2005/418/EC: Commission Decision of 7 July 2004 on the aid measures implemented by France for Alstom (notified under document number C(2004) 2532)   (Text with EEA relevance)
Date: 2004-07-07
Institutions: European Commission
Subjects: France, State aid, aid for restructuring, control of State aid, energy industry, industrial restructuring, mechanical engineering, railway industry, shipbuilding

L 150/24

EN

Official Journal of the European Union

10.6.2005

COMMISSION DECISION

of 7 July 2004

on the aid measures implemented by France for Alstom

(notified under document number C(2004) 2532)

(Only the French version is authentic)

(Text with EEA relevance)

(2005/418/EC)

THE COMMISSION OF THE EUROPEAN COMMUNITIES,

(4)

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

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

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

Whereas:

I. PROCEDURE

(1)

(2)

(3)

Following press reports published in the summer of 2003,
the Commission asked France to provide information on
the bid made by the public-sector nuclear group Areva for
Alstom’s Transmission and Distribution (T&D) unit and
further information on a package of measures for the
Alstom group which was then in considerable financial
difficulty.

By letters dated 8 and 14 August 2003, France informed
the Commission that it had concluded an agreement on
2 August 2003 with the Alstom group and 32 banks under
which Alstom, which was on the verge of bankruptcy, was
to be granted a package of support measures as part of a
rescue and restructuring plan.

By letter dated 27 August 2003, the Commission informed
France that it was considering imposing a suspension
injunction in respect of some of the planned aid measures.
By letter dated 28 August 2003, the Commission requested
additional information on a series of associated measures
not included in the package reported by France.

(1) OJ C 269, 8.11.2003, pp. 2 and 15.

(5)

(6)

(7)

(8)

France’s replies to the Commission’s letters were received
on 4 September 2003. On 10 September 2003, France
requested an extension of the deadline to reply to the ques-
tions asked by the Commission on 28 August 2003 con-
cerning the associated measures. The Commission refused
this request by letter dated 15 September 2003.

Several working meetings were held between France and
the Commission in September 2003 in connection with
which working documents were submitted to the Commis-
sion by France.

On 17 September 2003, the Commission decided to ini-
tiate the formal investigation procedure under Article 88(2)
of the Treaty in respect of the notified package of measures
and the associated measures.

The Commission also determined that the conditions were
met for it to order France not to implement its acquisition
of a holding in the capital of the Alstom group and its
underwriting of a subordinated loan. The Commission
decided to authorise the Commission Member with special
responsibility for competition matters, in agreement with
the President of the Commission, to adopt and notify to
France an injunction to suspend some of the aid measures,
by 22 September 2003, unless France undertook publicly
not to participate in financing measures that would auto-
matically and irreversibly result in a holding in the Alstom
group’s equity, without the Commission’s prior approval
under the rules applicable to state aid.

On 19 September 2003, France sent the Commission a
new draft agreement, still being negotiated, between
Alstom, its creditor banks and the state which was to
replace the agreement of 2 August 2003. By letter dated
22 September 2003, the Commission took note of this
and informed France that, since the conditions set by the
Commission on 17 September 2003 had been met, there
was no longer any need to pursue the suspension injunc-
tion that had been imposed.

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L 150/25

(9)

A final agreement was notified to the Commission on
26 September 2003. It was stated that the details of the
amended plan would be sent
to the Commission
subsequently.

(19)

By letter dated 22 January 2004, France requested a fur-
ther extension of the deadline by about one month to
enable it to reply to the comments submitted by third par-
ties. The Commission agreed to such extension by letter
dated 27 January 2004.

(11)

(12)

(13)

(14)

(15)

(16)

(17)

(18)

(10) On 15 October 2003, the Commission decided to extend
the initiation of the formal investigation procedure under
Article 88(2) of the Treaty to include the new measures
communicated (2).

The Commission’s decisions of 17 September and 15 Octo-
ber 2003 were published jointly in the Official Journal of the
European Union (3). The Commission called on interested
parties to submit their comments on the measures.

By letter dated 31 October 2003, the Commission sent
France a request for additional information. On 11 Novem-
ber 2003, the Commission wrote to France pointing out
delays in the submission of the documents needed for the
Commission to assess the case.

By letters dated 24 and 25 November 2003, France sent
the Commission initial information on the sale of Alstom’s
T&D activities and on the associated measures.

(22)

further

Following a reminder sent on 2 December 2003, the Com-
mission received, on 5 December 2003, a letter contain-
the
ing
communications of 8 August, 14 August and 26 Septem-
ber 2003 and France’s reply to the additional questions put
by the Commission on 31 October 2003.

supplementing

information

By letter dated 3 December 2003, the Commission asked
France to provide further details on the associated
measures.

Between 3 and 8 December 2003,
the Commission
received 46 sets of comments from interested third parties.
These were sent to France, for its response, by letters dated
22 December 2003 and 12 and 16 January 2004.

By letter dated 24 December 2003, France requested a fur-
ther deadline of 20 working days to reply to the additional
questions put by the Commission on 3 December 2003.
The Commission acceded to this request by letter dated
13 January 2004.

By letter dated 12 January 2004, the Commission informed
France that the independent expert appointed by the Com-
mission, following the call for tenders which it had orga-
nised for assistance in its analysis of Alstom’s restructuring
plan, was the company BearingPoint France SAS.

(2) Commission decision of 15 October 2003, communicated to France

by letter dated 15 October 2003.

(3) See footnote 1.

(20) On 30 January 2004, the Commission sent France a
request for additional information concerning in particu-
lar the scope of the sale of Alstom’s T&B unit, to which it
received a reply by letter dated 16 February 2004.

(21) On 11 February 2004, France replied to the Commission’s
letter of 3 December 2003 concerning the associated mea-
sures. Since the information was still partially incomplete,
the Commission requested further details from France by
letter dated 19 February 2004. By
letter dated
9 March 2004, France provided the information requested.

By letter dated 10 March 2004, the Commission reminded
France that it was still waiting for its reply setting out its
reactions to third party comments, which it had under-
taken to provide by 1 March at the latest. France’s reply,
accompanied by information concerning certain amend-
ments to the initial restructuring plan, was sent to the
Commission by letter dated 15 March 2004.

(23)

In April and May 2004, several working meetings were
held between France and the Commission, the aim being
to discuss an adjustment to the financial package initially
proposed by France and compensatory measures necessary
for approval of the aid. Following these discussions, France
the Commission two letters, dated 21 and
sent
26 May 2004, in which it gave a number of undertakings
concerning the measures and communicated the adjust-
ments made to the measures initially envisaged. Further
information was sent by France to the Commission by let-
ters dated 7, 9, 10, 18 and 25 June 2004.

II. DESCRIPTION

1. The Alstom group

(24) Alstom is a limited liability company incorporated under
French law listed on the Paris, London and New York stock
exchanges. In the financial year 2002/2003, the group had
a turnover of EUR 21,4 billion, a negative operating result
of EUR 507 million and a net loss of EUR 1,38 billion. On
31 March 2003, Alstom employed some 110 000 persons
in 70 countries, including 62 000 in Europe.

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Official Journal of the European Union

10.6.2005

(25)

Before the current restructuring, Alstom was engaged in
the design, manufacture and maintenance of products and
systems in four areas: power generation (referred to below
as the Power sector),
transmission and distribution
(referred to below as the T&D sector), rail transport
(referred to below as the Transport sector) and shipbuild-
ing (referred to below as the Marine sector):

— in the financial year 2002/2003, the Transport sector
had a turnover of EUR 5 billion and employed 28 500
persons;

— the Marine sector had a turnover of EUR 1,5 billion in
the financial year 2002/2003 and employed 4 500
persons.

— in the financial year 2002/2003, the Power sector had
a turnover of EUR 10,9 billion and employed 46 000
persons worldwide;

— in 2002/2003 prior to its sale, the T&D sector, most
of which was sold to the French Areva group on
25 September 2003, had a turnover of EUR 3,6 bil-
lion with a workforce of 28 000;

(26)

In the financial year 2003/2004, Alstom’s turnover was
EUR 16,7 billion, which was 10 % down on the financial
year 2002/2003 on a comparable basis. Notwithstanding
a positive operating result of EUR 300 million (operating
margin of 1,8 %), Alstom’s net
increased to
EUR 1,86 billion, of which EUR 655 million were due to
restructuring costs and EUR 460 million to financing costs.

loss

(27)

Changes in the operating results by sector are shown in
Table 1.

Table 1

Corporate data

(turnover and operating resulting in EUR million)

2000/2001

2001/2002

2002/2003

2003/2004

24 550

23 453

21 351

16 688

1 151

448

275

266

80

(41)

941

572

226

101

47

(35)

(507)

(690)

227

(24)

24

(44)

300

178

136

64

(19)

(59)

143 014

118 995

109 671

78 811

Annual turnover

Operating result

of which Power

T&D

Transport

Marine

Corporate

Employees

(28)

(29)

2. Alstom’s difficulties before the restructuring
plan

France explains that Alstom’s difficulties were triggered by
a combination of several factors. The group suffered firstly
from the general downturn in the economy following the
events of 11 September 2001. France also points out that
the liberalisation of certain markets (in particular electric-
ity and, to a lesser extent, transport) was a further factor
creating difficulties for the group.

(30) As from the spring of 2003, after having announced its dif-
ficulties and the amount of its losses, the Alstom group
faced a serious crisis of confidence. The level of orders fell,
as customers no longer felt sure that the company could
meet its obligations in the years ahead. Suppliers imposed
stricter terms of payment, and financial institutions decided
to reduce the amount of bonding for orders received by
Alstom.

The group also suffered from the effects of serious techni-
cal problems with the GT24 and GT26 heavy-duty gas tur-
bines bought from the Swedish group ABB. Alstom also
had problems with trains sold in the United Kingdom.
Lastly, the group suffered from a lack of orders for cruise
ships in 2001/2002 and 2002/2003 and losses caused by
the insolvency of Renaissance Cruises.

(31)

Furthermore, in the aftermath of the events of 11 Septem-
ber 2001, several insurance companies reduced their expo-
sure vis-à-vis their clients and imposed stricter conditions
on Alstom for the granting of bonds. However, in order to
stay in business on its markets, Alstom depends on obtain-
ing bonds which cover the proper performance of its long-
term contracts. Without such bonding, Alstom cannot take
on new orders.

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3. The restructuring plan

Industrial reorganisation

(32)

In March 2002, an initial plan to restore Alstom’s activi-
ties (Restore value) was decided on, but only partly imple-
mented. A second plan, incorporating the initial plans, but
going far beyond them, was drawn up in March 2003,
then amended and strengthened in January 2004. This sec-
ond plan is considered by France to be the restructuring
plan that will cover the period between the financial year
2002/2003 and the financial year 2005/2006. It provides
for three groups of measures: divestitures designed to focus
the group’s activities on core business; industrial reorgani-
sation; financial restructuring.

Divestitures

(33) As regards the first group of measures designed to focus
the group’s activities on core business, Alstom sold off
some business activities resulting in an EUR 4,3 billion
(20 % less
reduction in the group’s
than
turnover
2002/2003) and a 30 000 (27 %)
reduction in its
workforce.

(34)

The second group of measures involves industrial reorgani-
sation of Alstom’s core business into three divisions with
turnover of EUR 16 billion in
an estimated total
2005/2006:

— the Power sector, comprising the Power Turbo-
Systems subsector (gas and steam turbines) with an
estimated EUR 3,6 billion turnover, the Power Service
subsector with an estimated EUR 3,1 billion turnover
and the Power Environment subsector (boilers and
hydro) with an estimated EUR 3,1 billion turnover;

— the Transport sector with an estimated EUR 5,5 bil-

lion turnover;

— the Marine sector with an estimated EUR 1 billion

turnover.

The total turnover also includes the Power Conversion sec-
tor (EUR 0,5 billion turnover),
the Corporate sector
(EUR 0,2 billion) and a negative adjustment at the aggre-
gated level (corporate buffer) of EUR 1 billion.

The divestitures were as follows:

(35)

In each of these sectors, restructuring will be carried out as
follows:

— the industrial turbines business was sold to Siemens in
April 2003; this brought in EUR 950 million net. This
business generated a turnover of EUR 1,25 billion in
2002/2003 (some 6 % of Alstom’s turnover) with a
workforce of 6 000 employees (4);

— the T&D unit, excepting the Power Conversion seg-
ment, was sold to Areva in September 2003, bringing
in EUR 920 million net; the business sold generated a
turnover of EUR 3 billion in 2002/2003 (some 14 %
of Alstom’s turnover) with a workforce of 24 000
employees (5);

— real estate was sold for a total of EUR 415 million
(EUR 267 million
and
EUR 148 million between March and August 2003);
other sales totalling EUR 50 million were still under
discussion in December 2003.

before March

2003

(4) Sale authorised by a Commission Decision of 10 July 2003 declaring
a concentration to be compatible with the common market (Case No
IV/M.3148 - Siemens/Alstom Gas and Steam Turbines) according to
Council Regulation (EEC) No 4064/89 (OJ C 207, 3.9.2003, p. 25).
(5) Sale authorised by a Commission Decision of 19 December 2003
declaring a concentration to be compatible with the common market
(Case No IV/M.3296 - Areva/Alstom T&D) according to Council Regu-
lation (EEC) No 4064/89 (OJ C 16, 22.1.2004, p. 34). Following this
transaction, Areva proposed also purchasing Alstom’s T&D business
in India (which did not form part of the previous transaction) for a
total amount of EUR 22,31 million.

— operational reorganisation of the Power Environment
and Power Turbo-Systems subsectors, comprising the
resizing or closing of certain sites, mainly in order to
reduce the workforce and rationalise geographical
siting;

— withdrawal from the Industrial Steam Turbines (IST)
business (Power Turbo-Systems subsector) and the
closure of the French site at La Courneuve;

— industrial reorganisation of the Transport sector, com-
prising the resizing or closure of certain sites and
workforce cutbacks;

— a reduction in activity in the Marine sector, following
the closure of the Saint-Malo shipyards, decided on at
the beginning of 2003. At the main site, Saint-Nazaire,
to be reduced through early
the workforce is
retirements.

(36)

Table 2 sets out the impact of these measures on each seg-
ment of activity in the relevant three financial years (2003
to 2006). In the following years, the expected savings
brought about by the restructuring measures should
amount to EUR […] (6) a year.

(6) Parts of this text have been deleted so as not to divulge confidential
information; they are indicated by a series of dots between square
brackets. In order to make the Decision easier to follow, such parts are
replaced by reference to a footnote, indicated by an asterisk, giving a
non-confidential approximation of the figure. Here, read ‘of the order
of 500’.

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Table 2

Reorganisation of activities over three years

Workforce reductions
(persons)

Restructuring costs
(EUR million)

Expected savings
(EUR million)

Power Environment

Power Turbo-Systems

Power Conversion

T&D

Power Services + IST

Transport

Marine

Corporate

(*) Read ‘of the order of 950’.

Total

Financial restructuring

[…]

[…]

[…]

[…]

[…]

[…]

[…]

[…]

(40)

(37)

The third set of measures, financial restructuring, provides
for a financial package comprising measures to be taken by
Alstom, the state and banks.

(38) An initial package was agreed upon on 2 August 2003.
Following the initiation of the formal investigation proce-
dure by the Commission, France forwarded a substantially
amended agreement on 26 September 2003 that no longer
contained measures involving state participation in the
Alstom group’s equity on an automatic and irreversible
basis without prior Commission approval, as required by
Community state aid rules. The new agreement, whose
terms are described below, superseded the agreement of
2 August 2003.

(39)

for

the

state

reserved

amounting

The agreement comprises firstly (measure 1) a commit-
ment by the state to subscribe to an issue of fixed-term
subordinated bonds reimbursable with shares (Titres Sub-
ordonnés à Durée Déterminée Remboursables en Actions —
TSDDRA)
to
EUR 300 million. The bonds have a parity of 1 TSDDRA
to 1 share and a subscription price of EUR 1,25. They have
a term of twenty years and bear interest at a fixed rate of
2 % a year pending the Commission’s decision. The bonds
are subordinated debts, junior-ranking to other subordi-
nated debts including bonds mandatorily reimbursable
with shares (obligations remboursables en actions — ORA),
fixed-term subordinated loans (prêts subordonnés à durée
déterminée — PSDD) and fixed-term subordinated bonds
(titres subordonnés à durée déterminée — TSDD) (7).

(7) These debts are described in recitals 47, 48 and 49.

[…]

[…]

[…]

[…]

[…]

[…]

[…]

[…]

[…] (*)

[…]

[…]

[…]

[…]

[…]

[…]

[…]

[…]

Conversion is subject to the following conditionality
‘the TSDDRA issued by the company and sub-
clause:
scribed by the state will be reimbursed with ordinary shares
of the company at the rate of one ordinary share of
EUR 1,25 in nominal value per TSDDRA, subject only to
the obtaining of a decision by the European Commission
declaring that the states’ subscription to the TSDDRA
issued by Alstom and their reimbursement with shares
constitute state aid compatible with the common market,
or do not constitute state aid. Such reimbursement with
shares will take place automatically and by right on the
first working day after the state receives the Commission’s
decision’.

(41)

The state has undertaken not to sell the TSDDRA or the
shares that might result from their reimbursement before
the company has fully recovered.

(42)

The banks have undertaken irrevocably to subscribe to a
capital
increase, approved at the general assembly of
18 November 2003 and reserved to them, of EUR 300 mil-
lion for an issue price of EUR 1,25 per share.

(43)

The agreement also provides for the granting of short-term
liquidity facilities totalling EUR 1,5 billion (measure 2). The
state, directly or through the intermediary of the Caisse des
Dépôts and Consignations (CDC), has undertaken to renew
the Treasury notes subscribed for EUR 300 million until
the expiry of a period of twelve months as from the last
issue prior to 8 February 2004 and to subscribe to addi-
tional Treasury notes up to the value of EUR 900 million.
liquidity thus
The state’s commitment
amounts to EUR 1,2 billion.

in respect of

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(44)

(45)

(46)

(47)

The additional EUR 900 million were subscribed in full,
then reimbursed by Alstom: on 23 December 2003, the
company paid back EUR 800 million thanks to revenue
from the long-term financing (TSDDRA, TSDD and PSDD)
described in recitals 39, 47 and 48 and EUR 100 million
in January 2004 with the proceeds of the sale of the
T&D unit to Areva.

The banks, for their part, are contributing Treasury notes
to the value of EUR 300 million and undertake to renew
this contribution until the end of a period of twelve months
as from the last issue before 8 February 2004.

The agreement also provides (measure 3) for the provision
by the banks of a syndicated bonding guarantee facility
worth EUR 3.5 billion, of which 65 %, or EUR 2,275 bil-
lion, is counter-guaranteed by the state. This bonding guar-
antee facility was to operate until the EUR 3,5 billion had
been used up. The period covered by the commercial con-
tracts thus covered may not exceed seven years. The
counter-guarantee was put in place through the Caisse
Française de Développement
(CFDI), which
belongs to the Banques Populaires group. It should be
noted that, in its references to this measure, France regards
the counter-guarantee as being granted by the state.

Industriel

The fourth measure is a fixed-term subordinated loan (Prêt
Subordonné à Durée Déterminée - PSDD) of EUR 1,5 billion
for a period of five years, EUR 300 million of which was
to be provided by the state and EUR 1,2 billion by the
banks (measure 4). In its comments submitted on 5 Decem-
ber 2003, France stated that the loan had finally been
granted by the CFDI. The state confined itself to giving a
guarantee to the CFDI for the amount of the loan. The
PSDD is remunerated at Euribor + 450 base points, of

(48)

(49)

which 300 base points are payable at the end of each inter-
est period and 150 base points capitalised and paid upon
reimbursement. This loan constitutes a subordinated debt,
though it will be prior-ranking over the TSDDRA, TSDD
and ORA.

France has given an irrevocable commitment to subscribe
to a state-reserved issue of fixed-term subordinated bonds
(Titres Subordonnés à Durée Déterminée - TSDD) for an
amount of EUR 200 million and for a period of 15 years
(measure 5, formerly measure 4bis). They will be remuner-
ated at the reference rate plus 500 base points a year, of
which 350 base points a year will be payable annually in
arrears and 150 base points a year capitalised and paid
upon reimbursement. They are subordinated to the man-
datorily convertible bonds, fixed-term subordinated loans
and/or unsecured liabilities.

In addition to the measures already described, the banks
have guaranteed the placing of an issue originally set at
EUR 1 billion in mandatorily convertible bonds (ORA),
with preferential subscription rights for existing sharehold-
ers. The mandatorily convertible bonds, whose amount
was finally set at EUR 900 million, will be reimbursable
with shares after five years from the date on which the
operation is launched. The conditions for this issue are as
follows: a coupon of 2 % capitalised at the end of 2004, a
parity of one ORA to one share, an issue price of EUR 1.40,
plus an issue premium of 10 to 20 %. These debts are sub-
ordinated to the PSDD, but prior-ranking in relation to the
TSDDRA and TSDD.

(50)

Table 3 gives an overview of the measures comprised in
the financial package designed to underpin Alstom, as
communicated by France on 26 September 2003, super-
seding the agreement of 2 August 2003.

Table 3

Description of the financial package, version at end of September 2003

Measure

Banks/Investors

State commitments (1)

(EUR billion)

Capital increase I

TSDDRA (measure 1)

Short-term liquidity (measure 2)

Bonding facility of EUR 3.5 billion (measure 3)

PSDD (measure 4)

TSDD (measure 5)

ORA

0,30

—

0,30

3,5

1,20

—

0,90

—

0,30

1,20

Counter-guarantees of 65 %, i.e.
2,275

Guarantee for the CFDI in respect
of 0,30

0,20

—

(1) Terminology used by France and included in the agreements of August and September 2003 and May 2004

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(51)

(52)

In May 2004, France informed the Commission of changes
to the above financial package that were to be imple-
mented by the state and the banks in the summer of 2004.
The new package includes two changes to the existing
measures and one new measure.

Firstly, the state counter-guarantee on the syndicated bond-
ing facility (measure 3) will be released and repositioned
within a guarantee mechanism that will cover a new syn-
dicated bonding facility programme totalling EUR 8 bil-
lion, provided by the banks. This new bonding facility
comprises the following guarantee mechanism: losses will
be covered primarily by a EUR 700 million cash collateral
provided by the company. Losses will be covered second-
arily by a EUR 1,3 billion guarantee to which the state and
the banks will contribute pari passu EUR 1,25 billion and
EUR 50 million respectively. Losses over and above
EUR 2 billion will not be covered by any guarantee and
will be borne in full by the banks providing the bonds. The
period covered by this syndicated bonding facility is two
years from the time at which it starts to run, which is
expected to be the summer of 2004. During that period,
on the one hand, the writing-off of existing bonds through
the completion and delivery of products by Alstom will
bring about a reduction in the total outstanding amount of
the bonding facility. On the other, during the period, the
facility will be topped up by other bonds, up to the ceiling
of EUR 8 billion. Once the period during which bonds can
be provided is over and topping up no longer permitted,
the total amount of the facility will decrease as bonds are
amortised. In parallel, the guarantees to banks will be
amortised in such a way that they are at any given time at
least equal to 25 % of the total amount of the bonding
facility. The second-rank guarantee of EUR 1,3 billion will
be amortised on a priority basis, and the first-rank loss
guarantee of EUR 700 million will be amortised subse-
quently. Consequently, the risk of the state being called

upon should fall to zero as from the end of 2008/beginning
of 2009, as against the end of 2011/beginning of 2012
under the previous mechanism in which the state’s
counter-guarantee did not enjoy any priority amortisation.
It should be noted that the total amount of EUR 8 billion
will not represent only a provision of new bonds. All of the
bonds provided by the banks after September 2003 and
thus no longer enjoying the state’s counter-guarantee of
65 %, and, subject to certain conditions and to a limited
extent, the bonds provided before September 2003, can be
brought within this new syndicated bonding line of
EUR 8 billion and thus benefit from the corresponding
guarantee mechanism.

(53)

Secondly, France undertakes to convert into capital during
the summer of 2004 its claims on Alstom consisting of the
EUR 300 million PSDD (measure 4) held by the CFDI and
the EUR 200 million TSDD (measure 5). The banks will
also have the possibility of converting part of their claims
on Alstom into capital.

(54) An additional capital increase will take place in the sum-
mer of 2004 amounting to EUR 1 to 1,2 billion (measure
6). The state will participate in this in proportion to its par-
ticipation in the capital, resulting from the conversion of
the TSDDRA, i.e. at a percentage which should be between
17 and 18,5 %. Consequently, the amount subscribed to
the state will be comprised between EUR 170 and 222 mil-
lion. The balance will be placed on the market underwrit-
ten by a syndicate of banks. This capital increase will in
particular be used to obtain the EUR 700 million needed to
provide the collateral covering the initial losses of the new
syndicated bonding facility.

(55)

Table 4 provides an overview of the measures comprised
in the new package which is the subject of this Decision.

Table 4

Description of the financial package, version at end of May 2004

Measure

Banks/Investors

State commitments

(EUR billion)

Capital increase I

TSDDRA (measure 1)

Short-term liquidity (measure 2)

0,30

—

0,30

—

0,30

120

Bonding facility of EUR 8 billion (measure 3)

8

Second-loss guarantee, 1.25

PSDD to be converted into capital (measure 4)

TSDD to be converted into capital (measure 5)

ORA

1,20

—

0,90

0,30

0,20

—

Capital increase II (measure 6)

0,83/0,99

0,17/0,22

10.6.2005

EN

Official Journal of the European Union

L 150/31

Financial outlook

(56)

France considers that the restructuring plan will enable
Alstom to become viable again in the long term. The esti-
mates are contained in the three-year treasury plan, version

W10. That version is the most recent one available con-
taining all the forecasts for each financial year from
2003/2004 to 2005/2006. The main figures in that plan
are set out in Table 5.

Table 5

Extract from Alstom’s three-year refinancing plan – version W10, September 2003

Financial year

2002/2003

2003/2004

2004/2005

2005/2006

(EUR billion)

Orders received

19,123

[

] (*)

Industrial turbines

Power — environment

Power — turbo-systems

Power — services

T&D (power conversion included)

Transport

Marine

Corporate and others

Buffer

[…]

[…]

[…]

[…]

[…]

[…]

[…]

[…]

[…]

Sales

21,351

Industrial turbines

Power — environment

Power — turbo-systems

Power — services

T&D (power conversion included)

Transport

Marine

Corporate and others

Buffer

Operating income

Operating margin

EBIT

Free cash flow

Total gross debt

Economic debt

Equity

Debt/equity

(*) Confidential information with indication of trends

[…]

[…]

[…]

[…]

[…]

[…]

[…]

[…]

[…]

(0,507)

– 2,4 %

(1,062)

(0,265)

6,688

4,918

0847

581 %

[…]

[…]

[…]

[…]

[…]

[…]

[…]

[…]

[…]

[

]

[…]

[…]

[…]

[…]

[…]

[…]

[…]

[…]

[…]

[

[

[

[

[

[

[

]

]

]

]

]

]

]

[

]

[…]

[…]

[…]

[…]

[…]

[…]

[…]

[…]

[…]

[

]

[…]

[…]

[…]

[…]

[…]

[…]

[…]

[…]

[…]

[

[

[

[

[

[

[

]

]

]

]

]

]

]

[

]

[…]

[…]

[…]

[…]

[…]

[…]

[…]

[…]

[…]

[

]

[…]

[…]

[…]

[…]

[…]

[…]

[…]

[…]

[…]

[

[

[

[

[

[

[

]

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]

L 150/32

EN

Official Journal of the European Union

10.6.2005

(57)

Following the changes to the financial package which were
announced in May 2004, France submitted a new version
of the financial forecasts. The main figures in that version
are set out in Table 6. Two values are indicated: the first
reflects the situation where the banks convert the maxi-
mum amount of claims provided for in the financial pack-
age announced in May 2004 (i.e. EUR 700 million); the

second reflects the situation where the banks do not con-
vert any of their claims. The forecasts do not take account
of the divestitures which the company will have to carry
out.

New forecasts incorporating the effects of the new financing measures

Table 6

Financial year

2004/2005

2005/2006

2006/2007

(EUR billion)

Total gross debt

Economic debt

Equity

Debt/equity

4. Other measures

(58) Apart from the measures referred to above, the agreement
of 2 August 2003 referred to a measure which the Com-
mission had learned of through press reports and on which
France had been asked to provide information by letter
dated 10 July 2003 (measure 7, former measure 5): accord-
ing to the press, the nuclear group Areva had made a bid
for Alstom’s T&D business, allegedly for an amount in
excess of EUR 1 billion. According to France, the French
state gave its agreement (8) to the Areva board of directors’
proposal to make a bid for Alstom’s T&D unit in the course
of the supervisory board (conseil de surveillance) meeting on
1 July 2003. It should be noted that this measure is
expressly mentioned in the restructuring plan and in the
agreement of 2 August 2003.

(59)

Furthermore, the Commission learned of a series of mea-
sures not notified by France on which France was asked to
provide information by letters dated 28 August and
3 December 2003:

— measure 8 (former measure 6): according to a com-
plainant, France is reported to have also given guar-
antees for the construction of electricity plants (for
example, in Bahrain and/or other countries);

[…]

[…]

[…]

[…]

[

[

[

[

]

]

]

]

[

[

[

[

]

]

]

]

— measure 10 (former measure 8): according to press
reports, SeaFrance, a cross-channel operator owned by
the French national railways (Société Nationale des
Chemins de fer Français - SNCF), had ordered a car
ferry from Alstom worth EUR […] million, conferring
a further advantage on Alstom.

III.

JUSTIFICATION OF THE PROCEDURAL OPTIONS

(60)

The formal investigation procedure was initiated in order
to check whether the measures that came to the Commis-
sion’s attention in the summer of 2003 were aid that was
compatible with the common market. Although the mea-
sures derived from state resources and allowed Alstom to
remain in business on the relevant markets, threatening to
distort competition and to affect trade between Mem-
ber States, France disputed that some of the measures were
aid (notably measure 1). Furthermore, the information
communicated by France regarding measures 7 to 10 was
insufficient, the rest of the measures being considered to be
rescue and restructuring aid. All of the aid measures were
liable not to meet the criteria laid down in the Community
guidelines on state aid for rescuing and restructuring firms
in difficulty (9) (hereinafter referred to as the guidelines), in
particular the measures described as rescue aid by France,
since a restructuring plan had already been implemented.

— measure 9 (former measure 7): according to press
reports, the public utilities company Gaz de France
(GdF) had signed a letter of intent to buy one or two
LNG (liquefied natural gas) tankers from Alstom, con-
ferring an advantage on Alstom; the total value of the
relevant contracts is EUR […] million (two LNG tank-
ers worth EUR […] million and EUR […] million
respectively);

(61)

Subsequently, France made changes to the initial aid mea-
sures after having concluded a new agreement with the
banks. These measures were communicated to the Com-
mission on 26 September 2003. The formal investigation
procedure was accordingly extended to cover the new
measures that partly replaced those provided for in the
agreement of 2 August 2003 and increased their amount.

(8) […]

(9) OJ C 288, 9.10.1999, p. 2.

10.6.2005

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Official Journal of the European Union

L 150/33

(62)

Following the new financial package introduced in
May 2004, the Commission took the view that it was not
necessary or appropriate to carry out a second extension of
the investigation procedure. It was noted, firstly, that the
changes did not result in any increase in the total amount
of aid, but, on the contrary, reduced the total. The state
guarantee on the bonding facility (measure 3), which
replaces the former state counter-guarantee, represents a
EUR 1 billion reduction in the state’s exposure. Further-
more, the guarantee mechanism set up now provides that
losses will be covered on a priority basis by collateral of
EUR 700 million provided by the company, with the state
intervening only under the second-rank guarantee. What-
ever the level of losses, the amount covered by the state is
lower than under the previous package. As will be
explained in part VI 3, the contract bonds must be regarded
as state aid of up to 100 % of their amount. Consequently,
the extension of the state’s commitment under the guaran-
tee is more than offset by a real and significant reduction
in the aid as a result of the setting-up of the new mecha-
nism. Similarly, the conversion of the state’s debt (mea-
sures 4 and 5)
the amended
arrangements does not entail any increase in the amount
of aid included in it. As will be explained in part VI 3, the
loans are regarded here as representing aid equivalent to
100 % of the relevant amount as from the time they are
granted. Lastly, the state’s participation in the new capital
increase (measure 6) will be slight compared to that of the
private contribution. It will take place in proportion to the
capital subscribed by the state and under the same terms
and conditions as for the other participants. Furthermore,
from the point of view of the state’s total exposure, its par-
ticipation in the capital increase is more than offset by the
reduction in the guarantee covering the bonding facility.

into capital under

(63)

It was also noted that the changes in the new financial
package introduced in May 2004 included a very signifi-
cant increase in the private contribution to restructuring
and, consequently, a considerable improvement
in
Alstom’s financial situation. The change to the state guar-
antee covering the bonding facility means that the banks
now have a EUR 6 billion exposure. In addition, more than
80 % of the new capital increase will be guaranteed by the
banks. Lastly, there is a very substantial contribution from
the company itself, which will finance the EUR 700 mil-
lion collateral, which is a first-rank guarantee on the new
bonding facility.

(64)

Lastly, it should be noted that the changes to the financial
package are accompanied by commitments given by
France, described in recitals 96 to 103, which are such, on
the one hand, as to offset the distortions of competition
that may arise from the aid by limiting the period covered
by state assistance and, on the other, ensure the company’s
long-term viability.

(65)

The Commission accordingly considers that the adjust-
ments made in May 2004 are such as reduce the state’s
assistance and increase the contribution of private-sector
partners, thus limiting the distortions of competition aris-
ing from the measures as a whole, while at the same time
making a decisive contribution to ensuring the company’s
viability in the long term. The adjustments do not there-
fore increase the Commission’s doubts as to the compat-
ibility of the aid as a whole or create any new doubts as to
any given measures in particular. On the contrary, the
adjustments help to remove some of the doubts identified
in the decisions to initiate and extend the formal investi-
gation procedure. Lastly, any further extension of the pro-
cedure, which is not
legally necessary, would be
inappropriate in view of the delays which it would inevi-
tably entail in adopting a final decision, which is of prime
importance with a view to implementing the restructuring
plan.

IV. COMMENTS FROM INTERESTED PARTIES

(66)

Following publication of the decisions to initiate and
extend the procedure, on 17 September and 15 Octo-
ber 2003 respectively, the Commission received a large
number of comments, within the deadlines set, from inter-
ested parties, customers, suppliers, subcontractors, com-
petitors and employees’ representatives of Alstom (20 sets
of comments for the electricity sector, 19 for the rail trans-
port sector and 5 from employees’ organisations covering
the two sectors).

(67) Most of the customers, suppliers, subcontractors and
employees’ representatives expressed serious concern as to
Alstom’s survival. Some of the comments suggest that if
Alstom were not to survive, its disappearance would be a
genuine loss to the fabric of the European economy. They
point in particular to the technological achievements of the
company and its involvement in research and develop-
ment. Many of the comments also suggest that Alstom’s
disappearance would have a harmful impact on the rel-
evant markets, which are already highly concentrated.
Alstom’s disappearance would increase such concentration
and narrow the supply side of the market. Many custom-
ers expressed their concern at a possible disruption in their
supplies. They also feared that high-tech equipment main-
tenance and after-sales service could no longer be properly
ensured. Lastly, employees’ and some subcontractors’ rep-
resentatives pointed to the harmful social impact which
the failure of the company would inevitably have on direct
and indirect employment.

(68)

The Marine sector elicited comments from the mayors of
Nantes and Saint-Nazaire, who expressed their serious con-
cern at the social consequences of the proceedings.

L 150/34

EN

Official Journal of the European Union

10.6.2005

(69)

The comments of Alstom’s main competitors are set out in
greater detail in recitals 70 to 75.

(70) According to Siemens, the difficulties which Alstom had
had to face are due primarily to the serious technical prob-
lems with the GT24/GT26 heavy-duty gas turbines. These
difficulties are also linked to the ‘modest cash flow’ gener-
ated by Alstom’s activities as a whole due to the following
factors:

bonds since 2002, tender for a larger number of contracts;
on the other, Alstom would enjoy lower costs in obtaining
guarantees, which is a key aspect given the low profit mar-
gins in the sector. This competitor, like Siemens, considers
that there is over-capacity in the rail transport market. It
suggests measures to allow third parties access to intellec-
tual property rights for the high-speed train (TGV) and/or
signalling.

(a)

insufficient integration of the many acquisitions car-
ried out;

(74) General Electrics (GE) provided information on the mar-
kets on which it is in competition with Alstom, without
commenting directly on the restructuring plan.

(b) over-intensive price competition intended to improve
capacity utilisation and available cash through depos-
its received;

(75)

Lastly, another competitor is critical of the terms and con-
ditions under which the T&D unit was sold to Areva. It is
particularly concerned at the arrival of the Areva group on
this new market. This competitor considers that the sale
was not in line with commercial practices. In its view,
Alstom was able to reduce the sale price to Areva because
of the aid granted by France.

(c)

inadequate project and risk management capacity.

(71)

(72)

Siemens therefore considers that the restructuring plan will
not enable Alstom to restore its long-term viability. It
believes that Alstom will be unable to cope with the tech-
nical shortcomings of the GT24/GT26 turbines and that
Alstom’s margins are too small on railway equipment
orders; it also notes the unfavourable outlook on the ship-
building market. It also fears, particularly as regards the
Power markets, which in its view are marked by low
demand and overcapacity, that the restructuring plan will
be insufficient to enable Alstom to continue in business.

In conclusion, Siemens states that the markets on which
Alstom is active are sufficiently competitive (partly due to
regular calls for tender) and that the disappearance of
Alstom would not change this situation. It also argues that,
if the restructuring plan is approved by the Commission,
such approval should be subject to Alstom’s abandoning
any business that is structurally in deficit and on the dis-
posal of further assets and subsidiaries.

(73) Another competitor, which did not want its identity to be
revealed, is mainly concerned at the granting of the state’s
counter-guarantee covering 75 % of the EUR 3,5 billion
bonding facility. In its view, the counter-guarantee is such
as to cause serious distortions of competition. The com-
petitor argues that the practice of contract bonding is typi-
cal of the long-term contracts concluded in the industries
in which Alstom operates. However, the guarantee granted
by the state allows Alstom access to a particularly large
amount of contract bonds, giving it a disproportionate
advantage. Consequently, this competitor’s concern is two-
fold: on the one hand, Alstom, which thus has the backing
of much larger guarantees than its competitors, could,
given the overall decline in the supply of contract

V. COMMENTS FROM FRANCE

(76)

In its reply to the initiation and extension of the formal
investigation procedure, France provided information on
the nine measures in respect of which the Commission had
expressed doubts as to their compatibility with the com-
mon market in its decision to initiate the procedure. The
information is summarised below.

(77) As regards measures 1, 2, 3 and 4, France argues that state
assistance was necessary in order to prevent Alstom from
going bankrupt and to ensure its long-term viability. To
back up this assertion, France provided additional informa-
tion on Alstom’s situation prior to the assistance, on its
restructuring plan and on the measures taken by the com-
pany, by its creditors and shareholders and by France. This
information is set out in part II of this Decision, notably
the aspects relating to restructuring.

(78)

In its replies to the initiation and extension of the formal
investigation procedure, France also included calculation
of the aid given to the company and an assessment of its
nature. It should be noted that the calculations do not
relate to the measures as amended in May 2004, but to
and
those
September 2003.

implemented

in August

planned

or

10.6.2005

EN

Official Journal of the European Union

L 150/35

(79)

(80)

France estimates that the TSDDRA in measure 1 constitute
restructuring aid as regards their nominal amount of
EUR 300 million. As far as the EUR 1,2 billion in liquidity
provided by the state (measure 2) are concerned, France
considers that EUR 300 million were granted initially as
rescue aid. Since the repayment term is now longer, this
amount must also be considered to form part of the
restructuring aid. On the other hand, the EUR 900 million
by which measure 2 was increased under the agreement of
September 2003 must be regarded in full as being rescue
aid. These EUR 900 million were repaid to France between
December 2003 and January 2004. This was aid in the
form of liquidity, intended to prevent Alstom from imme-
diately going out of business, and was repaid within six
months of having been granted, required under the
guidelines.

France provided calculations for the former counter-
guarantee covering the bonding facility of EUR 3,5 billion,
taking the view that the aid should be calculated by mul-
tiplying the maximum amount of state exposure by the
‘real’ risk of the counter-guarantee being mobilised, and
subtracted from this the costs paid by Alstom. The real risk
of the counter guarantee being mobilised derived from two
factors: the risk that Alstom might not be able to honour
its contracts (execution risk), and the risk that it might not
be able to repay the guarantee (repayment risk). France
arrived at an amount of between EUR 0 and EUR 43 mil-
lion. Furthermore, France asserts that the aid represented
by the counter-guarantee should be regarded as rescue aid
throughout the bond issue period. Conversely, the main-
tenance of the counter-guarantee throughout the period
during which the contracts to which the bonds relate were
being executed should be deemed to be restructuring aid.
It should be noted that France did not provide any evalu-
ation of the new syndicated bonding facility of EUR 8 bil-
lion which replaced that of the summer of 2003.

(81) As regards the EUR 300 million in aid under the PSDD
(measure 4), France puts the amount of state aid included
in the guarantee to the CFDI at EUR 140 million, which is
equivalent to 50 % of the amount of the loan granted by
the CFDI, minus EUR 10 million in associated costs and
expenses.

(83)

Furthermore, France maintains that the aid measures to
assist Alstom represent the minimum necessary to ensure
both its short-term survival (provision of liquidity and
counter-guarantee) and its long-term viability (long-term
financial and industrial restructuring).

(84) As far as the economic and social consequences of any
insolvency of Alstom are concerned, France maintains that
they would be measured in terms of the number of job
losses that would result. While acknowledging that some
of Alstom’s activities would be taken over by other opera-
tors, France states that […] (10) would simply come to a
halt, which, on top of the necessary restructuring opera-
tions in the sectors likely to remain in business (20 %
according to the estimates), would mean the loss of 53 600
jobs.

(85)

France also foresees other problems, stemming from the
fact that 75 % of Alstom’s activities are carried out by sub-
contractors, which, it argues, would result in 112 800 addi-
tional job losses. This figure would be further increased by
some 50 000 (indirect) job losses in the worst-hit regions.
In France’s view, the total number of job losses to be
expected in the event of insolvency would thus total
216 400.

(86)

France further states that any failure of Alstom would indi-
rectly result in […].

(87) As far as production capacity on the markets on which
Alstom operates is concerned, France states that such
capacity is very flexible and can easily be adjusted to
demand in the medium term, even if cyclical fluctuations
in demand may result in short-term overcapacity. This is
currently the case with the Power Turbo-Systems subsec-
tor. However, France believes that overcapacity can be
reabsorbed in the medium term through workforce adjust-
ments. Nor is capacity considered to be a problem in the
Transport sector, where production can easily be adapted
to demand. Lastly, in the Marine sector, and in particular
in the cruise ship segment, the current crisis is regarded as
temporary, given the favourable long-term growth
prospects.

(82)

France reaffirmed that the restructuring plan will enable
Alstom to become viable again in the long term. France
also states that the divestitures carried out by Alstom and
the industrial and operational restructuring measures
described in part II.3 are sufficient to offset any undue dis-
tortion of competition.

(88) On the question of the sale of Alstom’s T&D sector to
Areva (measure 7), France provided additional information
intended to show that this operation did not involve any
state aid. According to France, the agreed price was

(10) Read ‘some sections’.

L 150/36

EN

Official Journal of the European Union

10.6.2005

EUR 950 million, minus the consolidated net debt of the
assets transferred. The operation was carried out in Janu-
ary 2004 at a price […] of EUR 920 million. France stated
that Areva’s bid was lower than those made by other
potential buyers, but that it was accepted by Alstom as
being the most favourable, mainly because Areva was able
to pay the price within a limited period, without recourse
having to be made to new loans or a capital increase. Fur-
thermore, in contrast to the other potential buyers, Areva
had not requested that Alstom would remain a shareholder
in respect of part of the activity transferred. France also
stated that Areva’s bid price proved to be in line with the
value established in a series of valuations carried out by
Alstom and Areva. The last such valuation, dating from
indicated a price lying within a range of
July 2003,
EUR 1 billion to EUR 1,5 billion.

that the profitability outlook up to 2005/2006 is wholly
favourable. Furthermore, Siemens takes the view that there
is overcapacity in the rail sector as a whole, whereas the
other interested third party takes the view that such over-
capacity applies only to the rolling stock segment. In both
cases, France disputes the assessment and notes in particu-
lar that the site closures which it has undertaken relate only
to specific local overcapacity. In addition, France points
out that Alstom is continuing its restructuring efforts.

(89) As far as measures 8, 9 and 10 are concerned, in its reply
of 11 February 2004, France denied having provided guar-
antees for any of the said transactions. However, France
admitted having provided [… ‘to’] GdF and to […] the
SNCF special back-up conditions for the purchase of the
ships. Following a request from the Commission, France
sent a copy of the letters in which these special back-up
conditions were set out. In the letters, the state confirmed
that if the transactions could not be carried out success-
fully, it would introduce a compensation procedure.

(92) As regards the Power sector, France stresses the advanced
technology which Alstom possesses. It explains that the
decline in margins pointed to by Siemens between 1999
and 2003 is linked to major, but ad hoc, technical problems
with the GT24 and GT26 gas turbines, problems which
have now been solved. France also points out that the
Power Turbo-Systems subsector does not present any
structural problem, contrary to what Siemens claims. It
also points out that considerable capacity reductions have
been undertaken in that sector following the selling-off of
the Industrial Turbines business to Siemens and the T&D
business to Areva and that it is pursuing its restructuring
efforts.

On the comments from interested parties

(90)

France notes that the comments sent by interested parties
to the Commission come both from Alstom’s competitors
and from its employees’ unions, suppliers, customers or
indeed sub-contractors. It notes the unusual number of
opinions that argue in favour of the measures and points
out that the third parties express considerable concern at
the risk which Alstom’s failure would pose for direct and
indirect employment, for the continuation of current con-
tracts, notably in terms of technology transfer, and for sub-
contractors. Other opinions are regarded as being neutral
by France.

(93) One of the third parties points out the major importance
of contract bonds in the transport sector and is sharply
critical of the bank guarantees obtained by Alstom as a
result of the counter-guarantee granted by the state. France
points out in this respect that the guarantees were used in
line with the historical needs of the group and that Alstom’s
bonding practice has not changed since the aid was
granted. It states that the third party’s proposal regarding
the granting of guarantees by sector is not feasible given
the financial structure of groups such as Alstom, GE and
Siemens.

(91)

France observes that only two of the many interested third
parties, one being Siemens, have expressed opposition to
the proposed measures. France disputes the claims made
by Siemens, which considers in particular that Alstom’s
Transport sector might be showing signs of weakness. It
states that the decline in the operating margin of that sec-
tor was due solely to Alstom’s ad hoc difficulties and

(94)

France also disputes Siemens’s comments doubting the
effectiveness of Alstom’s restructuring plan and doubting
the group’s chances of becoming viable again. It is also
critical of Siemen’s comments on the undue distortions of
competition that might result from the measures and is
therefore against any additional divestiture suggested by
Siemens to offset such effects. Lastly, France is opposed to
any request for the opening-up of intellectual property
rights called for by the other third party regarding the TGV
and/or signalling.

10.6.2005

EN

Official Journal of the European Union

L 150/37

(95) A third interested party expressed an unfavourable opin-
ion, but only as regards the T&D branch, which, in its
opinion, is faced with structural overcapacity. It is also
critical of the conditions under which the T&D branch was
sold to Areva. France points out, firstly, that Alstom is no
longer active in the relevant branch and, secondly, that it
has provided evidence that the sale to Areva did not involve
any elements of state aid.

Commitments given by France and the company

(96)

In France’s letter of 26 May 2004 to the Commission,
France undertook that Alstom would conclude one or
more industrial partnerships, within a period of four years.
The partnerships will relate to significant parts of Alstom’s
business. The partnerships will not, without prior Com-
mission approval, relate to undertakings controlled de jure
or de facto, individually or jointly, by the state.

(97)

France also undertakes that a joint venture,
in which
Alstom will retain joint control and will hold a maximum
of 50 % of the capital, will be set up with a partner to cover
Alstom’s ‘Hydro Power’ business (11) (in 2002/2003, turn-
over of EUR 879 million and workforce of 4 680). This
transaction will be completed within a period of […].

(98)

France also undertakes to withdrawn from Alstom’s capi-
tal within 12 months of Alstom obtaining an investment
grade rating. Such withdrawal will at all events be carried
out within four years of adoption of this Decision. […].

(99)

France undertakes that Alstom will divest itself of some of
its activities in the energy and transport fields. The dives-
titures include the freight locomotive business in Valencia
(in 2002/2003, turnover of EUR 92 million and workforce
of 380), all of the Transport sector’s activities in Austra-
turnover of
lia and New Zealand (in 2003/2004,
EUR 227 million and workforce of 2 172), and industrial

turnover

activities (12)

(in 2003/2004,

boiler
of
EUR 442 million). Each of these divestitures will be carried
out within a period of […]. France undertakes that Alstom
will set up or stabilise a dedicated management to ensure
the proper administration of each of the activities sold off
and establish a single trustee responsible for monitoring
the proper implementation of the commitment on these
three divestitures. France also undertakes that Alstom will
dispose of further activities representing EUR 800 million
in turnover (base 2002/2003) within the group’s business,
excluding Marine. These divestitures can be carried out
[…]. They must be carried out within a period of […].
Lastly, France undertakes that Alstom will dispose of […]
within a period of […].

(100) France also undertakes to send the Commission annually,
for four years, a report checked by an expert appointed by
Alstom and approved by the Commission. The expert’s
task will be to check that the margins achieved on average,
annually, by subsector, on the contracts signed by the
company in the Transport sector are compatible with the
business plan and, in the event of any discrepancy, do not
indicate any predatory pricing. Furthermore France under-
takes that Alstom will not make any acquisitions in the
Transport sector, within the European Economic Area,
involving an amount in excess of EUR 200 million (com-
pany value) over the next four years.

(101) As far as the structural measures for opening up the French
rolling-stock market are concerned, France undertakes to:

(a)

(b)

forward to the Commission, on request, opinions
drawn up by Réseau Ferré de France (the French rail-
way infrastructure manager) on the issuing of safety
certificates and the technical files on which they are
based;

forward to the Commission the new draft ‘rolling-
stock’ decree and,
if necessary, explanatory details
showing in particular the cases in which the decree is
not mandatory. The decree will enter into force by
1 January 2005;

(c) abolish the legal requirement that the SNCF be con-
sulted on the issuing of safety certificates, to enter into
force on 1 January 2005;

(d)

inform the Commission of contracts directly con-
cluded by the SNCF and the Régie Autonome des
Transports Parisiens (RATP) with Alstom;

(11) According to Alstom’s 2003 annual report, the Hydro Power seg-
ment comprises the following products and services: hydraulic tur-
bines and pumps up to 800 MW; hydro generators up to 800 MW;
generator motors, salient pole generators, gates and valves; turnkey
contracting including control systems covering the complete range of
plants from 2 MW to 800 MW; refurbishment of hydropower plants;
and water pumping stations and hydro-mechanical equipment for
water transportation.

(12) According to the information provided by France and available on
Alstom’s website, the industrial boilers business includes the follow-
ing products: field erected boilers up to 300 ton/hour steam output;
Fines Circulating Fluidised bed boiler FI CIRCTM up to 70 MWe out-
put; package boilers for process steam up to 270 ton/hour; fossil
fuelled plants up to 100 MWe output; biomass fuelled plants up to
100 MWe output; thermal waste treatment plants.

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(e)

send the Commission, on request, reports analysing
tenders submitted to the administrative board of the
SNCF for contracts concluded by invitation to tender;

Power generation

(f)

transpose early, by 1 November 2004, Directive
2004/17/EC of the European Parliament and of the
Council of 31 March 2004 coordinating the procure-
ment procedures of entities operating in the water,
energy, transport and postal services sectors (13);

(g) adopt so as to enter into force by 1 November 2004,
pre-contract referral arrangements in line with Coun-
cil Directive 92/13/EEC of 25 February 1992 coordi-
nating the laws,
regulations and administrative
provisions relating to the application of Community
rules on the procurement procedures of entities oper-
ating in the water, energy, transport and telecommu-
nications sectors (14).

services

currently worth

(105) The world market for power generation infrastructures and
maintenance
around
is
EUR 150 billion a year. North America and Asia are the
largest markets, each accounting for nearly 30 %. Four
players offer a wide range of products and have significant
market shares at world level: GE, Alstom, Siemens and Mit-
subishi HI. Toshiba is also significant in terms of sales, but
focuses mainly on steam turbines. GE is increasingly the
market leader with an average yearly market share of 23 %
in the overall power generation markets in the period from
1992 to 2002. GE is strongest in North America (more
than 50 % market share) and in gas turbines (more than
50 % market share). During the same period, Alstom was
in second place with an overall market share of 14 %.

(102)

In addition, France undertakes to implement additional
measures to restructure the Marine sector, in particular
those required to bring the profitability threshold for ship-
building down from 4.5 orders for ships (cruise ship
equivalents) a year (average of the last five years) to […].

(103) Lastly, France […] undertakes to withdraw [… (15)] already
sent to the Commission for the purposes of authorising
additional state aid for Alstom.

(106) The power generation market is currently experiencing a
downturn after a substantial increase in orders between
1998 and 2001 with orders increasing from 136 to
219 GW/year during that period but returning to 1998
levels by 2002 (138 GW/year). Demand is expected to
remain subdued in the medium term (on average, around
[…] GW/year up to 2005). In the longer term, however,
demand is forecast to be approximately […] GW/year
between 2005 and 2010. The power services sector has
the most potential for growth, with projected yearly
increases of […] % (the value of the services sector accounts
for around one third of the overall power generation mar-
ket, i.e. approximately EUR […] billion).

VI. ASSESSMENT

1. Market analysis (16)

(104) Alstom is an engineering group which designs, manufac-
tures and provides maintenance for products and systems
in three main sectors: power generation, rail transport and
shipbuilding (17). The Commission based its assessment of
the markets on its own analyses, industry reports and the
report of its consultant BearingPoint France SAS. The fig-
ures referred to derive from that assessment and are
approximate.

(13) OJ L 134, 30.4.2004, p. 1.
(14) OJ L 76, 23.3.1992, p. 14. Directive last amended by the Act of

Accession of 2003.
(15) Read ‘the notifications’.
(16) The market breakdown is provided for information purposes for the
requirements of this Decision; it does not necessarily coincide with
the relevant product market definition as assessed in merger cases.

(17) The Commission’s market analysis does not cover the industrial tur-
bine sector or the transmission and distribution (T&D) sector, which
have already been sold.

(107) Alstom operates in the construction and services market in
the following segments: gas turbines of more than 50 MW
(large gas turbines), steam turbines of more than 70 MW
(large steam turbines), hydro turbines and generators, boil-
ers, turnkey plants and services. The Commission assessed
market shares in each sector, for the same period 1992 to
2002. In the large gas turbines sector (which represents
28 % of the overall power generation market measured in
terms of MW), GE is the clear market leader with a share
of […] %; Siemens follows with […] % and Alstom is next
with […] %. The large steam turbines sector (32 % of the
market) is more fragmented; Chinese players have a mar-
ket share of […] %, Alstom has […] %, GE […] % and
Mitsubishi HI, Siemens and Toshiba follow with […] %,
[…] % and […] % respectively. In the case of hydro tur-
bines (9 % of the market), Alstom and GE each have a mar-
ket share of […] % and Siemens has a market share of
[…]%; in the case of hydro generators (also accounting for
9 % of the market), Alstom leads with a market share of
[…] % and GE follows with […] %, the remainder being
split between Chinese players ([…] %), VA Tech hydro
([…] %) and Siemens ([…] %). In the boilers sector (22 % of
the market), Chinese players dominate with a market share
of […] % (demand being 80 % Asian); the other leading
names are Mitsubishi HI ([…] %), Alstom ([…] %), Babcock
& Wilcox ([…] %), Foster Wheeler ([…] %) and IHI ([…] %).

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Rail transport

equipment

and services

(108) The Commission estimates that the world market in rail
is worth some
transport
EUR 30 billion a year, which is in line with the estimate
submitted by the French authorities. […] of the market is
for rolling stock (EUR […] billion), […] is for infrastruc-
ture (EUR […] billion), […] % signalling (EUR […] billion)
and […] % services (EUR […] billion). The rolling stock
sector may be split into the following segments, their per-
centage in terms of average sales of the European market
between 2000 and 2002 being shown in brackets:

— electrical/diesel multiple units (EMUs/DMUs): […] %,

— high-speed trains

and very high-speed trains

(HSTs/VHSTs): […] %,

— metros: […] %,

The industry is considered to have overcapacity of approxi-
mately […] %, though demand is expected to grow in the
years ahead by […] % a year. High-speed trains, signalling
and services are the sectors that are likely to offer the best
growth prospects.

(111) The French market is dominated by Alstom and, to a lesser
extent, by Bombardier. The Commission estimates the
market to be worth EUR 1,8 billion, based on average sales
between 2000 and 2002 (18), within which EMUs/DMUs
represent EUR […] million, HSTs EUR […] million, metros
EUR […] million, LRVs EUR […] million and locomotives
EUR […] million. Alstom’s market share over that period
was […] % in the HSTs sector, […] % in LRVs and […] %
in locomotives (19). It is only in EMUs/DMUs (Alstom
[…] %, Bombardier […] %) and metros (Alstom […] %,
Bombardier […] % and Siemens […] %) that Alstom is
present with other competitors. Alstom has approximately
[…] % market share overall in France. Despite being domi-
nant in HSTs in Germany, Siemens’s overall market share
in Germany is […] % (behind Bombardier with […] %).

— trams and light rail vehicles (LRVs): […] %,

Marine

— locomotives: […] %,

— passenger coaches: […] %.

(109) The key players in terms of sales are Bombardier, Alstom
and Siemens, and, to a lesser extent, GE and Ansaldo. These
companies together represented some […] % of the world
rail transport market in 2002: Bombardier […] %, Alstom
[…] %, Siemens […] %, GE […] % and Ansaldo […] %.
Smaller players also active on the European markets
include CAF, Talgo and Vosslogh. Alstom and Bombardier
have in recent times been the worldwide leaders in the
major rolling stock segments. They have shared this lead-
ership with Siemens on the European market. Alstom and
Siemens are
specifically well positioned on high-
technology products.

(110) Europe is the largest market, with a share of […] %. France,
Germany and the United Kingdom are the largest Euro-
pean markets, amounting to […] %, […] % and […] %
respectively of average sales per year between 2000 and
2002, followed by the Italian and Spanish markets, which
each represented […] % of the European market over that
period. Local presence (companies with local production
facilities) is a significant factor with national or local play-
ers dominating the markets (market share in France […] %,
Germany […] %, United Kingdom […] %, Spain […] % and
Italy […] % between 2000 and 2002). There is, however, a
general trend towards the Europeanisation of the market.

(112) The overall shipbuilding market is dominated by Japan and
South Korea, with China rising strongly. European ship-
yards, including Alstom, have focused on high-technology
and high value-added segments, mainly cruise ships and
liquefied natural gas (LNG) carriers. European shipyards
have a […]% cumulated share in the cruise ships market,
split between four companies. On average, between 1994
and 2003, Alston held […]% of the world market for cruise
ships, Fincantieri […]%, Aker Kvaerner […]% and Meyer
[…]%. For both cruise ships and LNG carriers, the relevant
market is worldwide.

(113) The cruise ship market is somewhat depressed at the
moment, with very few orders on the books for delivery by
2007. Longer-term prospects are, however, good, thanks
to the growth of the tourism industry. The underlying
growth rate of the cruise industry is estimated to be […] %
a year up to 2010. The LNG carrier market is witnessing a
rapid growth phase, and long-term prospects are also
positive.

(18) It should be borne in mind that the large contracts that are common-

place in this industry can radically change these figures.

(19) This market share will have reduced significantly after a EUR 800 mil-
lion contract for SNCF was won in early 2004 by a consortium of
Alstom and Siemens.

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2. Existence of aid

(114) Article 87(1) of the Treaty states that ‘save as otherwise
provided in this Treaty, any aid granted by a Member State
or through State resources in any form whatsoever which
distorts or threatens to distort competition by favouring
certain undertakings or the production of certain goods
shall, in so far as it affects trade between Member States, be
incompatible with the common market’. The Commission
will accordingly examine the relevant measures to see
whether they constitute state aid.

that the financial measures made available to the firm
formed an overall integral package. It was thus made clear
that the state’s involvement was essential to prevent
Alstom’s failure and that it formed a key element of the
2 August 2003 agreement, as is confirmed by the amended
version of the agreement, submitted by France on 26 Sep-
tember 2003. Without the participation of the state, the
banks would not have undertaken to support the firm.
France considers that the measures deriving from the Sep-
tember 2003 agreement do constitute aid, but that they are
compatible with the common market.

(115) As stated above, Alstom’s main business areas are power
generation, transport and shipbuilding. The relevant prod-
ucts and services are the subject of trade and competition
between Member States. The points set out in point 1 dem-
onstrate amply that any aid to Alstom affects trade between
Member States and distorts competition in the common
market.

(119) The Commission’s preliminary position is thus confirmed
as regards the measures covered by the decisions to initiate
and extend the procedure. It cannot therefore be affected
by the changes to some of the measures communicated by
the French authorities in May 2004.

(116) Furthermore, all the measures taken are financed by the
state or by bodies controlled by the state, and/or whose
conduct in the present context is quite clearly attributable
to the state, such as the CDC (20) and the CFDI. They are
ad hoc measures to assist Alstom and are therefore selective.

(a) Measures 1 to 6

(117)

In its decisions to initiate and extend the formal investiga-
tion procedure, the Commission concluded that the state
measures covered by the 2 August 2003 agreement, as
amended by the September 2003 agreement, constituted
state aid within the meaning of Article 87(1) of the Treaty.
The Commission would point out that initially France dis-
agreed only with former measure 1 relating to the state’s
participation in the increase being regarded as aid and
accepted that the rest of the measures in the 2 August 2003
agreement should be described as aid.

(118)

It should be noted that former measure 1 has been replaced
by the TSDDRA (present measure 1) and that France no
longer disputes the term state aid being used to apply to
this new measure 1 or, indeed, to any other of the mea-
sures covered by the September 2003 agreement. On the
contrary, by the letter dated 4 September 2003, France
stressed that it was absolutely essential for the state to par-
ticipate in the operation in support of Alstom and

(20) See the appropriate measures addressed to France in Case E 50/2001,

CDC IXIS.

(120) The TSDDRA (measure 1) were subscribed to by the state
in a context that cannot be that of a private investor oper-
ating in a market economy. They thus confer an advantage
on Alstom through state resources. Similarly, the short-
term facilities (measure 2) were granted in a context that
cannot be that of a private market economy investor. It
should be noted as regards this latter measure that the part
underwritten by the CDC was underwritten at the request
of the state and is therefore attributable to it, a fact which
France has never disputed.

(121) The state’s EUR 1,25 billion second-loss guarantee on the
contract bonds granted by the banks (new measure 3), like
the previous counter-guarantee (previous measure 3), is
also an exceptional measure that cannot be regarded as
being the normal behaviour of a financial institution, espe-
cially in view of Alstom’s situation. They thus also confer
in this
an advantage financed through state resources,
instance through the intermediary of the CFDI, and attrib-
utable to the state. It should be noted that France does not
differentiate between measures granted directly by it and
those granted through the intermediary of the CFDI. The
agreement protocol of 27 May 2004, transmitted by letter
dated 7 June 2004, establishes that ‘the state will provide
its counter-guarantee (to the new bonding mechanism)
directly or through the intermediary of the CFDI’. The pro-
tocol also indicates that the new guarantee in measure 3
‘will be issued by the CFDI, by the state or by any other
entity operating under the guarantee of the state’. This
shows clearly that, in this instance, the resources of the
CFDI are state resources and that its actions are attribut-
able to the state and must therefore, in the case in point,
be regarded as constituting state aid.

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normal

behaviour

of market

(122) The PSDD underwritten by the CFDI and guaranteed by the
state (measure 4) and the TSDD directly granted by the
state (measure 5) cannot similarly be regarded as reflecting
the
economy
investors/creditors. No normal
investor/creditor would
have taken such action, unless perhaps already a creditor
or shareholder of Alstom. It must once again be noted that
the granting of the PSDD was, at the time of the August
and September 2003 agreements, one of the commitments
given by the state. This commitment took the form of a
guarantee to the CFDI for the whole of the loan. As to the
state’s commitment to convert its claims into shares,
directly or through the intermediary of the CFDI, it was
given irrevocably and for all of the long-term claims held,
whereas conversion will be optional for other creditors.
This measure is thus aimed here once again at consolidat-
ing Alstom’s financial structure, whatever its situation at
the time of conversion, and confers on the state a role
which is not similar to that of the other creditors and which
involves an additional risk.

(123) With regard to measure 6, France did not specify the nature
of the state’s participation in the new capital increase. The
Commission considers that this participation by the state
in a new capital increase contains aid elements. As the
Commission indicated in the document entitled ‘Applica-
tion of Articles 92 [87] and 93 [88] of the EEC [EC] Treaty
to public authorities’ holdings’ (21),
in certain circum-
stances, there exists a presumption of aid. This is the case
where ‘the authorities’ intervention takes the form of acqui-
sition of a holding combined with other types of interven-
tion which need to be notified pursuant to Article 93(3)’ or
where ‘the holding is taken in an industry experiencing
particular difficulties’. In the case in point, the Commission
notes that the capital injection was granted in parallel with
other measures which are deemed to be state aid within the
meaning of Article 87(1) of the Treaty and that Alstom is
a firm in difficulty. Lastly, the capital injection must be
viewed in parallel with other support measures taken by
the state (22). All form part of the same operation intended
to support Alstom in the restructuring it is carrying out.

that the measures would not have been taken by a private
market-economy investor and that they are such as to
affect trade between Member States and are liable to dis-
tort competition in the common market. Consequently,
the Commission considers that measures 1 to 6 all con-
tain elements of state aid within the meaning of
Article 87(1) of the Treaty.

(b) Measures 7 to 10

(125) As far as measure 7 is concerned, the Commission sent a
supplementary request for information to France by letter
dated 10 July 2003 in order to establish whether the acqui-
sition price for Alstom’s T&D division paid by the Areva
nuclear group, amounting to EUR 920 million net, con-
tained elements of state aid. The Commission considers
that the clear and consistent information provided in the
letters sent by France to the Commission on 4 Septem-
ber 2003 and 16 February 2004 removes any doubts that
this measure might contain aid elements. In the absence of
any evidence that might indicate that Alstom received an
advantage from Areva, which would be attributable to the
state, the Commission considers that there is nothing to
suggest that the transaction contained state aid elements.
Areva’s conduct in this operation was that of a private
market-economy investor. Even if this were not the case,
the Commission considers that any aid element would be
extremely small and would not in any way alter its overall
assessment of the measures in support of Alstom.

(126) As regards the other measures (measures 8, 9 and 10), a
distinction must be drawn between measure 8 and mea-
sures 9 and 10.

(124)

In conclusion, the Commission considers that measures 1
to 6 all form part of a package clearly designed to assist
the Alstom group, which would otherwise be confronted
with serious risks of insolvency. Furthermore, it is clear

(21) Bulletin EC 9-1984.
(22) See judgment of the Court of First Instance of 15 September 1998 in
Case T-11/95 BP Chemicals Ltd v Commission [1998] ECR II-3235.

(127) With regard to measure 8, ‘Bahrain’, the decision to initiate
the procedure referred to guarantees for the construction
of an electric power plant in Bahrain. France denies having
provided any guarantee whatsoever in connection with
this purely commercial transaction. The Commission has
examined the letter sent by France to the Bahrain authori-
ties: it considers that the extremely general nature of the
letter meant that it did not have any binding character that
could have conferred an advantage on Alstom. Measure 8
does not therefore constitute aid within the meaning of
Article 87(1) of the Treaty. Even if it did, the Commission
considers that any aid element, which would be extremely
difficult to quantify, would not in any way alter its overall
assessment of the measures in support of Alstom.

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(128) As regards measure 9, ‘acquisition by GdF of an LNG car-
rier’, and measure 10, ‘acquisition by SeaFrance of a new
ship’, France indicates firstly that the orders were won by
Alstom on its own merits and without any assistance from
the state. However, France acknowledges having provided
[… ‘to’] GdF and [… ‘to’] SNCF, the parent company of
SeaFrance, special back-up conditions for the relevant pur-
chases. Having analysed the letters referred to in recital 89,
the Commission considers that the special back-up condi-
tions must be deemed to be equivalent to state guarantees.
In the case of GdF (measure 9), France states that it under-
takes to ‘[…] (23)’ if the transaction could not be carried out
successfully. In the case of SeaFrance (measure 10), France
states that it ‘[…] (24)’ that would be required to enable
SeaFrance to carry out the transaction successfully.

3. Amount of aid

(132)

In its reply to the initiation and extension of the formal
investigation procedure, France stated that the amount of
aid granted by the state under measures 3 and 4 was less
than the amount of the facilities covered. France accepts
that the rest of the measures can be considered to be aid
that can be valued at up to 100 % of its nominal value. It
should be noted that France’s comments relate only to the
aid package before it was adjusted in May 2004. France
does not therefore comment on the quantification of the
aid included in the guarantee covering the new bonding
facility that replaces the counter-guarantee (measure 3) or
on that included in the new proposed capital increase
(measure 6).

(129)

It is clear from these ‘comfort letters’ that the state con-
ferred a key advantage on Alstom by granting its custom-
ers a guarantee of compensation in connection with
Alstom’s carrying-out of the orders for the ships. This
advantage was without any doubt a major factor for
Alstom at a time when its financial situation was such that
a prudent operator would certainly have been reluctant to
order ships from it. It is also revealing that these ‘comfort
letters’ replaced the contract bonds usually used for this
type of transaction, which in other cases required state
backing (see former and new measure 3), as France subse-
quently informed the Commission.

(133) Aid granted by the state, notably where it takes the form
of underwriting of company stock (equity or quasi-equity),
short or long-term loans or guarantees, must be quantified
ex ante, i.e. at the time when it is granted. This is the only
way of taking the risk assumed by the state into account,
whereas ex post quantification is based on the materialisa-
tion of the risk. It is on the basis of these principles that
quantification of the aid for Alstom must be established.

(130) Consequently, these measures must be regarded as being
equivalent to guarantees in so far as they have a similar
effect to that of the syndicated bonding facility. They must
be regarded as forming an integral part of the entire pack-
age of aid which France provided for Alstom in order to
support its restructuring efforts under the plan being
implemented since March 2003. These guarantees were
provided for Alstom in June 2003, at a time when the
firm’s difficulties were well-known. Consequently, the
guarantees must be regarded as constituting the first aid
measures in support of Alstom.

(134) The TSDDRA (measure 1) and the TSDD (measure 5) were
quasi-equity. No investor in the same position as the state
would have underwritten such securities. The risk was so
great (in the event of default, the state would have had no
hope of obtaining any repayment) that the Commission
had regarded the amount of aid as being equal to the nomi-
nal amount of the securities. France accepted this assess-
ment. This assessment is not fundamentally altered by the
conversion of the securities into capital.

(131) Lastly, the Commission maintains the analysis which it set
out in its provisional assessment as regards the banks’
placement guarantee for the first capital increase and the
bank’s issuing of the ORA and therefore confirms that the
relevant elements do not contain any state aid.

(23) Quotation from French Government letters that enabled the Com-

mission to conclude that a guarantee existed.

(24) Ibidem.

the nominal

(135) The short-term liquidity (measure 2) was also made avail-
able at a time when no other bank was ready to do so. In
the case of the EUR 300 million which the state undertook
to renew up to February 2005 and which are therefore
equivalent to a medium-term loan, the aid may amount to
up 100 % of
amount. By contrast,
EUR 900 million in Treasury notes were lent for the short
that amount,
term (and indeed repaid rapidly). Of
EUR 800 million were intended to cover financing require-
ments pending the long-term financing granted by the
state (TSDDRA, TSSD and PSDD), the full amount of which
the Commission considers to be aid. Consequently, it can
reasonably be considered that this aid was given by the
the
state as from the time of

the subscription of

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EUR 800 million in Treasury notes. What is involved,
therefore, is the same amount of aid which has simply
changed form and which must be counted only once. In
Table 7, the Commission therefore applies a weighting of
0 % to the EUR 800 million in short-term loans and a
weighting of 100 % to the long-term financing used for
their repayment. Finally, the aid included in the balance of
EUR 100 million remains to be quantified. Compared to a
medium and long-term loan, account must be taken of the
lower risk of non-repayment for the creditor given the
short duration and the fact that the loan was intended
to establish longer-term financing solutions. The amount
of aid is therefore only a fraction of the nominal amount
thus lent.

own in view of the commitments already entered into, the
state provided support for this flow of bonds that is essen-
tial to Alstom’s proper operation’. France thus acknowl-
edges that, without the state counter-guarantee, Alstom
would not have had access to a new bonding facility. Con-
the counter-
sequently,
guarantee operated de facto as a guarantee: it could be called
immediately by the banks in the event that one of the
projects which they had guaranteed could not be carried
out or completed in time by Alstom.

the Commission notes that

(136) With regard to the syndicated bonding facility (measure 3),
as described in Part IV, France only communicated calcu-
relating to the former counter-guarantee of
lations
EUR 2,275 billion. However, that counter-guarantee was
abolished and replaced by a new guarantee of EUR 1,25 bil-
lion. As already explained, France bases its calculations on
an estimate of the technical risk of 5 %, calculated on the
basis of historical data that allow the amount of aid for the
abolished counter-guarantee to be put at between EUR 0
and EUR 43 million.

(137) As pointed out in recital 133, the existence and the amount
of aid must be determined ex ante, i.e. at the time when it
was granted and not, as France claims, after the bonding
facility produced its effects. The amount of aid cannot be
estimated in relation to the risk for contracts effectively
covered a posteriori. At the time when the guarantee was
granted, France included no limit on the use of the facility.
The counter-guarantee could thus cover any contract in
any of Alstom’s spheres of activity, provided that the con-
tract did not exceed a duration of seven years. Ex ante, the
aid contained in the counter-guarantee could amount to
up to 100 % of the amount covered, in line with the Com-
mission notice on the application of Article 87 and 88 of
the EC Treaty to state aid in the form of guarantees (25)
(hereinafter referred to as the ‘notice on state aid in the
form of guarantees’), point 3.2 of which states that ‘where,
at the time the loan is granted, there is a strong probability
that the borrower will default, e.g. because he is in finan-
cial difficulty, the value of the guarantee may be as high as
the amount effectively covered by that guarantee’. Such
risk could not be taken on by any private operator. In its
reply to the initiation and extension of the formal investi-
gation procedure, France stated that ‘the banks no longer
being able to provide this bonding mechanism on their

(25) OJ C 71, 11.3.2000 p. 14.

(138) Consequently, the Commission considers that the poten-
tial risk for the state amounted to 100 % of the amount of
the bonding facility covered by the counter-guarantee, i.e.
following the changes
EUR 2,275 billion. However,
announced in May 2004, the state counter-guarantee cov-
ering the bonding facility will be abolished. It is therefore
necessary initially to quantify the amount of aid resulting
from the state’s granting of the counter-guarantee during a
period of some twelve months. On the basis of the infor-
mation available, and in line with customary calculation
methods, the aid corresponding to the counter-guarantee
granted by the state during that limited period of time may
be estimated at a maximum of EUR 411 million. This cal-
culation starts from the assumption that the contracts cov-
ered are for three years (industry average), that the risk of
the guarantee being called is spread evenly throughout the
three-year period, that the bonds are issued in a linear fash-
ion over 12 months (September 2003 to August 2004) for
a total amount of EUR 3,5 billion and that, as from Sep-
tember 2004, the state counter-guarantee covering the
bonds issued is abolished. The amount of aid is considered
to be 100 % of the counter-guaranteed amount multiplied
by the duration of the guarantee (number of months dur-
ing which the guarantee applied over three years, i.e. 36
months). It will be recalled that the counter-guarantee was
65 % per bond. (26).

(139) As stated in recital 52, the abolished counter-guarantee will
be replaced by a new second-rank guarantee amounting to
EUR 1,25 billion, which will be incorporated into the new
bonding facility, representing a maximum outstanding
amount of EUR 8 billion (measure 3). Under this new
arrangement,
the potential risk for the state will be
EUR 1,25 billion, as from the time that the EUR 700 mil-
lion collateral becomes insufficient to cover potential
losses. The new counter-guarantee must be treated as aid
of up to a maximum of 100 % of its amount. This adjust-
ment consequently means a EUR 1 billion reduction in the
state’s potential risk. As already indicated in part III, the
reduction in the amount of the state’s exposure was a key
factor in deciding not to extend the formal investigation
procedure once again.

(26) The formula used to estimate the aid is:
i
36 × 0.65 = 410.76

3 500
12 × Σ 12

i=1

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(140) Furthermore, the Commission considers that the amount
of aid would not be substantially affected by subtracting
the costs borne by Alstom in order to benefit from the
guarantee. In the light of this assessment and the fact that
the data provided by France did not contain figures allow-
ing precise calculation of the amounts paid by Alstom to
the state, the maximum amount of aid included in the
guarantees has not been reduced.

(141) As regards the guarantee given by the state to the CFDI for
providing Alstom with the PSDD in measure 4, the same
reasoning applies. Without the state guarantee amounting
to 100 % of the PSDD, the CFDI would never have granted
the loan. Consequently, in line with the notice on state aid
in the form of guarantees, the Commission estimates that
100 % of the guarantee may constitute state aid. This
analysis is borne out by the fact that France announced
that Alstom’s debts to the state would be converted into
capital during the summer of 2004, including the PSDD.
The conversion of the debt into capital shows that the
PSDD is financed through state resources and attributable
to the state and that it must be regarded as aid that may
amount to up to 100 % of the relevant amount.

(142)

In view of the considerations set out in this part, the Com-
mission considers that the state’s participation in the new
capital increase (measure 6) cannot be considered to rep-
resent the conduct of a normal market-economy investor,

but constitutes aid. The aid included in such participation
in the capital may amount to up to 100 % of the amount
underwritten.

(143) As regards the guarantees given to GdF and SNCF (mea-
sures 9 and 10), France recognises that their purpose was
to replace contract bonds. In line with the estimate of the
aid comprised in the guarantee in respect of the bonding
facility, the Commission considers that the maximum
amount of aid may be as high as 100 % of the amount cov-
ered. However, given the difficulty of assessing the scope
and probability of the various risks that might arise from
contracts not being carried out or not being carried out
properly, and the proportion of such risks that might actu-
ally be covered by the state guarantee, the Commission is
unable to quantify reliably the amount of aid inherent in
the guarantees.

(144)

In view of the above, the Commission considers that
Table 7 provides a realistic estimate of the maximum
amount of aid resulting from the package of measures in
support of Alstom, with the sole exception of measures 9
and 10. It should be added that the ensuing compatibility
assessment takes account of each of the measures consid-
ered in its own right, with all its particularities, and not just
of this overall assessment.

Table 7

Maximum amount of aid

Measure

EUR 1.2 billion in short-term liquidity (measure 2)

of which — EUR 300 million renewed

— EUR 900 million repaid (EUR 800 million repaid thanks to the

following three measures)

TSDDRA (measure 1)

PSDD to be converted into capital (measure 4)

TSDD to be converted into capital (measure 5)

Capital increase II (measure 6)

Guarantee covering the bonding facility (measure 3)

of which — 12 months counter-guarantee for 65 % of EUR 3,5 billion in bonds

— second-loss guarantee covering the EUR 8 billion in bonds

(EUR billion)

Maximum amount of aid

0,3

0,1

0,3

0,3

0,2

0,17/0,22

0,411

1,25

Total

3,03/3,08

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4. Compatibility of the aid with the common
market

(a) Rescue aid

(145)

In view of the above, the measures taken by the State must
be assessed as ad hoc state aid in the present context.
Article 87(2) and (3) of the Treaty provides for derogations
in
from the general
Article 87(1).

incompatibility rule

set out

(150) France considers that part of measures 2 and 3 can be
deemed to be rescue aid. In support of this argument, it
points out that the aid covers the firm’s short-term liquid-
ity requirements.

(146) The derogations provided for in Article 87(2) of the Treaty
are not applicable in this instance, since the aid measures
do not have a social character and are not granted to indi-
vidual consumers, they are not intended to make good the
damage caused by natural disasters or exceptional occur-
rences, and they are not granted to the economy of certain
areas of the Federal Republic of Germany affected by the
division of Germany.

(151) With regard to measure 2, France estimates

that
EUR 900 million under the financial package covered by
the September 2003 agreement must be regarded as res-
cue aid within the meaning of the guidelines. This aid in
the form of short-term liquidity, whose purpose was to
prevent Alstom from going out of business immediately,
was repaid within six months of disbursement.

(147) Other derogations are provided for in Article 87(3) of the
Treaty. Since the aid is not regional in purpose and since
the derogation in Article 87(3)(b) is clearly not applicable,
only the derogations provided for in Article 87(3)(c) apply.
That provision authorises state aid intended to facilitate the
development of certain economic activities, where the aid
does not adversely affect trading conditions to an extent
contrary to the common interest. The aid was granted in
order to restore the long-term viability of a firm in diffi-
culty. It must therefore be assessed on the basis of the
guidelines. Following examination, the Commission con-
siders that no other Community guidelines could apply in
this instance. Nor has France invoked any other derogation
provided for in the Treaty and has relied solely on the
guidelines in order to justify the compatibility of the mea-
sures notified in August 2003.

(148)

In order to qualify for rescue and restructuring aid, the firm
must be a firm in difficulty. Section 2.1 of the guidelines
defines this concept. Point 6 states that the usual signs of a
firm being in difficulty are increasing losses, diminishing
turnover, growing stock inventories, excess capacity,
declining cash flow, mounting debt, rising interest charges
and falling or nil net asset value.

(149) The company went from a net profit in the financial year
2000-2001 to a loss of well in excess of EUR 1 billion in
the financial year 2002-2003. At the same time, equity fell
by more than half, falling from EUR 2 billion to under
EUR 800 million. Alstom can therefore be deemed to be a
firm in financial difficulty within the meaning of point 5 of
the guidelines, a fact which is disputed neither by France
nor by any other party in these proceedings.

(152) As regards measure 3, France considers that the State
counter-guarantee covering the syndicated bonding facil-
ity must be deemed to be rescue aid provided during the
period when the bonds were issued by the banks and
counter-guarantees provided by the State, since the mea-
sures implemented during that initial period made it pos-
sible to keep Alstom in business. According to France, the
counter-guarantee should accordingly be regarded as res-
cue aid granted during the first year of implementation of
the measures designed to rescue the firm. It should be
noted that France does not evaluate the part of the aid that
should be deemed to be rescue aid, nor does it evaluate the
part that should be deemed to be restructuring aid. As far
as the subsequent period is concerned, the aid should be
regarded as restructuring aid. It must be noted that no
evaluation was provided for the repositioning of the
counter-guarantee in the new syndicated facility amount-
ing to EUR 800 billion.

(153) However, it should be borne in mind that, in its decisions
to initiate and extend the formal investigation procedure,
the Commission took the view that Alstom seemed to be
undergoing restructuring at the time when the relevant
measures were granted. Consequently, part of the aid mea-
sures cannot be deemed to be rescue aid, which, under the
guidelines, cannot be granted once a restructuring or liq-
uidation plan has been implemented, since rescue aid must
necessarily precede any such plan. Furthermore, the con-
ditions governing the authorisation of rescue aid, set out in
point 23 of the guidelines, do not appear to be met in this
instance. The Commission accordingly took the view, pro-
visionally, that the aid should be examined in the light of
the criteria governing the authorisation of restructuring
aid.

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(154) The doubts which the Commission expressed when initi-
ating and extending the procedure remain relevant. It still
appears artificial to divide the aid package into rescue aid
and restructuring aid, since no rescue period preceded the
drawing up of the restructuring plan. Any such analysis
would run counter to the objective pursued in granting res-
cue aid, which is to maintain the status quo until such time
as the firm’s future can be assessed.

(155) The aid, whether covering liquidity requirements or struc-
tural measures, forms part of the ongoing restructuring.
The Commission cannot agree to aid being arbitrarily
deemed to be rescue aid when it is granted during the first
six months or indeed during the first year of a restructur-
ing operation. In this context, it does not matter that the
aid covers the liquidity requirements of a firm undergoing
restructuring, since restructuring aid often covers the
liquidity requirements of firms being restructured, in the
same way as it covers, for example, investment or costs
linked to capacity reductions.

(156)

In addition, the Commission considers that the amount of
aid in respect of measure 2 was to a very large extent taken
from the amounts deriving from the structural measures
that replaced it and that, for this reason too, it is appropri-
ate to examine it under the heading of restructuring. With
regard to the counter-guarantee (former measure 3), it does
not fulfil any of the criteria for the authorisation of rescue
aid set out in the guidelines. It did not in particular consist
of liquidity support, since it did not constitute a loan guar-
antee as stipulated in point 23 of the guidelines. Further-
more, the counter-guarantee was to extend well beyond
the six months provided for in the guidelines, since it was
to cover projects lasting up to seven years.

(157)

In view of the above, the Commission considers it appro-
priate to assess these measures as being included in the
package of restructuring aid.

(b) Restructuring aid

R e s t o r a t i o n o f v i a b i l i t y

(159) The grant of aid is conditional on implementation of the
restructuring plan which must be endorsed by the Com-
mission in the case of all individual aid measures. A restruc-
turing plan, the duration of which must be as short as
possible, must restore the long-term viability of the firm
within a reasonable timescale and on the basis of realistic
assumptions as to future operating conditions. Restructur-
ing aid must therefore be linked to a viable restructuring
plan to which the Member State commits itself.

(160) With the help of its external consultant, the Commission
assessed the restructuring plan presented by France in
order to determine whether it is sufficient to restore the
long-term viability of the firm. The Commission based its
analysis on the information presented in August and
December 2003 and subsequently in February 2004. The
Commission’s assessment examines firstly whether the
operational restructuring is adequate, then looks at market
prospects and their impact on the restructuring plan, and
lastly considers the firm’s financial situation once the
restructuring plan has been implemented.

Operational restructuring

(161)

In analysing the restructuring measure, account must be
taken of the specific character of the sectors in which
Alstom operates. In particular, in the case of the Power and
Transport sectors, the necessary investment in fixed assets
is relatively low compared with working capital require-
ments. What matters most are project performance and
engineering capacity, whereas physical production capac-
ity is a major constraint only in the case of a limited num-
ber of products (27). Consequently,
are
generally able to broaden their supply in periods of high
demand. Conversely, it is not always possible to cut sur-
plus labour in periods of low demand, particularly in coun-
tries where social security legislation is more constrictive.
Another specific feature of Alstom’s activities is the need to
manufacture different products (28) on the same produc-
tion line depending on orders, so as to optimise produc-
tion capacity utilisation (utilisation runs).

companies

(158) The guidelines set out four criteria all of which must be
met if restructuring aid is to be authorised: a plan that will
restore long-term viability, the avoidance of distortions of
competition, aid limited to the minimum and full imple-
mentation of the restructuring plan.

(27) Rolling stock bogies are an example of a market where it is necessary
to have sufficient physical production capacity. Furthermore, local
plant presence may be an important factor on the railway equipment
market.

(28) For example, in the railway equipment sector, high-speed trains and
metros are production substitutes. In shipbuilding, this is the case, for
example, with cruise ships and LNG carriers.

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(162) Production capacity is measured mainly in terms of the
space available for production (roofed area) and the man-
power available, whereas installed plant and equipment are
not generally a major constraint, unlike in other industries.
In addition, it is difficult to measure production capacity
by product, since, as has just been mentioned, different
products may be manufactured at different times on one
and the same production line.

(166) Lastly, restructuring is to be carried out in the Power Con-
version sector (the T&D segment not sold to Areva), in the
form of a […] % reduction in the workforce (from […] to
[…] employees) and reorganisation of industrial structure.

(163) Consequently, Alstom’s internal restructuring measures
were analysed by examining whether they allow the firm
to reorganise efficiently its manpower use and rationalise
its geographical presence.

(164) The Commission considers that, as far as the Power Gen-
eration and Transport sectors are concerned, the restruc-
turing measures are sufficient to ensure industrial recovery.
The planned manpower reductions are considered to be in
proportion to the scale of the excess capacity that exists in
these industries. The estimates of the cost of these restruc-
turing measures and the resulting savings seem realistic.
Furthermore, the early implementation of the restructur-
ing plan indicates that the process is well advanced, so that
the risk of any slippage in achieving the objectives set for
March 2006 is reduced.

(165)

In the Power Turbo-Systems sector, the […] % reduction in
manpower from […] to […] employees), is in line with the
excess capacity indicated by Alstom’s latest capacity utili-
sation rates as estimated by France ([…] % in August 2003)
and by the Commission’s expert ([…] % in 2002 and
[…] % in 2003). This manpower reduction, combined with
the cutting back and selective closure of plants and the
operational reorganisation, will help to ensure that Alstom
is competitive. In the Power Environment sector, the […] %
reduction in manpower (from […] to […]) […] (29)]
deemed necessary by the Commission’s external expert. It
is also greater than the excess capacity indicated by the
capacity utilisation rate estimated by France (around […] %
in the first half of the year 2003-2004). This large reduc-
tion in manpower may be attributed to the closure of pro-
duction sites, […].
In the Power Services sector, the
reduction in manpower amounts to […] % (from […] to
[…]). No site closure is anticipated (30), but that may be
justified by the need for a local presence in this sector.

(29) Read ‘is in line with the minimum reduction’.
(30) Except for the La Courneuve site in France. That site formed part of

the Industrial Turbines business which was sold to Siemens.

(167)

In the Transport sector, there is to be a […] % reduction in
the workforce (from […] to […]). This workforce reduc-
tion is in line with the overcapacity estimates made by the
external consultant (between […] % and […] %). However,
the reduction is not consistent with Alstom’s current
capacity utilisation rate (more than […] %) as stated by
France. This inconsistency can, however, be explained in
part by the fact that more than […] % of the workforce
reduction (combined with production site closures) affects
the United Kingdom. Alstom Transport recently encoun-
tered considerable difficulties in the United Kingdom, and
the market outlook there is much less positive than in
other countries. Other workforce reductions may have
been planned in anticipation of the improvement in pro-
ductivity resulting from industrial optimisation.

(168)

In contrast with its assessment of the Transport and Power
sectors, the Commission considers that the measures to be
taken under the restructuring plan in the Marine sector are
not sufficient to offset excess capacity in Alstom’s ship-
yards. The workforce reduction to be carried out under the
restructuring plan is […] % (from […] to […] employees).
Production will be concentrated on the Saint-Nazaire ship-
yards, which are the main shipbuilding site, while other
less important sites will be closed. Notwithstanding these
measures, the Commission doubts that these restructuring
measures will be sufficient to raise capacity utilisation rates
at Alstom’s shipyards to an acceptable level in 2006. The
reasons for this analysis are set out in recitals 169 and 170.

(169) Although Alstom’s Marine sector has the technical capac-
ity to produce different types of vessel (cruise ships, LNG
vessels, carriers, yachts, scientific and military vessels, etc.),
it seems that future orders will probably be focused on
demand for cruise ships. The restructuring plan itself antici-
pates that new orders will come mainly from that market,
while other types of vessel are not expected to figure
prominently amongst orders received. Current production
capacity at the Saint-Nazaire shipyards is estimated at
between five and six cruise ships a year. Some medium-
term indicators suggest that, if Alstom maintains its cur-
rent market share, it will receive orders for a maximum of
three cruise ships a year for the period 2004 to 2006. Even
if production of other types of vessels were able to offset
any lower level of orders for cruise ships than this maxi-
mum, this would probably not have any significant impact
that would raise the total level of orders to more than three
vessels (cruise ship equivalent) a year.

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(170)

In this context, the Commission welcomed France’s recent
commitment that it would take the necessary measures as
soon as possible, […], in order to reduce Alstom’s profit-
ability threshold for shipbuilding from 4,5 ship order
(cruise ship equivalents) a year (average for the last five
years) to […]. The Commission considers that this addi-
tional measure […] is vital to ensure the long-term viabil-
ity of this sector and that it must be implemented.

calculates a sensitivity factor (orders at risk) of around
[…] % of expected orders. The Commission regards
EUR […] worth of orders as being at risk, each year, in
2004/2005 and 2005/2006, out of EUR […] worth of
expected orders.

Operational performance

(171) The Commission assessed in detail the forecasts resulting
from the restructuring plan, both for orders and for oper-
ating revenue per sector. It checked that these aspects are
in line with the forecasts established for each of the rel-
evant markets. The Commission considers that the fore-
casts for orders are in general realistic and that the forecasts
for market shares and industrial growth are sufficiently
prudent. Two sectors, however, form an exception: Power
Turbo-Systems and Marine.

(172) Alstom’s Power Turbo-Systems business has suffered very
heavy losses due to the serious dysfunctional problems in
2000 with the GT24/GT26 heavy-duty gas turbines, which
are the main model in the range marketed by Alstom in
this sector. Work to improve the performance of the tur-
bines has been carried out and commercial agreements
concluded with dissatisfied customers. France states that
the turbines are at present problem-free and that an order
for three turbines has just been placed by a Spanish firm, a
factor which suggests that Alstom’s clientele has regained
confidence in the quality and performance of the advanced
turbines marketed by the group.

(173) The Commission considers that there are sufficient posi-
tive factors confirming the renewed recovery in this sec-
tor. It is established that Alstom has indeed carried out the
necessary work to achieve the required performance speci-
fications and that the disputes with dissatisfied customers
are in the process of being resolved; the Commission also
notes that the provisions set aside in the accounts to cover
any residual risks are sufficient. At all events, the order for
three turbines placed in December 2003 and mentioned by
the sector can recover its
France demonstrates that
competitiveness.

(175)

In the Marine sector, the Commission considers that the
order forecasts under the restructuring plan are too opti-
mistic, even assuming a long-term recovery in the cruise
ship market and even allowing for the possibility for Chan-
tiers de l’Atlantique to produce other types of high-tech
vessels such as LNG carriers. The Commission regards
EUR […] worth of orders as being at risk, each year, in
2004/2005 and 2005/2006, out of EUR […] worth of
expected orders.

(176) On the basis of these factors, the Commission considers
that a total of EUR […] in orders is at risk. This amount is
only partly offset by the EUR […] corporate buffer appli-
cable to the anticipated orders. The restructuring plan
therefore appears to be overoptimistic, and the Commis-
sion estimates that EUR […] worth of orders at risk are not
covered by the corporate buffer.

(177) The Commission analysed the company’s forecasts in
terms of operating profit. It considers that the objectives
embodied in the restructuring plan should be achievable.
Expectations in terms of operating result are sufficiently
prudent to offset the overoptimistic forecasts in terms of
orders. The Commission therefore considers that the over-
optimism on orders should not have the effect of jeopar-
dising Alstom’s operational profitability objective for
2006.

(178) Having analysed the other basic elements of the restructur-
ing plan intended to demonstrate the soundness of
Alstom’s operational profitability forecasts for 2006, the
Commission considers that the forecasts are realistic. An
initial aspect essential to improving profitability is the
economy measures undertaken as part of the restructuring
measures described in part II.3. The economy measures
designed to rationalise costs appear realistic, and the pace
at which they are to be implemented may be regarded as a
positive indicator demonstrating that restructuring and a
return to viability can be achieved within the deadlines set.

(174) However, despite these encouraging signs, the Commission
believes that France is overestimating Alstom’s capacity to
win back market shares in the years ahead. While Alstom’s
market share should be in line with its average perfor-
mance in the period 1992 to 2002, the Commission

(179) Secondly, the Commission notes that the substantial losses
caused by the major dysfunctional problems that occurred
with the GT24/GT26 heavy-duty gas turbines were excep-
tional. Furthermore, agreements have been reached to end
the litigation procedures with certain customers. This type
of difficulty, which is by its nature one-off, should not arise
again in future.

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(180) A third major factor is the forecast of continuing high prof-
itability in areas which are already doing well and, in par-
ticular, in the Power Services division (operating margin of
[…] % expected for 2006). These forecasts seem reason-
able on the basis of the features of the relevant business
sectors and their growth.

(186)

In addition, the Commission considered that Alstom might
lack the short-term financing capacity to meet liquidity
requirements during the restructuring period. In its assess-
ment of Alstom’s liquidity plan, the consultant considered
that the headroom (credit lines available minus credit lines
already used) should be kept above EUR […], a level which
the Commission considers sufficient, but only if there are
no unforeseen difficulties. At all events, under the liquidity
plan, the level of headroom was to be below the reference
level of EUR […] during the first and second quarters of
the year 2005/2006.

(187) Lastly, the Commission considered that it was necessary
for Alstom to increase it equity in the medium term. Under
the plan, the level of equity in 2006 was to be EUR […],
or […] % of sales, while during the period 1998/2000
equity amount to 12 % of sales. A sounder financial bal-
ance sheet than that anticipated for 2006 was deemed nec-
essary for the firm to be able to attract investors and thus
finance itself independently on the markets.

(188)

In conclusion, the Commission considered that Alstom’s
restructuring plan remained unsatisfactory in financial
terms, mainly because of the very high level of debt and
very low level of equity.

(189) However, in May 2004, France informed the Commission
that the firm was going to carry out a capital increase in
cash and to convert part of its debt into capital. The two
transactions will mean that equity will be between EUR
[…] and EUR […] and that debt will be between EUR […]
and EUR […] in March 2006, depending on the degree of
participation of banks in the conversion of claims into
capital, corresponding to a sales percentage of […] % to
[…] %. The ratio between debt and equity (gearing ratio)
will be between […] and […] in 2006, which represents a
sufficient improvement over the level in the forecasts made
on the basis of the previous financial plan. Furthermore,
the reduction in debt will mean a decrease in financial
charges: in 2006, financial charges will be between EUR
[…] and EUR […]. On the basis of an EBITDA of EUR […],
the interest cover ratio should be between […] and […],
which indicates a sustainable financial situation.

(190)

In conclusion, the new capital increase and the consequent
reduction in debt largely allow the Commission’s doubts as
to the firm’s medium-term viability to be removed.

(191)

In addition, the Commission notes France’s commitment,
referred to in part V, to conclude one or more industrial
partnerships within a period of four years.

(181)

In the light of these factors, the Commission concludes
that the objective of 6 % operating margin at group level
provided for in the restructuring plan for 2006 is
achievable.

Return to long-term viability

(182) The Commission examined whether the measures pro-
vided for by the restructuring plan will enable Alstom to
restore its long-term viability. As already indicated, the
Commission considers that, at industrial level, the mea-
sures are in general sufficient to achieve the profitability
objectives provided for in the plan. In addition, there are
positive signs indicating that the exceptional technical
problems which resulted in very heavy specific losses in
recent years have been solved.

(183) However, the Commission continued to have doubts as to
the effectiveness of the measures provided for in the
restructuring plan to restore Alstom’s long-term financial
soundness after March 2006. The Commission was not
therefore able to conclude that, at the end of the restruc-
turing, the firm would be capable of acting on the market
through its own resources, as required under the guide-
lines. The Commission’s doubts stemmed from the follow-
ing analytical factors.

(184) Firstly, an operating margin of 6 % in 2005/2006, corre-
sponding to an operating profit of EUR […], did not seem
to be a sufficient basis to ensure the firm’s long-term viabil-
ity. Under the restructuring plan, net profits in 2005/2006
were to be EUR […], or […] % of sales.

(185) Moreover, the Commission estimated that the level of eco-
nomic debt compared to equity remained too high in
2006: EUR […] in relation to EUR […]. This gave a
debt/equity ratio (gearing ratio) of […]. Consequently,
Alstom would have had to earmark a very large percent-
age of its revenue to pay for the interest on its debt: finan-
cial charges would have been EUR […], while earnings
before interest,
taxes, depreciation and amortisation
(EBITDA) would have had to total EUR […], i.e. an interest
cover ratio of […]. Such a level clearly indicated a precari-
ous financial situation that would be difficult to sustain in
the long term.

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(192) The Commission estimates that, in order to consolidate
Alstom’s long-term viability prospects, it is necessary for
the firm to form one ore more partnerships. The partner(s)
chosen should have sufficient financial strength and make
a financial and industrial contribution to the partnership
set up. The relevant industrial activities should, however,
be such that the partnership(s) can be approved by the
Commission under the competition rules laid down in the
Treaty. The partnership(s) should be long-term. They
should involve structural and strategic agreements not lim-
ited to carrying out a specific project together, for example
in response to a particular invitation to tender. In order to
have a significant impact on Alstom’s industrial and finan-
cial development, the partnership(s) should relate to a sig-
nificant part of Alstom’s activities in its core business
sectors of transport and energy, in areas not involved in
joint ventures (see recitals 206 and 207). In conclusion, the
partnerships should enable Alstom to make use of its tech-
nological and industrial assets by overcoming the financial
constraints to which it is subject as regards the activities
concerned (31).

be regarded as ‘contrary to the common interest’ and there-
fore incompatible with the common market. This condi-
tion usually takes the form of a limitation on the presence
which the company can enjoy on its market or markets
after the end of the restructuring period.

(196) As already stated, up to 2003 Alstom carried out activities
in the following areas: power generation, transmission and
distribution, rail transport and shipbuilding. Consequently,
measures to offset the adverse effects of the aid on com-
petitors should be taken in each of these sectors. The
restructuring plan provides for the refocusing of Alstom
around its core activities. It is important in this context that
the restructuring plan, as notified to the Commission by
France on 5 December 2003 and 15 March 2004, be fully
implemented, including as regards the assets to be sold off.

(193)

It should also be noted that the partnerships will be estab-
lished, in principle and unless otherwise specifically autho-
rised by the Commission, with firms that are not controlled
by the French public authorities, de jure or de facto, indi-
vidually or jointly. Otherwise, the partnerships might per-
petuate the state’s involvement in the Alstom group, which
would be in flagrant contradiction with the other commit-
ment given by France, namely to put an end to the partici-
pation of the public authorities in Alstom’s capital and
hence to the state aid which such participation entails.

(197)

In the power generation sector, it should be noted that the
company has already sold off the industrial turbines divi-
sion, including small gas turbines (< 50 MW) and steam
turbines (< 100 MW) to Siemens, and the T&D division to
Areva. These divestitures accounted for 20 % of Alstom’s
total turnover in 2002/2003. In addition, the commit-
ments given by France described in part V provide for the
selling off of further assets in the power generation sector,
including industrial boilers, and the setting up of a joint
venture covering hydro-power.

(194)

In conclusion, the Commission considers that the commit-
ment given on partnerships must be fulfilled if all the
doubts regarding the long-term viability of the firm are to
be removed.

(198) As regards Alstom’s second core business division, rail
transport, France undertakes to sell off in particular the
Valencia freight locomotive plant and its Transport busi-
ness in Australia and New Zealand.

P r e v e n t i o n
c o m p e t i t i o n

o f

u n d u e

d i s t o r t i o n s

o f

(195)

If it is to be authorised by the Commission, restructuring
aid must meet a second condition, which is that measures
must be taken to mitigate as far as possible any adverse
effects of the aid on competitors. Otherwise, the aid has to

(31) See in particular point 34 of the guidelines.

(199) As regards these latter two business divisions and indus-
trial boilers, Alstom must continue to run them in accor-
dance with the principles of good management, providing
them with the means for normal development and not tak-
ing any measure that would reduce their value, for example
through the transfer of intangible assets (patents, licences,
commercial agreements, etc.), staff, customers or sales
capacity to the parent company or any other part of the
Alstom group. For this purpose, France undertakes, for
each of the business divisions being sold off, that Alstom
will set up or stabilise a dedicated management to ensure
that they are managed properly. A trustee appointed by
France and approved by the Commission will monitor the
proper handling of the management and sale of these busi-
ness divisions.

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(200) As

regards

the EUR 800 million (on the basis of
2002/2003 turnover) in additional divestitures that will
have to be carried out from among the non-Marine busi-
ness divisions, such divestitures must meet the following
two conditions. First, the business sold off may not be the
subject under this Decision of any previous or future sell-
off or be included in the joint venture referred to in
recital 207. Second, the sell-off must cover a viable busi-
ness activity which comprises fixed assets and staff and
whose 2002/2003 turnover is representative of the level of
business at the time of the sell-off […].

(201) On the basis of turnover which is already reduced by 20 %
through the sale of industrial turbines and the T&D busi-
ness, the additional sell-offs represent an additional reduc-
tion of some 10 %. Such sell-offs must be in addition to
significant reductions in business activity (notably total or
partial closures of production sites) and to the staff reduc-
tions mentioned previously (see Table 2), as provided for
in the restructuring plan.

(202)

In this context, the Commission considers that the com-
pensatory measures carried out or to be carried out by
Alstom will avoid undue distortions of competition within
the meaning of points 35 to 39 of the guidelines. The com-
pensatory measures combine both site closures and sell-
offs. The fact that, in the relevant sectors, market presence
and production capacity are not highly dependent on
installed production lines is the reason why,
in this
instance, the Commission has focused on sell-offs rather
than on reducing the size of physical production plant.

(203) This conclusion is borne out by the specific conditions or
obligations applicable to authorisation of the aid and
imposed or accepted pursuant
the
guidelines.

to point 42 of

(204)

In the transport area, France undertakes to begin a series of
structural measures designed to increase effectively the
opening-up of the French market for rolling stock, so as to
increase competition on that market to the benefit of the
consumer. This commitment, which is a substantial com-
mitment on markets which, on the basis of the informa-
tion available,
tend to give preference to national
undertakings, is in line with point 42(i) of the guidelines.

(206) The Commission notes that France has given a commit-
ment that the firm will conclude one or more industrial
partnerships involving significant parts of Alstom’s busi-
ness within a period of four years. In addition to improv-
ing the company’s viability, this commitment regarding
partnerships is also considered to be a compensatory mea-
sure for competitors. It obliges Alstom to find partners in
major business activities and to involve them in such activi-
ties. The Commission considers that the partnerships
requirement is mainly necessary in the transport and
energy sectors, where distortions of competition due to the
aid are most sensitive.

(207) The joint venture that will be set up in hydro-power, on
the basis of the commitment entered into by France, meets
the same considerations. The Commission considers that
the concept of ‘joint control’ must be understood within
the meaning of Council Regulation (EEC) No 139/2004 of
20 January 2004 on the control of concentrations between
undertakings (the EC regulation on concentrations) (32).

(208) These last three aspects (limitations on pricing and acqui-
sitions policy, industrial partnerships and the setting-up of
a joint venture), whose substance has been set out in detail,
are in line with point 42(ii) of the guidelines.

(209) Lastly, the undertaking given by the French authorities to
withdraw the notification of innovation aid and not to
present notifications for restructuring aid, both of which
relate to the Marine sector, is in line with point 42(iii) of
the guidelines. In this context, the Commission considers
that it is also necessary to require that no additional aid be
granted to Alstom until the end of the restructuring pro-
cess and, at all events, until the date on which the scope for
issuing new bonds under the EUR 8 billion syndicated
facility expires, i.e. 30 June 2006. This condition does not
apply to aid covered by Article 87(2) of the Treaty, aid
granted under research projects jointly financed by the
European Union or aid granted under the temporary defen-
sive mechanism (see recital 218).

(205) Still in the Transport sector, limitations will be applied to
Alstom’s pricing and acquisitions policy so as to avoid dis-
tortions of competition.

(32) OJ L 24, 29.1.2004, p. 1.

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(210) Given Alstom’s position on the French market, particularly
in the rolling stock sector, the Commission notes with sat-
isfaction the undertakings given by France as regards struc-
tural measures to open up this market. Taken as a whole,
the measures will allow other firms to overcome certain
obstacles which currently substantially restrict competition
on this market.

(211) Consequently, the Commission considers that sufficient
measures have been taken to limit the adverse impact of
the aid on competition, competitors and consumers.

convertible into capital, (measure 4), EUR 200 million
through a TSDD, also convertible into capital (measure 5)
and is participating in a new capital increase amounting to
EUR 180 to 22 million. Lastly, through guarantees in the
Marine sector, the state has accepted responsibility for an
unspecified amount and has already granted guarantees
(former measure 3) valued at some EUR 411 million. All in
all, the state’s quantified overall exposure during the rel-
evant period has
amounted to a maximum of
EUR 3,470 billion. However, it should be noted that, since
the firm has already repaid EUR 900 million (measure 2),
as has already been indicated, the potential risk for the
state amounts to EUR 2,570 billion. As already explained,
the value of the aid has been put at a maximum of between
EUR 3,03 and 3,08 billion (see Table 7), plus an indeter-
minate amount stemming from measures 9 and 10.

i n

A i d
a d v a n t a g e s o f r e s t r u c t u r i n g

p r o p o r t i o n

t o

t h e

c o s t s

a n d

(212) A third condition must be met if the aid is to be authorised,
which is that the amount and intensity of the aid must be
limited to the strict minimum needed to enable restructur-
ing to be undertaken in the light of the existing financial
resources of the company, its shareholders or the business
group to which it belongs. Aid beneficiaries must make a
significant contribution to the restructuring plan from
their own resources. In any event, it must be demonstrated
to the Commission that the aid will be use only for the pur-
pose of restoring the firm’s viability and that it will not
enable the recipient during the implementation of the
restructuring plan to expand production capacity.

(215) The contribution made by the firm itself to covering costs
and capital requirements is significant. Very substantial
divestitures have been and will be carried out. The revenue
from these divestitures has allowed and will allow part of
these capital requirements to be covered. The proceeds will
make it possible to limit the firm’s indebtedness and future
in addition to the
financial charges. Furthermore,
EUR 900 million repayment already referred to, which is
not included in Table 8 so as to avoid double counting, the
firm will make a very significant contribution by financing
itself the EUR 700 million cash collateral, which is an
essential element in obtaining the new bonding facility.

(213) The Commission notes that the costs of reorganising
Alstom’s activities, as described in the plan assessed by
PricewaterhouseCoopers (PwC), amount to EUR […] (33).
To this amount must be added the capital requirements
needed to re-establish a sufficiently sound financial struc-
ture. Equity almost totally disappeared from the balance
sheet, following the exceptional losses of the last two years.
Lastly, account must also be taken of the firm’s very sub-
stantial bonding and liquidity requirements.

(214) The Commission notes

the state is providing
that
EUR 300 million through the TSDDRA (measure 1),
EUR 1,2 billion in short-term liquidity (measure 2),
EUR 1,25 billion through a second-rank guarantee (mea-
sure 3), EUR 300 million through a guarantee for a PSDD,

(33) See Table 2.

(216) Apart from Alstom’s contribution, a substantial private
contribution will be made by banks and investors. The
banks have provided a guarantee on the first capital
increase amounting to EUR 300 million, short-term liquid-
ity amounting to EUR 300 million (measure 2), a syndi-
cated bonding facility on which their real exposure will
amount to EUR 6,05 billion (measure 3), a PSDD amount-
ing to EUR 1,2 billion, ORA bonds worth EUR 900 mil-
lion and a guarantee on the placing of the new capital
increase amounting to EUR 800 million to EUR 1 billion,
of which EUR 700 million will be used to finance the cash
collateral. Alstom and the private sector have invested in
the restructuring of the company an amount of between
EUR 10,3 and 10,4 billion (or between EUR 9,6 and
9,7 billion if the cash collateral financed by the capital
increase is not taken into account). The private contribu-
tion may therefore be considered to be substantial here.

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Description of the private contribution, excluding the proceeds of divestitures

Table 8

Measures

(EUR billion)

Amount

Bank/Investors

Capital increase I

ORA

Renewed short-term liquidities (measure 2)

PSDD with possible conversion into capital (measure 4)

Bonds amounting to EUR 8 billion (measure 3)

Capital increase II (measure 6)

Alstom

Financing of the collateral covering initial losses (measure 6)

0,3

0,9

0,3

1,20

6,05

0,83-0,98

0,7

10,3-10,4

Total

(217)

In addition, the Commission must check that the aid will
be limited to the minimum needed to enable restructuring
to be undertaken. It must be noted, firstly, that part of the
aid has already been repaid, notably the EUR 900 million
in measure 2. Secondly, France has undertaken to with-
draw from the firm’s capital within the twelve months fol-
lowing Alstom’s obtaining an investment grade rating and,
at all events, within four years. […]. Since France is not
participating in the company’s capital as a private investor
but for the purpose of providing aid, France’s undertaking
is necessary in order to ensure that this state aid in the
form of a capital participation is limited to the minimum
period necessary. Consequently, the Commission consid-
ers it essential that this withdrawal from the capital should
be effective.

to pursue all its business activities during this two-year
period, without having recourse to any new additional aid.
This condition does not apply to aid that is fully compat-
ible with the Treaty under Article 87(2) of the Treaty, aid
granted for research projects jointly financed by the Euro-
pean Union, or to aid granted under the temporary defen-
sive mechanism pursuant to Council Regulation (EC)
No 1177/2202 of 27 June 2002 concerning a temporary
defensive mechanism to shipbuilding (35) whose specific
purpose is to assist Community shipyards in those seg-
ments that have suffered adverse effects from unfair Korean
competition, which may be the case with Alstom group
companies. In this context, it must also be ensured that no
aid is granted by one of Alstom’s future partners. For this
reason too, France has undertaken to obtain the Commis-
sion’s prior agreement in the event of a partnership with an
undertaking controlled by the state, de jure or de facto, indi-
vidually or jointly.

(218) The Commission also wishes to ensure that no additional
aid is provided that would alter the proportionality of the
aid measures as a whole which are the subject of this Deci-
sion. For this reason, no further aid may be paid to the
company for two years from the date of this Decision,
which corresponds approximately to the restructuring
period and the period during which new bonds may be
issued under the new syndicated bonding facility (34). The
Commission believes that the aid granted by France will
enable Alstom both to carry out its restructuring and

(219) Lastly, point 40 of the guidelines stipulates that the aid
must not provide the company with surplus cash which
could be used for aggressive, market-distorting activities or
to finance new investment that is not essential for restor-
ing the firm’s viability.

(34) Clearly, in the case of rescue and restructuring aid, the prescription

(35) OJ L 172, 2.7.2002, p. 1. Regulation as amended by Council Regu-

period is 10 years.

lation (EC) No 502/2004 (OJ L 81, 19.3.2004, p. 6).

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(220) Two measures have been taken in order to ensure that
these provisions are complied with. Firstly, France has
undertaken to monitor annual average margins, by subsec-
tor, for four years so as to remove any possibility of preda-
tory pricing. Secondly, France has undertaken that
corporate acquisitions within the European Economic Area
will be substantially restricted during the same period,
without ruling out entirely acquisition transactions that are
modest in scale. These measures apply solely to the Trans-
port sector. Alstom’s Transport sector has suffered few
exceptional losses, and margins have remained satisfactory.
The bulk of the aid is therefore intended for the restructur-
ing of other divisions within the company. These two mea-
sures are intended to ensure that the aid will not be used
by Alstom in the Transport sector to finance predatory
pricing policies or a major external growth policy to the
detriment of competitors. In view of the above, the Com-
mission considers that, despite its volume, the aid is lim-
ited to the strict minimum needed to restore the long-term
viability of the firm and notes that the private contribution
is very significant, as required by the guidelines.

F u l l

i m p l e m e n t a t i o n o f

t h e p l a n

(221) The plan for restructuring Alstom’s four divisions (Power,
Transport, Marine and Power Conversion), together with
all the commitments given by France, must be imple-
mented in full. The Commission notes France’s undertak-
ing in this respect and will need to be kept informed on
progress in implementing the plan and the relevant com-
mitments. This information must take the form of reports
on the state of progress of restructuring. It will be supple-
mented by notification of PwC’s reports validating the
business plan and liquidity plan.

HAS ADOPTED THIS DECISION:

Article 1

The aid measures implemented by France for Alstom are compat-
ible with the common market, subject to the obligations and con-
ditions set out in Article 2.

Article 2

1.
The plan for restructuring Alstom, as communicated to the
Commission by France on 5 December 2003 and 15 March 2004,
must be fully implemented, including as regards the assets that
have still to be disposed of.

2.
France shall withdraw from Alstom’s capital within twelve
months of the company obtaining an investment grade rating by
one of the two main rating agencies. Such withdrawal shall at all
events be carried out within four years of the adoption of this
Decision. […]

Alstom shall conclude one or more industrial partnerships,
3.
within four years of the adoption of this Decision. The partner-
ships shall relate to significant parts of Alstom’s business. Unless
otherwise agreed in advance by the Commission, such partner-
ships shall not involve undertakings controlled by the state, de jure
or de facto, individually or jointly.

4.
In the case of Alstom’s ‘Hydro Power’ business, a joint ven-
ture shall be set up […] with joint control in which Alstom shall
hold a maximum of 50 % of the capital.

(222) Specific information will also have to be provided to the
Commission to ensure that certain commitments are
fulfilled,

The following assets of Alstom shall be sold to a buyer
5.
which is independent of Alstom: the Valencia freight locomotive
plant, transport activities in Australia and New Zealand, and
industrial boilers […].

VII. CONCLUSION

(223) The Commission finds that France has illegally imple-
mented a large part of the aid which is the subject of this
Decision in breach of Article 88(3) of the Treaty. However,
the aid can be declared compatible with the common mar-
ket provided that all the conditions imposed are fulfilled,

In the month following notification of this Decision, France shall
submit for approval to the Commission:

(a) appropriate provisions for the establishment or stabilisation
by Alstom of dedicated management to ensure that each of
the business activities referred to in the first subparagraph is
properly run, providing them with the means for normal
development and not taking any measure that would inten-
tionally diminish their value, for example the transfer of
intangible assets (patents, licences, commercial agreements,
etc.), staff, customers or sales capacity to the parent company
or any other part of the Alstom group;

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(b) an appropriate trusteeship and the appointment of an inde-
pendent trustee who will be obliged to maintain the neces-
sary confidentiality and ensure the proper carrying out of the
management and sale of the assets referred to in the first sub-
paragraph. Once appointed, the trustee shall begin his work
immediately. If the trustee identifies irregularities, he shall
notify them immediately to the Commission.

(d)

it shall inform the Commission on the contracts and frame-
work agreements concluded by private contract by the SNCF
and the Régie Autonome des Transports Parisiens (RATP)
with Alstom, where
than
EUR 473 000, in the form of a list sent to the Commission,
once a year, indicating for each of the contracts or frame-
work agreements the reasons why the negotiated procedure
was used without prior invitation to tender;

is greater

amount

their

6.
Business activities worth EUR 800 million in turnover (base
2002/2003) within the Alstom group, excluding the Marine sec-
tor, shall be divested within a period of […]. To be eligible, the
business activities divested must cover a viable business compris-
ing fixed assets and workforce, whose 2002/2003 turnover is rep-
resentative of the level of business at the time of the divestiture,
and they must not be the subject within the framework of this
Decision of a past or future divestiture or be included in the joint
venture provided for in paragraph 4.

7.

[…] and […] shall be divested within a period of […].

8.
France shall submit to the Commission, every year for four
years, a report validated by an expert appointed by Alstom and
approved by the Commission. The report will check that the mar-
gins achieved on average each year, by subsector, on the contracts
concluded by the company in the Transport sector are compat-
ible with the business plan and, if not, do not indicate predatory
pricing.

9.
Alstom’s corporate acquisitions in the Transport sector
within the European Economic Area shall not exceed a total of
EUR 200 million (company value) for a period of four years.

France shall implement the following structural measures

10.
to open up the French rolling stock market.:

(a)

it shall send the Commission, on request, the reports of
Réseau Ferré de France and the Société Nationale des Chem-
ins de fer Français (SNCF) on the issuing of safety certificates
and the technical files on which they are based;

(b)

it shall send the Commission the new draft ‘rolling stock’
decree and inform the Commission, as regards each of the
contracts and framework agreements referred to in point (f),
whether and for what reasons the standards provided for in
the decree are mandatory; the decree will enter into force by
1 January 2005;

(e)

it shall apply on 1 November 2004 the measures necessary
for implementing Directive 2004/17/EC;

(f)

(g)

(h)

it shall communicate to the Commission once a year a list of
the contracts and framework agreements amounting to more
than EUR 473 000 awarded to Alstom by the SNCF and the
RATP following an invitation to tender and shall indicate for
each contract or framework agreement how the technical
specifications were formulated, as required by Article 34(3)
of Directive 2004/17/EC;

it shall send the Commission, on request, reports analysing
the tenders submitted to the SNCF administrative board for
the contracts and framework agreements awarded to Alstom
by the SNCF and the RATP after having been put out to
competition;

it shall adopt, to enter into force by 1 November 2004, pre-
in accordance with
contract
Directive 92/13/EEC.

arrangements

referral

France shall

implement such additional measures to
11.
restructure Alstom’s Marine sector as are necessary to bring the
profitability threshold down from 4.5 ship orders (cruise ship
equivalents) a year (average for the last five years) to […].

12.
No aid other than that referred to in Article 87(2) of the
Treaty, or aid granted under research projects jointly financed by
the European Union, or aid covered by Regulation (EC)
No 1177/2002 shall be granted to Alstom until the restructuring
process has been completed and, at all events, for two years fol-
lowing the adoption of this Decision. No other restructuring aid
shall be granted in breach of the principle that such aid should be
granted once only.

13.
For the purposes of monitoring compliance with the con-
ditions set out in paragraphs 1 to 12, France shall provide the
Commission with the following information:

(a) Alstom’s obtention of an investment grade rating pursuant to

paragraph 2 in the month following such obtention;

(c)

it shall withdraw the legal obligation to consult the SNCF on
the issuing of safety certificates and replace it by the obliga-
tion to consult […];

(b) every three months, the steps taken in relation to industrial
partnerships pursuant to paragraph 3 and the results of such
steps;

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(c)

(d)

(e)

(f)

every three months, the steps taken to set up a joint venture
covering hydro power activities pursuant to paragraph 4; in
the month following the conclusion of the agreement setting
up the joint venture, France shall forward to the Commission
supporting documents enabling the Commission to establish
that the joint venture is one having joint control within the
meaning of Regulation (EC) No 139/2004;

in the month following their completion, each of the trans-
actions specified in paragraphs 4 and 5;

the adoption of the measures provided for in paragraph 10(c),
(e) and (h);

every three months, the measures taken in relation to addi-
tional restructuring of
to
paragraph 11;

the Marine sector pursuant

(g) annual reports on the state of progress of Alstom’s restruc-
turing, supplemented by reports validating the business plan
and liquidity plan.

Article 3

France shall inform the Commission, within two months of noti-
fication of this Decision, of the measures taken to comply with it.

Article 4

This Decision is addressed to the French Republic.

Done at Brussels, 7 July 2004

For the Commission

Mario MONTI

Member of the Commission