerned
certification and post-certification activities. For the
low-pressure low-thrust turbine project, the doubts
concerned in particular manufacturing support,
tools manufacturing and integrated logistic support
activities,

particular

engine

the

(33)

The Commission deemed that information to be of key
importance if it was to be able to reach a decision on
all the other issues already mentioned.

(34)

(35)

In accordance with the principle established by the
Court of Justice of the European Communities in its
judgment of 15 May 1997 in Case C-355/95 P
Textilwerke Deggendorf GmbH v Commission and
Federal Republic of Germany (11), the fact that old aid
that was unlawful and incompatible had not been repaid
by the recipient firm could affect the compatibility of
the new aid on account of the cumulative affect of the
aid measures in question.

Spanish authorities had informed the
Since
the
Commission that
the aid examined
the recipient of
under the present procedure had not reimbursed the aid
in the
amounting to ESP
tax credit
737 272 004 granted by the Vizcaya Provincial Council,
which had been declared unlawful and incompatible by
Decision 2003/27/EC, the Commission had doubts as to
the compatibility of the new R & D and investment aid.

form of a

(36)

In view of those doubts, the Commission extended the
procedure in order to examine this question, which was
not covered by its decision of 20 June 2001.

— the admissibility of additional overheads and other

operating expenses as eligible R & D costs,

5. COMMENTS BY THE SPANISH AUTHORITIES

— the incentive effect of the R & D component of the

aid,

Classification of certain R & D tasks as precompetitive
development activities

— the justification of the project in terms of regional
development, in view of the fact that it was an ad
hoc aid measure,

— the justification for including the expenditure on
the investment

tools among the eligible costs of
project.

4. DESCRIPTION OF THE GROUNDS FOR EXTENDING
THE PROCEDURE

(32)

The Commission took the view that the circumstance
referred to in recital 29 above, of which it was informed
after its decision of 20 June 2001, was a new fact in
that
the information was not known to it when it
adopted that decision.

(37) With regard to the high-thrust

and

testing,

certification

turbine project,

extensometry, measurement

the
Commission did not rule out the possibility that the
post-certification
engine
activities could relate to marketable products and might
therefore not constitute precompetitive development
activities. The Spanish authorities pointed out that the
engine trials for this project comprised the following
the metal
tests:
temperatures, measurement of
temperatures,
thermal paints, efficiency tests, cycle tests, type tests and
fan blade off tests. Only the last two were certification
tests. According to the Spanish authorities, they were
also crucial to the objective of developing the capacity
for designing complete
of
models. The fan blade off
test was not carried out
earlier during the development phase in view of its high
therefore provided the first opportunity (not
cost.
without risk) for calibrating non-linear calculation tools
developed for this loading case. The other activities
formed part of the development process and constituted

ITP's R & D department

of
the air

It

(10) OJ L 17, 22.1.2003, p. 1.

(11) [1997] ECR I-2549.

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Official Journal of the European Union

L 61/91

the initial verification and calibration of the design tools
developed by ITP. The Spanish authorities furthermore
took the view that components subjected to the tests
could not be used commercially, given the ageing that
accumulated during the resistance test (type test) and
the destructive nature of the fan blade off test. Be that
as it may, the Spanish authorities stated that this aspect
could be
committee
checked by
provided for under the programme.

the monitoring

(38)

(39)

The certification and post-certification activities for the
high-thrust turbine project involved analysis of the data
and documents generated by prior tests, a task that
should not be confused with a drafting activity aimed at
fulfilling conditions
laid down by the certification
authority. The Spanish authorities took the view that
the certification process imposed technical constraints
which in this case were more stringent
than those
demanded by the customer. Those constraints were
imposed from the beginning of
the design and
determined it. According to the Spanish authorities,
they could not
therefore be regarded as a mere
administrative requirement without innovative value. In
drew the
Spanish
any
ITP's
that
to
Commission's
involvement in this activity was an excellent learning
opportunity for the company, which it could put to
good use with a view to launching other competitive
projects in the near future. These activities contributed
to the development of a new business area for the firm,
which took the form of the creation of an airworthiness
department and the submission to the JAA (Joint
Aviation Authority) of an application for DOA (Design
Organisation Approval).

authorities
fact
the

the
attention

event,

turbine project,
in

concerned
tools manufacturing

the low-thrust
doubts
support,

the
In the case of
particular
Commission's
manufacturing
and
integrated logistic support activities. With regard to
the Spanish authorities stressed
tools manufacturing,
that the first objective of the project was to produce an
engine that was significantly cheaper than any other
existing option, which made it necessary to modify
aerodynamic criteria, mechanical criteria, qualification
conditions, etc. The activities corresponding to this task
constituted the engineering design and manufacturing
engineering departments' contribution to the review of
the design and manufacturing concepts. Those activities
involved, in particular, a high degree of innovation with
regard to design and manufacturing methods and
high-level
technical discussions on the quality and
capacity conditions of the process.

(40) With regard to the tools manufacturing activities, the
Commission did not rule out the possibility that at least

to

of

case,

regard

engines.

they claimed,

in the present

the tooling might be used for
Spanish

the series
part of
The
authorities
production
of
acknowledged that one of
the usual principles in a
development programme was indeed to recover as many
of the tools as possible for the production programme.
the
However,
approach was different in that the project was based on
extremely low purchase prices, which introduced huge
risks with
future
possibility
the
manufacture. The time to market was
furthermore
reduced in order to be able to capture the three possible
customers
the
reduction of costs required from the outset made it
necessary to introduce concepts that were unusual
in
this type of small engine, such as the reduction of the
number of vanes, and therefore had to be verified at a
very early stage in the project. It was therefore necessary
to finalise the tooling very early on, even before the
concepts
Spanish
authorities also pointed out that, as a result of regional
policy commitments, the cast components, which used
to be produced in the United States, were to be
transferred to Vizcaya, which meant that ITP had in any
event to bear the cost of a new set of tools.

competing projects.

demonstrated.

before

Lastly,

been

The

had

and (c)

development

technical manuals;

(41) As regards integrated logistic support activities for the
the Commission took the view that
AS900 project,
these corresponded to marketable versions,
to which
they contributed no new feature, modification or
improvement, and therefore did not
form part of
precompetitive development. The Spanish authorities
explained that these activities related to the following
aspects: (a) the illustration of technical manuals; (b) the
reliability,
drafting of
maintenance, etc. The last-named activities, although
carried out by the
support group, were
logistic
design/development tasks, carried out at the same time
as development of the turbine, which determined the
product design itself. They did therefore constitute
precompetitive
as
far
activities
the Spanish
authorities argued that the Commission's view could be
justified if ITP were habitually engaged in activities of
this type. However, in the present case, these were new
activities
company which introduced an
innovation in the development of its methods, involving
the
the
establishment of a new department. In particular, this
included the development of systems and tools for
producing and illustrating technical publications, which
had to be drawn up in a manner that was compatible
with those used for
the aircraft as a whole and
incorporate the latest available technological advances.
A far
the work therefore
consisted in developing the successive prototypes and
the final version of the systems for producing technical
publications, a task which, according to the Spanish
authorities, formed part of precompetitive development.

(a) and (b) were concerned,

from negligible share of

activities. As

development

necessary

tools

the

for

for

of

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Official Journal of the European Union

27.2.2004

(42)

(43)

Admissibility of additional overheads and other operating
expenses as eligible costs

of

that

Spanish

authorities

understood

development

‘contribution

The
the
Commission's doubts related to the costs under the
the
to
heading
programme'. They could not understand why the
Commission had classed these
costs as additional
overheads, since, in their view, they were in fact direct
costs arising from the research activity. The Spanish
authorities stressed that ITP was not an original engine
manufacturer (OEM) and therefore could not, even if it
so wished, assume responsibility for the engines as a
of
whole
and,
engines.
incorporating
Consequently, the tasks involved in incorporating the
turbine into the engine, and especially the tests on the
turbine, had to be carried out under the responsibility
of
the OEM, with ITP's participation. The Spanish
authorities also stressed that the intensity of the aid
towards these eligible costs was 8 % and that
the
repayable advance requested for these costs accounted
for 30 % of the total amount of the repayable advances
requested for the entire project, which was in line with
the conditions for intangible technology transfer costs
associated with investment projects.

particular,
turbines

for
into

process

in
its

those

the

Incentive effect of the R & D component of the aid

the

aid,

applied for

The Spanish authorities pointed out that ITP was active
in two areas: engine maintenance and the development
and production of engine components. At
the time
company was
when it
specialised above all in the static components, which are
simpler and less integrated. Its production infrastructure
was therefore tailored to the production of parts of this
type. After analysing its position in this market, ITP had
decided to change its strategy in order to become a
supplier of complete modules. Such a decision entailed
an obvious risk, not only on account of the scale of the

the

(44)

(45)

necessary investments but also because the company
had to penetrate two different sectors (both high- and
low-thrust
low-pressure turbines) with two different
partners (Rolls Royce and Allied Signal). The Spanish
authorities also stressed that contacts between the
company and the Basque Government dated back to
August 1998 and that the latter's willingness to support
the project was a factor in the decisions taken by ITP.

The Spanish authorities also pointed to a further three
factors that made such a change of strategy particularly
risky: first, the risk of having to invest a very large
proportion of the resources generated (12); second, the
fact that, without the aid, the production of parts for
the Trent 500 project would have been located at Rolls
Royce's existing plant in Derby and not on the Zamudio
site; and, third, the fact that the AS900 programme was
in competition with the range of engines produced by
Rolls Royce North America (formerly Allison), which
logically caused some of the shareholders to be reluctant
to take risks under a competing project.

the time when it

The Spanish authorities then provided certain indicators
which, in their view, demonstrated that the aid did have
an incentive effect. ITP enjoyed significant growth over
the period 1997-1999,
framed its
strategy for involvement in low-pressure turbines. This
growth, which was in the region of 0,60 %, was similar
to that enjoyed by the US firm General Electric.
Furthermore, ITP accounted for only 1,46 % of turnover
in the engine subsector and 0,25 % in the European
aerospace sector, whereas its participation in the Fifth
Framework Programme was in the region of 6 % for the
engine subsector and 1,80 % for the aerospace sector, or
4.1 times greater than what could normally be expected
on the basis of its turnover.

(46)

company's R & D expenditure

The
increased
substantially in relation to its turnover from 1999 (the
first year of
the project) onwards, as shown by the
following table:

(ESP million)

Turnover

R & D

1993

1994

1995

1996

1997

1998

1999

2000

14 108

14 145

16 051

14 702

19 263

25 333

31 493

36 952

238

914

1 850

3 705

4 373

4 750

8 061

12 438

R & D/turnover

0,02

0,06

0,12

0,25

0,23

0,19

0,26

0,34

(12) The resources generated in 1997 and 1998 (prior to the project)
were ESP 4 534 million and ESP 6 566 million respectively, while
the necessary investments amounted to ESP 1 935 million in 1999
and ESP 6 829 million in 2000, or ESP 19 274 million over the
four years of the project's duration.

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The workforce also increased significantly, since the
company employed 300 technicians after 12 years of
activity.

(47) On the assessment of the technological risk inherent in
the project, account had to be taken, according to the
Spanish authorities, of the fact that it was usual for
OEMs to publish incomplete information concealing
possible delays or development problems in order to
preserve their image, which could lead the Commission
to believe that this project did not involve any risks.

2004 and the Interinstitutional Agreement on the
introduction of the Plan concluded between the Basque
Government and the Vizcaya, Guipúzcoa and Álava
Provincial Councils. The Plan provided the framework
for
the
the economic development activities of all
Basque institutions. The Spanish authorities explained
that they had decided at the time not to notify the
Commission of the Plan as such but to make individual
notifications.

(48)

(49)

(50)

Concerning the technological barriers which the project
had to overcome, the Spanish authorities referred to the
information they had already provided in their letter of
17 April 2001. The value of the project's technological
objectives should not be underrated, they claimed, since
a good number of them had not yet been achieved. As
regards the TRENT 500 engine, they pointed out that
what was certified in December 2000 was a basic
version of the engine, using technology that imposed
heavy loads. A new version of the engine was therefore
developed which improved efficiency by 1 %, and the
company was currently working on a version that was
to achieve a 2 % improvement in efficiency. Certification
of the AS900 engine was delayed by one year as a result
of technical problems.

to

the

companies

to which

in practice,

turbine modules

Lastly, the Spanish authorities pointed out that OEMs
frequently created major barriers to the transfer of
technology
they
subcontracted, given the risk the latter could introduce
the
limited,
into the programme. This
firms that could receive subcontracts for
number of
low-pressure
in
risk-sharing programmes. It was therefore unlikely that
any other company in Spain would have sufficient prior
know-how to be able to enter this sector. Consequently,
it was difficult
to imagine other firms in Spain or
Europe that could receive similar aid. The Spanish
authorities also stressed that it was usual for the aircraft
industry to receive state aid; they claimed, however, that
the intensity of the aid planned for this project was
lower than the average levels of aid in Europe and the
United States.

part

take

or

Justification of the project in terms of regional development

firstly,

did not

form part of

there was no overall

that
The Spanish authorities pointed out,
although the project
a
Commission-approved aid scheme, that did not mean
that
examining,
analysing and evaluating projects of this nature. The
project was classed as a strategic programme and had
been evaluated by the Basque Government under the
Interinstitutional Economic Development Plan 2000 to

system for

(51) As

had

The

region

regards

change.

traditionally

the effects of

the project on regional
the Spanish authorities explained that
development,
industry
been
the
in
concentrated in sectors such as mining, steelmaking,
shipbuilding and capital goods. The successive crises in
those sectors had deeply affected the
region and
to adopt an industrial policy aimed at
prompted it
facilitating
Economic
structural
Development Plan 2000 to 2004 therefore put forward
a model of competitiveness geared to the creation of
businesses in the region with higher demand potential
in order
to serve as an engine for development,
promote economic activity in what were regarded as
innovative
strategic, priority
capacity
the
internationalisation of firms in the region. The policy
was not based on a sectoral approach but had a regional
focus. The Interinstitutional Agreement
development
supporting specific
the possibility of
provided for
projects pursuing these objectives in accordance with a
number of qualitative and quantitative criteria enabling
their potential contribution to regional development to
be gauged irrespective of
the sector concerned. The
the project
Spanish authorities
presented by ITP was fully in line with those objectives.

sectors, develop the

took the view that

businesses

facilitate

and

of

(52)

(53)

The Spanish authorities also took the view that
the
project presented by ITP could give a major boost to the
development of the region: using a mathematical model
developed by the University of Deusto (Faculty of
Economics and Business Studies) on the basis of
input-output tables, they claimed that the project could
have a total economic impact of ESP 101 792 million
for a level of activity of ESP 39 096 million. In terms of
gross value added, the impact would be ESP 52 100
million for a gross value added by activity of ESP
28 400 million and an additional activity of ESP 16 821
million. As far as employment was concerned, the total
effect would be 5 239 jobs overall for a workforce of
1 424 in the company.

Lastly,
authorities

the project would according to the Spanish
to be

involve a volume of

investment

L 61/94

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Official Journal of the European Union

27.2.2004

(56)

(57)

local

subcontracted in the region amounting to ESP 1 450
million and a level of subcontracting in the region
amounting to 30 %. It was also hoped to increase the
number of
suppliers by 40 %. The Spanish
authorities also stated that the project would help to
consolidate an industrial group that was specialising in
products with high value
added and substantial
technological content, develop the competitiveness of
firms operating as subcontractors in the aircraft industry
and boost aerospace research in the Basque Country.
There was also a long-standing tradition of cooperation
between ITP and the Bilbao Engineering School or the
Mondragón Polytechnic University with a view to
developing a skills base capable of meeting the needs of
the sector. Lastly, the Spanish authorities hoped that the
Zamudio site would become a centre of attraction for
advanced industries.

Justification for including the expenditure on tools among the
eligible costs of the investment project

(54)

at

jigs, templates, stiffeners,

The Spanish authorities explained that expenditure
under the heading ‘tools' related to production tooling
associated with the manufacturing process
the
Zamudio site and comprised mechanical apparatus
(clamps,
i.e. components for
handling parts and for the interaction between parts
and tools),
sheetmetal working and welding tools
(cutting and finishing tools, tools for assembling welded
components, etc. These were extremely costly, given the
number of adjustments and mechanisms involved) and
inspection and verification tools (standard components,
templates and gauges for facilitating the inspection of
the first and series-produced components). The tooling
was to be designed for the machinery to be installed at
Zamudio and related to new investments. The relevant
expenditure was broken down as
shown in the
following table:

(ESP million)

2000

2001

2002

Total

150

327

215

692

85

97

93

275

Mechanical appar-
atus

Sheetmetal working
and welding

Verification

Total tools

25

260

43

467

27

335

95

1 062

Issue raised in the decision to extend the procedure

(55)

The Spanish authorities provided proof
the aid
described in recital 29 had been reimbursed in full by
the recipient since the decision to extend the procedure,

that

including
interest rates recommended by the Commission.

compound interest

calculated using

the

6. COMMENTS BY INTERESTED PARTIES

Comments submitted by Sytemel

The Federation of Turbine and Heavy Energy Plant
(Sytemel), a French trade association,
Manufacturers
wished to draw the Commission's attention to the
following regional issue: since the French department of
Pyrénées-Atlantiques was already home to a number of
industrial manufacturing or subcontracting centres for
the Turbomeca group (which produced combustion
turbines for aircraft applications and also naval or
terrestrial uses), the distortion of competition caused by
possible support from the Basque Government would
aggravate the already adverse effect of geographic
proximity of the sites on the mobility of researchers and
technicians. Publicly assisting a new R & D centre for
and abnormally affecting the
combustion turbines
between
natural
conditions
for
manufacturers were both unfavourable
trans-Pyrenean
regional
planning in Europe.

attractiveness

competition

proper

factors

and

of

Comments submitted by Pratt & Whitney

that

First, Pratt & Whitney argued that the intensity of the
aid for this project should be considered in conjunction
with state aid previously granted to Rolls-Royce for the
Trent 500 engine and related development activities,
since Rolls-Royce was the only private industrial partner
in ITP. Account had to be taken in this connection of
the fact that the Trent 500 was a derivative rather than
a new engine and incorporated technologies taken from
the Trent 700, Trent 800 and Trent 8104 engines,
the costs and technological risks
which meant
involved were reduced. Pratt & Whitney therefore took
the view that
the cost of developing the Trent 500
should be only 30 to 40 % of the cost of a completely
new engine, a fact that should be taken into account
when determining the eligible costs. The Trent 500 had
furthermore already received state aid granted by the
United Kingdom in 1998, which, according to Pratt &
Whitney, must have been based on the assumption that
the development costs.
Rolls-Royce would bear all
Transferring a share of the risks to other partners, such
in an effective increase in the
as ITP, would result
intensity
a
aid
‘double-dipping' of state aid since those partners would
obtain further state aid for themselves. There could even
be
for
additional aid presented by Rolls-Royce in 2001 for the
Trent 600 and Trent 900 engines included, according to
Pratt & Whitney, engine programmes and technologies
that were already assisted by the 1997 aid grant. Pratt &

‘triple-dipping' of aid in that

granted

request

already

and

the

the

of

27.2.2004

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L 61/95

Whitney also pointed out that Rolls-Royce's contribution
to R & D activities from its own funds was unusually
low compared with the levels of company-funded R & D
by Pratt & Whitney and other competitors.

(58)

(59)

the aid for

the
Pratt & Whitney considered that
high-thrust turbine had no incentive effect since the
request for aid was retroactive as the precompetitive
development costs had already been incurred. The Trent
500 programme was long past the launch phase and the
engine had already been certified by the competent
authorities. Pratt & Whitney shared the doubts raised by
the Commission based on the fact that the project had
already reached a high level of maturity. The company
the period for which the aid was
pointed out
formal
requested
it had
announcement by Airbus in June 1997 that
selected the Trent 500 as the sole engine for
the
A340-500/600. The engine was first tested in May 1999
for
and
A340-500/600 powered by the Trent 500 engine had
so far totalled 88 aircraft, most of which had been
placed before 1999.

that
(1999—2002)

2000. Orders

in December

postdated

certified

the

raised by the
Pratt & Whitney shared the doubts
Commission as to whether engine testing, certification
and post-certification activities could be classed as
precompetitive
the
the R & D framework. The company
meaning of
large
explained that, according to its own experience,
aero-engine development projects had four distinct
phases:

activities within

development

— the

to

were

concept

during which market
phase,
and technology
strategy
requirements, business
re-evaluated.
continuously
readiness
Conceptual design studies were conducted with
airframe manufacturers
the
requirements for thrust, performance, weight, noise,
emissions,
and so on.
Technologies were proven through analysis and rig
or engine testing in order to minimise technical risk.
This phase could continue for long periods of time.
It could be regarded as ‘precompetitive', but
the
the total
costs were relatively low, about 4 % of
programme cost,

installation constraints

determine

— the launch phase, during which the production
design of a specific new engine model or derivative
was developed. Some rig and component
testing
could be carried out, and long lead-time tooling and
parts were ordered using the expected production

for

with
and

into
specifying

schedule,
requirements

entered
customers,
delivery

configuration. By the end of this phase, the engine
configuration and technology were largely fixed. The
business
engine manufacturer
the
agreements
price,
certification
the
performance and technical
engine. This phase lasted around one year and
accounted for some 9 % of the total programme
development cost. Pratt & Whitney considered that
this phase too could be regarded as precompetitive
the R & D
development within the meaning of
framework, since it was uncertain until the end of
the phase whether
the engine would ever be
manufactured and sold. However, by the end of the
launch phase, if the programme was to proceed, it
was because the engine manufacturer had obtained
a sufficient number of orders, and subsequent
phases could not therefore be deemed to constitute
precompetitive activities,

the

into

entry

(FETT),

first engine

service. New and

— the engine validation and certification phase, which
was intended to establish that
the product met
specifications and was sufficiently safe and reliable
for
unproven
technologies were generally not added to the engine
design during this phase since this would prove
difficult, risky and costly. The phase could itself be
divided into two parts: before and after production
of
initial
to test
the
the commercial production engine.
prototype of
During the production of the FETT, detailed design
drawings of all engine components were completed.
The FETT was typically fabricated by hand, using
non-production processes and temporary tooling.
The engine validation and certification phase prior
to FETT lasted about one year after the end of the
launch phase and accounted for around 9 % of the
total programme cost. Once the FETT had been
produced it had to successfully undergo all the tests
the
required to ensure that
minimum standards for safety and performance. All
the engines used for these tests were produced in
accordance with the design of
to be
certified. This period lasted about two years and
accounted for around 55 % of total costs. A large
proportion of
in
producing the engines used for the tests. Five such
engines could be enough for certifying a derivative
engine, while as many as ten or more engines were
normally necessary for a new engine design. These
engines
using
commercial production methods. They were tested
under extreme conditions, which meant that it was
practically impossible to refurbish and sell them to
the airlines. They were therefore generally used for
other development activities or in post-certification
engine improvement programmes. Pratt & Whitney
consequently shared the Commission's view that the
costs incurred during this certification phase related

usually manufactured

the engine met all

costs were

the model

incurred

these

were

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27.2.2004

to a product that could be used commercially —
and which indeed was already sold commercially
after the end of the launch phase,

combination met

in accordance with the

— the flight test and airframe certification phase, the
final phase in which the engines were installed in
the
certified
aircraft
aircraft had to successfully
configuration. The
undergo a set of
tests with the certified
flight
engines in order to demonstrate that the engine and
prescribed
airframe
operability
airworthiness,
test
requirements. After
flight
programme,
typically
flight
refurbished and sold commercially. Along with the
Commission, Pratt & Whitney took the view that the
activities carried out during this phase could not be
regarded as precompetitive development activities
within the meaning of the R & D framework.

completing
test

engines were

performance

the
and

the

low-thrust

turbine
support,

as
project
tools manufacturing

Lastly, with regard to the eligibility of costs, Pratt &
Whitney shared the Commission's doubts in the case of
to whether
the
manufacturing
and
integrated logistic support activities could be regarded
as precompetitive development activities within the
meaning of
the R & D framework: manufacturing
support formed part of the firm's commercial policy
and did not constitute a research and development
activity; tools manufacturing was aimed at building the
machines necessary to make prototypes, which could at
least in part be subsequently re-used to manufacture
support
and integrated
standard engines;
consisted in producing manufacturing instructions,
manuals
engine
maintenance that related to the commercial versions of
the engines,
to which they brought no innovation,
modification or improvement. The same doubts applied
also to the high-thrust turbine project.

procedures

technical

logistic

and

for

(60)

In

production.

15 %
the

the network of plants and subcontractors that
affect
usually worked for Turbomeca or trigger any movement
of researchers towards the Basque Country.
ITP, as a
supplier of subsystems and a risk partner in engine
in competition with small or
programmes, was not
it created
medium-sized workshops. On the contrary,
work for manufacturers of this type since it did not
have the facilities for producing all the components that
went to make up a turbine. ITP planned to continue
subcontracting
these
of
the
geographic
circumstances,
manufacturers represented by Sytemel constituted an
advantage in comparison with other potential suppliers
located in the United Kingdom, Germany or central or
southern Spain. It could thus be argued that suppliers of
subsystems created work rather than taking it away, and
this was confirmed by certain facts:
ITP had not
received a single subcontracting order from industries in
region, but had placed increasing volumes of
that
in the south of France. For
manufacturing orders
example, ITP had in a single year ordered turbine discs
worth EUR 17,2 million from a French company, while
the hoped-for grant amounted to EUR 7 million.
Furthermore, this type of component was traditionally
supplied by a Japanese company.

proximity

of

(63) Unlike Sytemel, the Spanish authorities considered that
geographic proximity was an advantage and that the
mobility of
should be
researchers and technicians
encouraged, as indeed the European Union had done in
the Sixth Framework Programme,
in order to develop
ITP and the
European industry.
Basque Government were taking part in the Interreg
initiative with a view to developing technological and
commercial links between the Basque Country and the
Aquitaine region.

In this connection,

Comments submitted by the recipient

Response to the comments submitted
by Pratt & Whitney

(61)

The aid recipient submitted comments only on the
decision to extend the procedure. These comments
concurred with those made in that connection by the
Spanish authorities, which demonstrated that
the
unlawful and incompatible aid mentioned in recital 29
had been reimbursed in full by ITP since the decision to
including compound interest
extend the procedure,
calculated using the interest rates recommended by the
Commission.

(64)

7. RESPONSE BY THE SPANISH AUTHORITIES TO THE
COMMENTS SUBMITTED BY INTERESTED PARTIES

Response to the comments submitted by Sytemel

(62) According to the Spanish authorities, and contrary to
what was claimed by Sytemel, the project would not

considered that

in ITP and that

Spanish authorities

Pratt &
The
Whitney's arguments concerning the aid intensity,
in
other words the link with aid received by Rolls-Royce
for the Trent 500 project, were based on the incorrect
the only private
assumption that Rolls-Royce was
shareholder
the remaining shares
belonged to the State or to regional or local authorities.
its only public
But ITP was mainly privately owned,
the
shareholder being SEPI, which held 26,65 % of
capital. The remainder was split between the private
companies Sener (26,65 %) and Rolls-Royce (46,7 %).
Given its private company status, the state aid received
by ITP in Spain was therefore separate from the aid
granted by the United Kingdom to a British firm. The
planned R & D aid to ITP corresponded to investments
in
development
capital,
equipment,
for which no other state aid had been
received. The conditions for ITP's entry into the project
as a risk partner were furthermore market conditions,

engineering

actual

and

27.2.2004

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Official Journal of the European Union

L 61/97

any

special

treatment

premium or

by
without
Rolls-Royce. There was no duplication of work or any
overlap with aid granted in the United Kingdom. With
regard to Pratt & Whitney's opinion that the Trent 500
was a derivative engine, the Spanish authorities pointed
out that even a new engine was based on additional
knowledge in relation to previous ones. That principle,
which applied to all manufacturers, enabled each of
them to reduce development costs significantly. In any
event, the aid had to be assessed in relation to the actual
development costs and not the costs that would have
been incurred if the engine had been completely new.
The Spanish authorities stressed that the aid was an
incentive aimed at enabling ITP to enter a new area of
ITP therefore did not have the
activity and that
experience acquired by other firms. As regards the level
of innovation incorporated into the turbine, the Spanish
authorities claimed that the design and the technology
used were completely new in comparison with other
low-pressure turbines produced by Rolls-Royce or any
other manufacturer. They repeated that the aid to ITP
was designed to cover costs that
the company had
genuinely incurred and had not been reduced in any
way by state aid granted in the United Kingdom. Lastly,
they took the view that it was not for them to comment
on the accounting criteria used by Rolls-Royce and
stressed that Rolls-Royce and ITP were two completely
different companies.

(65)

the conclusion that

Concerning the incentive effect of the aid, the Spanish
authorities considered that Pratt & Whitney had arrived
there was no technical or
at
commercial risk on the ground that
the Trent 500
engine was certified in December 2000 and that the R
& D activities had therefore been completed before
the engine was first announced. The
certification of
Spanish authorities took the view, on the other hand,
that many of those activities overlapped, particularly if
account was taken of the different levels: engine, system
and subsystem. Many announcements were furthermore
the customer's
made artificially in order
programme and preserve the commercial image of the
project. The Spanish authorities stated that the turbine
standard certified in December 2000 did not fulfil the
requisite conditions and that
the engine was in fact
certified with a basic low-pressure turbine standard in
order to avoid delaying the development programme for
the aircraft it was to power. Between that standard and
the subsequent one, modifications were developed and
tested that were in advance of the state of the art. Those
modifications were partly the result of parallel R & D

to protect

plans and showed the extent to which the technological
risk existed and could have an economic impact on a
small firm like ITP. The Spanish authorities stressed that
the time-lag with respect to the established schedule due
to the design of the second configuration caused the
precompetitive development activities to be delayed and
that, although the project was already at an advanced
stage when it was notified to the Commission, it should
not be deduced therefrom that the aid was any less
necessary. Lastly,
the existence of
they argued that
orders or declarations of intent to purchase engines did
not relieve the manufacturer of the risk of failing to
meet the technical specifications, since orders not only
did not provide any advance funding but always
of
heavy
included
non-compliance.

penalties

event

the

in

certification or
availability

(66) As regards the precompetitive development activities,
the Spanish authorities took the view that the model for
engine design projects put forward by Pratt & Whitney
was not necessarily the only one possible and that other
OEMs were perfectly capable of adopting other models
that might not coincide with the one described. In any
event, according to the Spanish authorities, some major
differences could be observed between the methods
adopted by an OEM such as Pratt & Whitney and those
of a firm like ITP. The proportion of precompetitive
development tasks was, for one thing, much larger in
the case of a supplier of subsystems than in that of an
OEM since the former was involved not
in engine
in technical
marketing,
activities. The
technology
(precedents) also differed as between a firm traditionally
like Pratt & Whitney, and a
present
medium-sized firm that had been in the market for only
12 years, like ITP. For example, an OEM could regard a
low-pressure
the
of
high-pressure
supplier of
low-pressure turbines, could not refer to high-pressure
turbine or any other previous turbine technology, and
the net
these activities was
therefore proportionately higher in the case of ITP than
the Spanish authorities were
for an OEM. Lastly,
convinced that the activities in respect of which the
Commission
constitute
precompetitive development activities for ITP, since they
corresponded to the initial development of certain
methodologies and processes.

turbine
turbine, whereas

technological content of

by-product
ITP,

sales but
of

in the market,

existing

doubts

raised

had

did

as

a

a

(67)

took the

view that

Spanish authorities

Lastly, as far as the eligibility of costs was concerned,
the
the
Commission had all the information it needed in order
to reach a decision on this issue and, in particular, on
the specific content of each of the tasks. Since such
information was not available to Pratt & Whitney when
it submitted its comments on the certification and
comments were
post-certification
groundless.

activities,

those

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8. ASSESSMENT

away from the market as precompetitive development
activities.

(68)

It

research

projects.

The measures planned by the Spanish authorities confer
an advantage on the recipient firm by relieving it of
some of the costs incurred through the investments and
research activities which it should normally bear itself.
This advantage is also selective with respect to other
firms that might wish to carry out such investments or
similar
affect
intra-Community trade if only because the projects in
question are aimed at developing and manufacturing
products to be supplied to Rolls-Royce and therefore
exported to the United Kingdom, and also because ITP
subcontracts for a number of European firms. Lastly, the
interest-free loans are granted direct by the Basque
Government, and consequently the advantages must be
deemed to be conferred by means of state resources.
The measures in question therefore constitute state aid
within the meaning of Article 87(1) of the Treaty.

could

also

(73) On the other hand,

the Commission found in that
Decision that engine certification,
let alone activities
subsequent to such certification, were too close to the
market for them to constitute R & D activities in line
with the R & D framework.

(69) As stated in recital 26 of this Decision, the Commission
raised doubts concerning this project. The questions
the planned aid for
arising will be examined below,
research and development and the planned aid for
investment being dealt with separately.

(74)

it

The Commission considers that it must adopt the same
approach towards the project under examination in the
took when it assessed the
present Decision as
abovementioned United Kingdom project.
It cannot
follow the approach advocated by Pratt & Whitney,
since that would mean restricting the scope of research
and development exclusively to very early work carried
out even before an initial prototype, albeit commercially
unusable, was built. Such an approach would clearly run
counter to the logic of the R & D framework, which
such
the
expressly provides
for
prototypes
research and
included
to be
development activities.

construction of
among

A. Aid for research and development

Classification of the R & D tasks as precompetitive
development activities

(70)

The Commission notes firstly that
the assessment of
state aid for research and development in the light of
the Community rules is based on the analysis of eligible
costs relating to specific investments. The fact that other
investments, even linked to the same project, have
received state aid cannot therefore make the project in
question incompatible with the Treaty. This principle
therefore applies all the more in the case of investments
under a different project. The Commission therefore has
to dismiss the arguments put
forward by Pratt &
Whitney concerning the aid received by Rolls-Royce in
the context of
the latter's investments linked to the
Trent 500 project and the Trent 600 and Trent 900
projects.

(71)

In its Decision on State aid to Rolls-Royce for the
the Trent 600 and Trent 900
development of
engines (13),
the Commission classified the different
in line with the
phases of aero-engine development
stages of R & D defined in Annex I to the R & D
framework.

(72) According to that classification, activities prior to engine
certification constitute R & D activities in line with the
R & D framework, as they are situated at least as far

(13) Commission Decision of 30 October 2001 on State aid case No

120/01, OJ C 67, 16.3.2002, p. 33.

(75) Account should also be taken in this particular case of
the fact that the work undertaken by ITP is aimed at
developing engine subassemblies and not
the entire
engine. The certification activities to be taken into
account in order to draw the line between ITP's work
corresponding to R & D within the meaning of the R &
D framework and work falling outside that definition
should therefore be the activities aimed at certifying the
engine with the turbines developed by ITP as part of the
present project and not any previous certifications of
turbines. This distinction is
the engine with other
particularly important
the Trent 500
engine, which, owing to the schedule imposed by the
the subject of an initial
aircraft manufacturer, was
certification by Rolls-Royce that was completed in
December 2000, but using a different turbine that did
not display the same set of characteristics as the one
developed by ITP under the present project. That initial
certification, which had nothing to do with this project,
could not therefore be used to draw the conclusion, put
forward by Pratt & Whitney, that any activity carried
out under the present project after December 2000 does
not constitute R & D within the meaning of the R & D
framework.

in the case of

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(76)

the

the

costs

linked

certification

In view of the foregoing, the Commission takes the view
that
and
to
post-certification activities for the high-thrust
turbine
cannot be regarded as R & D within the meaning of the
R & D framework. The amount of those costs, namely
ESP 682 560 989 (EUR 4 102 274), should therefore be
deducted from the total eligible costs notified by the
Spanish authorities.

(77) With regard to the engine testing costs linked to the
high-thrust turbine, the Commission takes note of the
Spanish authorities' statement that only some of those
tests (the fan blade off tests and type tests) formed part
of
the certification process. For the reasons already
mentioned, these certification tests do not constitute R
& D activities within the meaning of
the R & D
framework. On the other hand, the Commission takes
testing activities should be
the view that
regarded as preceding the engine certification with ITP's
new turbine, even where they took place after
the
engine was certified in December 2000 with another,
less powerful, turbine. These last-named activities are
therefore included in the precompetitive development
phase.

the other

(78)

(79)

out

that

pointed

Spanish

authorities

The
the
above-mentioned certification tests accounted for 15,6 %
of the total engine testing costs linked to the high-thrust
turbine. The Commission therefore
that
15,6 % of the total cost of the task should be deducted
the costs eligible for aid. An
from the amount of
amount of ESP 29 577 643 (EUR 177 765)
should
therefore be deducted from the total eligible costs
notified by the Spanish authorities.

considers

eligible

the low-thrust

turbine project,

In the case of
the
Commission raised doubts concerning the inclusion
to
among
of
and
manufacturing
integrated logistic support.
these
activities were aimed at manufacturing or maintaining
engines in their final, marketable state.

costs
tools manufacturing
It considered that

costs
support,

relating

the

(80) As

of

the

and

terms

support,

regards manufacturing

Spanish
this activity involved a high
authorities claimed that
and
of
in
degree
innovation
manufacture
discussions
concerning the quality and capacity requirements of the
production process. The Commission does not call these
considerations into question, but takes the view that
they do not enable it to withdraw its reservations as to
whether or not such activities qualify as R & D.

important

technical

design

(81)

First, the fact that the activities involve a high degree of
innovation is not sufficient for them to be classified as
R & D activities within the meaning of the R & D
framework. Point 2.3 of the framework makes it very

(82)

(83)

clear that although certain activities may be regarded as
innovative they do not
the
framework.

fall within the scope of

Second, the existence of important technical discussions
as part of this task does not in any way alter the fact
that the task corresponds to the production process for
the commercial engine, as demonstrated precisely by the
fact that the quality aspects of the process are taken into
account. The definition of precompetitive development
activities given in the third indent of Annex I to the R &
D framework explicitly excludes activities whose results
may be converted or used for industrial applications or
commercial exploitation.

relating

support

activities

the
The Commission therefore takes the view that
the
manufacturing
to
low-thrust
turbine do not constitute research and
development activities within the meaning of the R & D
framework and that
the costs associated with those
activities cannot be included in the costs eligible for aid
in line with the framework. The amount of those costs,
namely
should
ESP 58 795 002 (EUR 353 365),
accordingly be deducted from the total eligible costs
notified by the Spanish authorities.

(84) With regard to the tools manufacturing activities, the
Commission takes note of
the Spanish authorities'
statement that, unlike usual practice in projects of this
type, the tooling for the development activities would
not be able to be re-used for the industrialisation of the
final product. Neither could it be converted for that
purpose given the need to keep the cost of the final
production process low, which precludes the use of the
tooling used in a research and development
type of
context.

(85)

The Commission therefore concludes
the tool
manufacturing activities for the low-thrust turbine may
be regarded as precompetitive development activities
within the meaning of the R & D framework and that
the corresponding costs may be included in the eligible
costs of the project under that heading.

that

(86) As regards integrated logistic support activities,

the
Spanish authorities stated that the drafting of technical
manuals was a new activity for the company which
therefore required it to engage in a substantial process
of innovation and methods and tools development; they
claimed that
the other activities in this task, which
related to engine reliability and maintenance, constituted
design/development activities that were carried out at
the same time as the engine design work.

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Official Journal of the European Union

27.2.2004

(87)

The Commission takes the view that the fact that the
company is drawing up technical manuals of this type
for the first time and has to develop a set of tools for
the purpose does not make it possible to conclude that
the drafting of those manuals constitutes an R & D
activity within the meaning of the R & D framework. In
particular, the purpose of such technical manuals can
the
clearly be only to describe the final version of
engine. Whatever
and
the degree of
innovation incorporated into such manuals, they will
have a direct commercial application since they will be
used by the buyers of the engines.

refinement

(88) As for the activities relating to engine reliability and
maintenance,
the Commission considers that the fact
that they are carried out partly in parallel with engine
development and use the results of that development as
input data makes it possible to conclude only that they
relate to that engine in particular, and not that they
form part of the research process.
In any event, the
Commission points out that these again are activities
in the case of
which by definition are either entirely,
in the
maintenance, or to a very considerable extent,
case of reliability, directed towards the final stage of the
product as placed on the market.

(89)

Since all the integrated logistic support activities are to
a considerable extent directed towards the final product
placed on the market, the Commission therefore takes
the view that the costs associated with those activities
cannot be included in the costs eligible for aid in line
with the R & D framework. The amount of those costs,
namely
should
ESP 60 285 198 (EUR 362 321),
accordingly be deducted from the total eligible costs
notified by the Spanish authorities.

(90)

In view of the foregoing, the total amount of eligible
costs should be reduced to ESP 9 590 857 185, i.e. EUR
57 642 213.

Admissibility of additional overheads and other operating
expenses as eligible costs

(91)

(92)

The Commission notes that the costs described in the
notification as a ‘contribution to development of the
programmes'
should not be included as additional
overheads and other operating expenses in line with the
fourth and fifth indents of Annex II to the R & D
framework.

These costs in fact correspond to ITP's participation as a
subcontractor in the integration of the components it
is common
into complete engines.
manufactures
practice for subcontractors to contribute in this way to
the costs of
integrating their components into the
overall system during the research and development
the form of
phase. Their contribution often takes
cooperation through a risk partnership in which the

It

subcontractor must, in addition to paying an entry fee
for joining the programme, take responsibility for part
of the development and industrialisation of the engine
(usually its own subassembly and the integration of that
subassembly into the system).

(93)

In the case in point, ITP's participation includes costs,
such as the assistance provided by the company in the
tests for integrating its subassemblies into the complete
engines, which the Commission deems eligible in line
with Annex II to the R & D framework where they
relate to activities carried out either directly by the aid
recipient itself or by subcontractors.

(94)

The Commission takes the view that the fact that the
aircraft industry adopts specific methods for cooperation
between companies, such as risk partnership, cannot
have any bearing on the nature of eligible costs in line
with Annex II to the R & D framework.

(95) Accordingly,

the Commission finds

its doubts
concerning the admissibility of additional overheads and
other operating expenses as eligible costs can be
withdrawn.

that

Incentive effect of the R & D component of the aid

(96)

(97)

that

The Commission notes,
the technological
firstly,
risk associated with the project is relatively limited, at
least
in comparison with the high average level of
technological risk in the aircraft industry. In particular,
examination of the information supplied by the Spanish
engineers
ITP's
authorities
received
substantial
from the United
assistance
Kingdom company Rolls-Royce, the industry leader in
Europe, which is itself involved in very high-technology
engine development projects.

reveals
technical

that

its implementation),

The Spanish authorities have nevertheless provided data
demonstrating that the aid had a significant quantitative
effect on the company's R & D activities. In particular,
between 1998 (before the project began) and 2000 (at
the peak of
the firm's R & D
spending grew from EUR 152 million to EUR 222
million.
In relative terms, the proportion of its total
turnover allocated to R & D thus rose from 19 % to
34 % during that period. Furthermore, between 1998
and 2001, the company hired some 50 engineers and
technicians.

(98)

The Commission cannot take account in its analysis of
the data supplied by Pratt & Whitney on this topic,

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Official Journal of the European Union

L 61/101

since they relate to Rolls-Royce and not to the company
receiving the aid.

(99) Neither can the figures for Trent 500 engine sales and
orders submitted by Pratt & Whitney be taken into
consideration in assessing the incentive effect, since they
do not distinguish between engines
incorporating
different types of low-thrust turbine and consequently
do not specify whether any of those sales incorporate
the new high-thrust turbine developed by ITP under the
project covered by this Decision.

(100) The Commission also notes, as mentioned earlier, that
the aid enabled significant cross-border cooperation to
take place between the
and the United
Kingdom company Rolls-Royce, with special reference
to the latter's Trent 500 engine, in the development of
which ITP took part as a risk partner.

recipient

(105) The Commission therefore considers that the R & D
component of the aid may be authorised under the R &
D framework, provided that its gross grant equivalent
does not exceed 30 % of EUR 57 642 213,
i.e. EUR
17 292 664. The Spanish authorities have furthermore
expressed their agreement on this point.

(106) The Commission notes that the gross grant equivalent of
the aid must be calculated using the reference and
discount rate published by it, plus a premium of 400
basis points, since the loan granted by the State is not
backed by any security (14). For the calculation of the
gross grant equivalent of the aid, the Spanish authorities
to the guidelines on national
may refer to Annex I
regional aid (15).

(107) Lastly, as regards the claim made by Sytemel that the
distortion of competition caused by possible support
from the Basque Government would aggravate the
already adverse effect of geographic proximity of the
sites on the mobility of researchers and technicians, the
Commission considers
increased mobility of
that
researchers is, on the contrary, a positive development
that should be encouraged in the Community.

(101) The Commission notes,

the
aid to the
submitted an application for
authorities before it launched the programme.

finally,

that

company
regional

B. Aid for investment

(102)

case

In view of the foregoing, the Commission finds that, in
this
sector
and particularly in view of
concerned, the aid can be deemed to have an incentive
effect in line with section 6 of the R & D framework.

the

Conclusion on the R & D component of the aid

(103)

In view of the foregoing, the Commission finds that
some of the activities notified by the Spanish authorities
may receive aid that is compatible with the R & D
framework. Those activities give rise to eligible costs
amounting to ESP 9 590 857 185, or EUR 57 642 213,
corresponding to precompetitive development activities
in line with Annex I to the framework.

(104) The maximum allowable intensity of the aid is 25 %,
pursuant to point 5.5 of the R & D framework, to
which an extra five percentage points may be added
pursuant to the second paragraph of point 5.10.2 of the
framework since the Zamudio site is located in an area
eligible for regional aid under Article 87(3)(c) of the
Treaty.

Justification of the project in terms of regional development

(108) As the Commission noted in the decision to initiate the
formal investigation procedure, the planned investment
aid does not form part of an approved aid scheme and
must therefore be regarded as ad hoc aid. The Spanish
authorities have not disputed that conclusion. The
Commission accordingly has to verify,
in accordance
with the second paragraph of section 2 of the guidelines
on national regional aid, whether the benefits for the
region outweigh the distortion of competition that can
result
from the ad hoc aid. The Commission notes,
furthermore, that the whole of the Basque Country is
eligible for regional aid under Article 87(3)(c) of the
Treaty and that, in accordance with Spain's regional aid
map, the ceiling for regional aid in the Basque Country
is 20 % nge.

(109) The Commission takes note of the fact that, although
the
a
to
Commission-approved aid scheme, it is in line with the
Plan
Interinstitutional

Development

Economic

granted

under

not

aid

be

is

(14) See, in this connection, the Commission notice on the method for
setting the reference and discount rates, OJ C 273, 9.9.1997, p. 3,
and in particular the first indent of the sixth paragraph thereof.

(15) OJ C 74, 10.3.1998, p. 9.

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2000—2004 and the Interinstitutional Agreement on
the introduction of
the Plan concluded between the
Basque Government and the Vizcaya, Guipúzcoa and
Álava Provincial Councils, which, as explained by the
Spanish authorities, provides the framework for
the
the Basque
economic development activities of all
institutions. The Plan comprises a programme on the
basis of which the project in question was selected. The
Commission has established that the aid to be granted
under
annual
is
competitive tendering procedures and is granted after
publication of a call for applications and selection in
accordance with objective criteria. This investment aid
must therefore be regarded as an individual aid measure
benefiting a specific company but granted in a given
overall legislative context of regional development.

that programme

subject of

the

France are unfounded since, as pointed out by the
Spanish authorities, ITP has increased its orders from
French firms. The Commission accordingly finds that
the investment aid to ITP does not affect
trading
conditions to an extent that is contrary to the common
interest.

(113) The Commission therefore concludes that the doubts it
raised in its decision to initiate the formal investigation
procedure concerning the justification of the project in
terms of regional development can be withdrawn.

Justification for including the expenditure on tools among the
eligible costs of the investment project

(110) The Commission also takes

the

contribute

view that

aid can effectively

this
investment
to the
economic development of the region. According to the
data supplied by the Spanish authorities, the project will
have a significant effect in terms of gross value added
and job creation;
it involves a relatively
high level of subcontracting in the region (30 % in
2002).

in particular,

(114) The Commission notes, in the light of the explanations
provided by the Spanish authorities, that expenditure on
tools for this project relates to ancillary items associated
with the production process, to be designed for the
machinery to be installed at
the Zamudio site. The
Spanish authorities also pointed out that these items
form part of the company's fixed assets and are entered
as such in its balance sheet. These items may therefore
be
of
‘plant/machinery' referred to in point 4.5 of the regional
aid guidelines.

belonging

regarded

category

the

to

as

(111) The Commission considers,

furthermore, that the aid
may be regarded as proportionate, since its intensity is
well below the relevant regional aid ceiling. It also notes
that the aid recipient is to contribute more than 25 % to
the financing of the project, that the application for aid
was submitted before work started on the project and
that
the
the aid is conditional on maintenance of
investments for a minimum period of five years. The
conditions laid down in the first and third paragraphs of
point 4.2 and in point 4.10 of
the regional aid
guidelines are therefore met. The aid is also conditional
on net job creation by ITP (16).

(112) Lastly, as regards the comments submitted by Sytemel in
the course of the procedure, the Commission takes the
view that the aim of regional aid is precisely to offset
the handicaps or development
lags from which the
regions concerned are suffering, and that it already takes
account of the scale of these handicaps when drawing
up the national regional aid maps. In the case of the
project under consideration, account has to be taken of
the fact that the aid intensity is much lower than the
ceiling allowed by Spain's regional aid map and that the
fears expressed by Sytemel concerning the effects of the
located in
project on the operations of companies

(16) ITP plans to create 272 new jobs between 2000 and 2003. See

decision of 20 June 2001.

raised in its decision to initiate

(115) The Commission accordingly concludes that the doubts
formal
it
investigation procedure concerning the justification for
including the expenditure on tools among the eligible
costs of the investment project can be withdrawn.

the

Conclusion on the investment component of the aid

(116)

In view of the foregoing, the Commission finds that the
investment project complies with the guidelines on
national regional aid.

C. Issue raised in the decision to extend the
procedure

(117) The Commission notes that the Spanish authorities have
provided proof that the unlawful and incompatible aid
referred to in the decision to extend the procedure has
been reimbursed in full since that decision.

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Official Journal of the European Union

L 61/103

(118) The

repaid

amount

interest
includes
calculated using the interest rates recommended by the
Commission in accordance with the Commission
communication on the interest rates to be applied when
aid granted unlawfully is being recovered (17).

compound

(119) The Commission accordingly finds that the extension of

the procedure no longer serves any purpose.

Implementation of the aid is accordingly authorised.

Article 2

The state aid which Spain is planning to implement for ITP, in
the form of an interest-free loan totalling EUR 24 040 000, is
compatible with the common market within the meaning of
Article 87(3)(c) of the Treaty subject to the conditions set out
in Article 3.

9. CONCLUSION

Article 3

(120)

the

investment

the Commission concludes
In view of the foregoing,
that
aid planned by the Basque
Government may be granted unconditionally. The aid
for research and development planned by the Basque
Government may be granted provided that certain
conditions are fulfilled,

HAS ADOPTED THIS DECISION:

The gross grant equivalent of the aid, calculated using the
reference and discount rate published by the Commission, plus
400 basis points, shall not exceed EUR 17 292 664.

Article 4

Spain shall
inform the Commission, within two months of
notification of this Decision, of the measures taken to comply
with Article 3.

Article 5

This Decision is addressed to the Kingdom of Spain.

Article 1

Done at Brussels, 21 October 2003.

The state aid which Spain is planning to implement for the
company Industria de Turbo Propulsores SA (ITP), in the form
of a grant of EUR 7 030 000, is compatible with the common
market within the meaning of Article 87(3)(c) of the EC Treaty.

For the Commission

Mario MONTI

Member of the Commission

(17) OJ C 110, 8.5.2003, p. 21.