2008/806/EC: Commission Decision of 11 March 2008 on a State aid scheme implemented by Italy for the aeronautical industry (C 61/03 (ex NN 42/01)) (notified under document number C(2008) 845) (Text with EEA relevance)
Date: 2008-03-11
Institutions: European Commission
Subjects: Italy, State aid, aeronautical industry, control of State aid, research and development, research project

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II

(Acts adopted under the EC Treaty/Euratom Treaty whose publication is not obligatory)

DECISIONS

COMMISSION

COMMISSION DECISION

of 11 March 2008

on a State aid scheme implemented by Italy for the aeronautical industry (C 61/03 (ex NN 42/01))

(notified under document number C(2008) 845)

(Only the Italian text is authentic)

(Text with EEA relevance)

(2008/806/EC)

THE COMMISSION OF THE EUROPEAN COMMUNITIES,

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,

The complainant provided additional information by letters
of 27 April 2001 and 30 May 2002.

(4) On 1 February 2001 the Italian authorities provided the
Commission with information concerning non-notified aid
granted by Italy to 13 individual R & D projects.

Having called on interested parties to submit their comments
pursuant to those provisions (1),

(5)

Whereas:

(1)

The measure under assessment concerns individual aid for
research and development projects in the aeronautical
industry. The aid was granted by Italy on the basis of the
Law of 24 December 1985, No 808, laying down measures
to develop and enhance the competitiveness of manufac-
turers in the aeronautical industry (Law No 808/1985). The
Commission approved the scheme in 1986 (2).

1.

PROCEDURE

(2) On 7 October 1999, and again on 12 January 2001, the
Commission received a complaint alleging that Italy had
unlawfully granted aid to individual research and develop-
ment (R & D) projects carried out by the Italian aeronautical
industry.

(3)

The Commission sent a request for information on 8 May
2000, to which the Italian authorities replied on 1 August.

By letters of 14 August and 24 August 2001 the
Commission wrote to the Italian authorities asking for
Italy replied on
further
31 October, supplying additional
information regarding
six cases.

information on the projects.

(6)

In 2002 the Commission asked independent experts to
evaluate the six projects. The reports were delivered to the
Commission on 7 April and 23 April 2003.

(7)

Two meetings were held, at the request of
authorities, on 27 May and on 30 June 2003.

the Italian

(8) On 1 October 2003, the Commission initiated the formal
investigation procedure (the first initiating decision) with
regard to six cases of substantial aid to R & D projects that
had not been individually notified by Italy, contrary to the
rules governing aid to R & D, that is to say to the 1996
Community framework for State aid for research and
(the 1996 Framework) (3) and the 1986
development
Community framework for State aids for research and

(1) OJ C 16, 22.1.2004, p. 2, and OJ C 252, 12.10.2005, p. 10.
(2) Case N 281/84, letter SG(86) 5685 dated 14.5.1986.

(3) OJ C 45, 17.2.1996, p. 5.

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development (the 1986 Framework) (4). In all six cases, the
Commission raised doubts concerning compatibility with
the rules governing aid to R & D (5).

(9) After the first initiating decision, the following parties

submitted comments:

a)

b)

c)

d)

Italy, by letter dated 3 February 2004, registered by
the Commission as incoming mail on 4 February; Italy
submitted a revised version of its comments by letter
of 18 February, registered by the Commission as
incoming mail on 23 February;

France, by letter of 20 February 2004, registered by
the Commission as incoming mail on the same day;

Finmeccanica, by letter of 20 February 2004,
registered by the Commission as incoming mail on
23 February;

an interested third party, who wished to remain
anonymous, by letter of 23 February 2004, registered
by the Commission as incoming mail on the same day.

(16) By letter of 20 September 2004,

registered by the
Commission as incoming mail on 22 September 2004,
the anonymous third party submitted additional informa-
tion on Law No 808/1985 and its application to individual
cases.

(17) By letter of 30 September 2004,

registered by the
Commission as incoming mail on 1 October 2004, Italy
replied to the Commission letter of 13 September 2004.

it considered that

(18) By letter of 12 October 2004, the Commission warned Italy
that
Italy had provided incomplete
answers to the Commission letter of 13 September 2004.
The Commission reiterated its request, and warned Italy
that failing a complete reply the Commission would issue
an information injunction in accordance with Article 10(3)
of Council Regulation (EC) No 659/1999 of 22 March
1999 laying down detailed rules for the application of
Article 93 of the EC Treaty (the Procedural Regulation) (6).

(19) By letter of 15 October 2004, registered by the Commis-
sion as incoming mail on the same day, and letter of
22 October 2004,
registered by the Commission as
incoming mail on 25 October 2004, Italy replied to the
Commission letter of 12 October 2004.

(10) By letter of 22 March 2004, the comments received by the

Commission were forwarded to Italy.

(20) On 10 December 2004 the Commission decided to issue
an information injunction (7) requiring a complete answer
to the questions raised in its letter of 13 September 2004.

(11) By letter of 26 May 2004, registered by the Commission as
incoming mail on 28 May, Italy replied to the comments.

(21) By letter of 19 January 2005, registered by the Commission
as incoming mail on 21 January 2005, Italy replied to the
information injunction.

(12) By letter of 1 July 2004, registered by the Commission as
incoming mail on 6 July 2004, the anonymous third party
submitted additional information regarding the application
of Law No 808/1985, which is the approved aid scheme
under which the six measures referred to in the first
initiating decision were taken.

(13) By letter of 3 August 2004, registered by the Commission
Italy submitted
as incoming mail on 4 August 2004,
additional
information on Law No 808/1985 and its
application to the cases that were the subject of the original
investigation proceedings.

(14) By letter of 19 August 2004, registered by the Commission
as incoming mail on 20 August 2004, the anonymous
third party submitted additional
information on Law
No 808/1985 and its application to individual cases.

(15) By letter of 13 September 2004, the Commission asked
Italy for further information on the cases that were the
subject of the original investigation.

(4) OJ C 83, 11.4.1986, p. 2.
(5) See footnotes 3 and 4.

(22) By letter of 10 March 2005, registered by the Commission
Italy added

as
information to its reply to the information injunction.

incoming mail on 14 March 2005,

(23) By decision of 22 June 2005 (8), the Commission decided
to extend the scope of
the proceedings (the second
the second
initiating decision). On 12 October 2005,
initiating decision was published in the Official Journal of the
European Union (9).

(24) By letter of 17 June 2005, the Italian authorities observed
that the scope of the two initiating decisions touched on
issues that were sensitive for national security.

(25) By letter of 15 July 2005, the Commission replied that the
Commission's investigation would be confined to civilian
aspects and that the assessment of projects that were a
matter of national security would be carried out precisely in
order to exclude them from the scope of the final decision.

(6) OJ L 83, 27.3.1999, p. 1.
(7) Commission letter ref. C(2004) 5009, 10.12.2004.
(8) C(2005) 1813 final.
(9) OJ C 252, 12.10.2005, p. 10.

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(26) At the request of the Italian authorities, the Commission, by
letters of 6 September 2005 and 18 November 2005,
transmitted to Italy all the documents mentioned in the
second initiating decision, namely those submitted by the
anonymous third party.

(36) On 24 April 2007, following a meeting on 30 March, the
Italian authorities provided information concerning a full
computation for
the projects, along with two notes
concerning two projects referred to in the second initiating
decision (A139 and BA609).

(27) On 24 October 2005, the Italian authorities submitted
initial observations on the second initiating decision,
dealing mainly with the functioning of the overall scheme.

(28) On 30 November 2005 the Italian authorities submitted
further observations, which they supplemented with a
number of annexes on 6 December 2005.

(29) On 11 November 2005,

the anonymous third party
submitted observations on the second initiating decision.
On 19 December 2005 those observations were trans-
mitted to the Italian authorities, who commented on them
by letter of 6 March 2006.

(37) On 4 May 2007, following a meeting on 26 April 2007,
there was a meeting on the premises of
the Italian
Permanent Representation to the EU, where the Italian
authorities allowed a delegation from the Commission to
consult documents concerning these two projects, which
were classified for national security reasons.

(38) On 23 May 2007 there was a final meeting on the
reimbursement schedules for the individual projects.

(39) By letter of 21 June 2007 the Commission requested
certain information. The letter had attached the schedules
for the individual R & D projects, including the conditions
for the reimbursement of the loans.

(30) On 3 May 2006 a meeting took place between the
Commission and the Italian authorities. Following that
meeting, by letter of 23 May 2006, the Commission asked
for supplementary information, and reminded the Italian
authorities of the requests for information in the second
initiating decision.

(40)

Italy replied to this letter on 1 August 2007, indicating its
agreement to the schedules annexed to the Commission's
most recent letter, and providing information on the other
issues raised in that letter. Further supplementary informa-
tion was submitted on 1 October 2007.

(31) On 5 May 2006,

the

Italian authorities

submitted
observations on the nature of part of the information,
and in particular the question whether the list of projects in
the anonymous third party's submission could be attributed
to the Italian Court of Auditors.

(32) On 29 June 2006, the Italian authorities further transmitted
the decision of the Interministerial Committee for Eco-
nomic Programming (CIPE) adopted on 22 March 2006,
which they said was intended to ensure that the scheme
complied with the rules on state aid to R & D.

(33) On 11 July 2006, the Italian authorities provided initial
observations on the Commission's letter of 23 May 2006.

(34) On 17 October 2006, the Italian authorities completed
their observations on the Commission's letter, and provided
a list of projects financed under the scheme. On 24 October
2006 they provided annexes that had been mentioned in
the previous letter.

(35) By letter of 12 December 2006, the Commission requested
supplementary information on the reimbursement sched-
ules for the projects in the list provided by the Italian
authorities, and suggested discussions at technical level on
the granting and reimbursement schedules for each of the
projects.

(41) Another meeting with the Italian authorities took place on
5 October 2007, attended by Commissioner Kroes and
Minister Bersani.

(42) The Italian authorities provided further information by
letters of 29 October 2007, 27 November 2007 and
12 December 2007.

(43) The Commission requested supplementary information by

letter of 23 November 2007.

(44) Meetings with France and with the anonymous third party
took place on: 21 March 2006, 18 October 2006,
10 November 2006, 22 May 2007, 5 July 2007,
6 September 2007, 14 and 19 November 2007 and
11 February 2008.

2.

THE SCHEME APPROVED IN 1986

(45) As mentioned in recital 45, the Commission approved the
scheme of assistance to R & D in the Italian aeronautical
industry in 1986. In its decision, the Commission took note
of
the state
financing, in particular as regards reimbursement, would be
determined for each specific project at a later stage.

the precise mechanisms of

the fact

that

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(46)

In the decision the Commission pointed out that under
point 5.5 of the 1986 Framework, individual aid measures
had to be notified if they exceeded a threshold of ECU
20 million in eligible costs (10).

(47) The Italian authorities never notified any individual case of
application of Law No 808/1985 to the Commission under
Article 88(3) of the EC Treaty.

(48) Law No 808/1985, as notified to the Commission,
provided for a budget of ITL 690 billion for these measures,
to be spent during the period 1985-1989. The scope of the
Law originally notified was extended several times after
1989 in new budgetary decisions taken by the Italian
Government. None of these extensions were notified to the
Commission under Article 88(3) of the EC Treaty.

(49) When the 1996 Framework entered into force (11) the
Italian authorities accepted the appropriate measures (12),
including new notification thresholds of ECU 25 million in
eligible costs and ECU 5 million in aid.

(50)

the Commission and the Italian
In 2001 and 2002,
authorities exchanged correspondence on the scheme (13).
This concerned changes to be made to the scheme to bring
it into line with the criteria of the 1996 Framework.

(51) The correspondence resulted in the adoption by Italy of a
measure aimed at
the
Framework (14). This document was sent to the Commis-
sion on 22 November 2002, and the Commission accepted
the Italian commitments by letter of 18 December 2002.

implementing the criteria of

(52) Law No 808/1985 provided for

three types of State
assistance to companies in the aeronautical industry. Of the
three there remains only one, which is the subject of the
present decision, namely assistance under Article 3(a) of the
Law.

(53) This assistance consists in the financing by the State of part
of the costs of aeronautical R & D projects carried out by
Italian companies in collaboration with foreign companies.

3.

DOUBTS EXPRESSED IN THE FIRST INITIATING

DECISION

(54) The first initiating decision concerned 13 individual R & D

projects.

(55)

In the decision the Commission expressed doubts regarding
the compatibility of a number of large R & D projects (listed
below in recital 60, table 1) that had not been notified in

(10) See footnote 4.
(11) See footnote 3.
(12) Letter ref. A/322247, 27.3.1996.
(13) Commission

refs. D/54984, 30.11.2001; D/50557,
letters
11.2.2002; and D/52819, 4.6.2002;
letters from Italy refs. A/
30747, 1.2.2002; A/31921, 13.3.2002; and A/57170, 18.12.2002.
Case E 48/2001.

(14) Decision (delibera) of the Interministerial Committee for Economic
Programming (CIPE), 2.8.2002, laying down guidelines for assistance
to the aerospace industry.

accordance with the rules governing aid to R & D (the 1986
Framework and the 1996 Framework) (15).

(56)

In particular, the Commission doubted:

a)

b)

that part of the work packages of several projects
could be classified as precompetitive development:
A109 X, A109 D/E/F, MD95 (16), MD11, DO328
Panels and DO328 Extended Capacity;

that the aid to several projects had had an incentive
effect: A109 X, A109 D/E/F, MD95, MD11, DO328
Panels and DO328 Extended Capacity.

(57) The Commission raised no objection to four other projects,
on the basis on the information available at that time
(DO328, MD11 Winglet, ATR72 and EH101).

(58) The Commission accepted that one project
Article 296(2) of the EC Treaty ([…] (*).

fell under

(59) Finally, the Commission accepted that, on the basis of the
information available at that time, two projects were below
the thresholds
individual notification (Pressurised
for
Cabins, A119 Koala).

(60) The table below summarises the information concerning

these projects:

Table 1

Projects covered by the first initiating decision

Project

Recipient

Comment

1) Pressurised
Cabins

Alenia

At that time considered to be
below the threshold for indi-
vidual notification

2) A109 X

Agusta

3) A119 Koala Agusta

Doubts regarding classification
of R & D activities and incentive
effect

At that time considered to be
below the threshold for indi-
vidual notification

(15) See footnotes 3 and 4.
(16) For this project a doubt was also raised regarding the possibility of

classifying some work packages as industrial research.

(*) Confidential

information related to the protection of essential

interest of national security or business secrets.

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Project

Recipient

Comment

4) A109 D/E/F Agusta

5) MD95

Alenia

6) […]

[…]

Doubts regarding classification
of R & D activities and incentive
effect

Doubts regarding classification
of R & D activities and incentive
effect

Falling under Article 296 of the
EC Treaty

7) MD11
Lower
Panels

Alenia

Doubts regarding classification
of R & D activities and incentive
effect

8) DO328

Aermacchi

Extended
Capacity

9) DO328
Panels

Aermacchi

10) DO328

Aermacchi

11) MD11

Alenia

Winglet

12) ATR72

Alenia

13) EH101
Utility

Agusta

Doubts regarding classification
of R & D activities and incentive
effect

Doubts regarding classification
of R & D activities and incentive
effect

No objection raised on the basis
of the information available at
that time

No objection raised on the basis
of the information available at
that time

No objection raised on the basis
of the information available at
that time

No objection raised on the basis
of the information available at
that time

4.

RECIPIENTS

(61) The recipients referred to in the first initiating decision were

the following:

a)

Agusta, an enterprise belonging to the Finmeccanica
group specialising in helicopters,
since renamed
AgustaWestland following a merger with Westland;

b) Alenia, an enterprise belonging to the Finmeccanica

group specialising in aero structures;

c)

Aermacchi, an enterprise belonging to the Finmecca-
nica group since January 2003, which originally
for military training, and
specialised in aircraft
subsequently diversified into aero structures;

(62) On the basis of the information made available after that
decision, it emerged that there were two further recipients:

a)

b)

Avio, an enterprise specialising in aero engines; Avio
was formerly part of the Fiat Group (as FiatAvio); it
was subsequently bought by the private equity group
Carlyle, with a minority stake held by Finmeccanica; in
2006 Avio passed under the control of the private
equity group Cinven, with Finmeccanica having a
stake of 25 %;

Piaggio Aero Industries (Piaggio), an enterprise active
in aero structures and engines; it was established in
November 1998 when a group of
shareholders
acquired the assets and took over the projects of the
aerospace business of the firm formerly known as
Rinaldo Piaggio SpA, as confirmed by the correspon-
dence provided by the Italian authorities between the
Ministry of Industry and Piaggio Aero Industries.

5.

ITALYS COMMENTS ON THE DOUBTS EXPRESSED

IN THE FIRST INTIATING DECISION

(63)

Italy acknowledged that the information available to the
Commission on the projects questioned in the first
initiating decision was wholly insufficient.
Italy also
acknowledged that because of this lack of information the
Commission was right to express doubts regarding those
projects. To dispel these doubts, Italy provided extensive
information on the projects, notably concerning the
eligibility of costs at the research stages and the incentive
effect of the aid.

(64) On the A109 D/E/F project,

Italy provided a detailed
the R & D work with regard to the
description of
development of the helicopter, in particular concerning the
installation of a new type of engine, the skids, the rotor, the
avionic systems, and the fuselage. The Italian authorities
also provided the schedule for the projects, showing that
the innovations in these components came well before their
certification, which took place
and their
incorporation into in the A109 Power helicopter equipped
with the Turbomeca engine, which was certified in June
2001. This succession of events, the Italian authorities
argued, also showed that the aid did have an incentive
effect, as the technologies were new and had not been
installed in any aircraft.

in 1998,

(65) On the A109 X project, Italy provided detailed information
on the R & D work, in particular concerning the tail rotor,
the transmission, the main rotor and the fuselage. Italy
indicated that the specific features of the A109 X — the
main five-blade rotor, the antitorque rotor integrated into
the tail boom, and the reducer with face gears — were not
present in any other product made by Agusta. The Italian
authorities said that the A109 X project was aimed at
developing a new generation of helicopters, to be put on
the market after 2009.

(66) On the MD95 and MD11 projects, the Italian authorities
to the

information available

acknowledged that

the

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Commission at the time of the first initiating decision was
not sufficient
to distinguish between the two projects,
which were separate, even though they both concerned
fuselages.

(67) According to the Italian authorities, the MD95 comprised
activities classified as industrial research and precompetitive
development, because it allowed Alenia to improve its
knowledge of fuselages on large aircraft. The activities were
concerned in particular with calculation methodologies for
the engineering of fuselages, the development of specific
codes for the damage tolerance of the fuselages, and the
improvement of general knowledge in the company about
some engineering aspects such as fireproof structural
solutions and corrosion of materials.

(68) Concerning the MD11, the Italian authorities indicated that
the R & D activities concerned the development of a
It allowed the
prototype with preliminary research.
establishment of databases and of
the development
processes for the use of new fuselage technologies, which
was a new activity for Alenia.

(69) Secondly, the Italian authorities provided evidence of the
incentive effect of the aid concerning these two projects.
The aid allowed Alenia to increase its R & D spending
significantly over the four years of the projects, from […] of
the total turnover of the company. According to Italy, the
projects allowed Alenia to improve its
technological
knowledge beyond its normal level.

(70) The Italian authorities said that the two projects regarding
the DO328 were DO328 Panels and DO328 Extended
Capacity (EC) (17). A project
entitled DO328 Basic
concerned the development by Aermacchi of technological
know-how for civil aviation. Until the end of the 1980s
Aermacchi had been working mostly on aircraft for military
training.

(71) DO328 Panels concerned the development of

shells
previously produced by the Korean firm Daewoo. The
project
also included the development of assembly
techniques and technologies, some of which were not used
in the final product, and the development of
two
prototypes.

(72) According to the Italian authorities, DO328 Extended
Capacity was aimed at increasing the number of passengers,
through the development of a new fuselage, modified wings
and modified structures (for instance to take account of
different loads), etc. The Italian authorities provided specific
information on the work packages singled out in the first
initiating decision, detailing the research stages.

(73) Finally, the Italian authorities provided detailed information
on the incentive effect of the aid for the two DO328
projects. They drew attention to the importance of the

(17) To distinguish them from the DO328 Basic. The three projects are

included in the final list in recital 281, table 4.

projects to Aermacchi: the projects represented almost half
of the entire R & D activities of the company in the period
1996-1999. They also said that Aermacchi would not have
been able to fund these R & D projects out of its own
resources, and would not have been able to participate in
the overall project, which was led by Dornier.

6.

COMMENTS ON THE FIRST INITIATING DECISION

FROM THIRD PARTIES

6.1.

Finmeccanica

(74) Finmeccanica submitted observations after the first initiat-
ing decision only (18), on behalf of all
the companies
belonging to the group: Agusta, Aermacchi and Alenia.
Finmeccanica indicated that
intents and
it was to all
purposes controlled by the Italian State (19).

(75) Finmeccanica submitted observations in order to dispel the
doubts concerning the six projects expressed by the
Commission in the first initiating decision. Finmeccanica
wanted to supplement the observations submitted by the
Italian Government, with which it agreed and to which it
referred, adding the following with reference to the six
projects:

a)

innovations (rotor,

A109 D/E/F: According to Finmeccanica the three
versions of the project comprised different technolo-
gical
landing gear), and were
equipped with different engines (Allison, PW and
Turbomeca respectively), and this had led to different
certification processes for the different versions.

b) A109 X: Finmeccanica argued that this helicopter was
not simply a different version of the A109, but was a
radically new helicopter, which the company intended
should be the first of a new generation of twin-engine
helicopters to be placed on the market as of 2009.

c) MD95: Finmeccanica gave a detailed explanation of
why in its view the activities carried out by Alenia in
the work packages did indeed qualify as R & D
expenditures.

d) MD11: Finmeccanica gave a detailed explanation of
why in its view the activities carried out by Alenia in
the work packages did indeed qualify as R & D
expenditures.

e)

f)

DO328 Panels: On this Aermacchi project, Finmecca-
nica referred to the observations of
the Italian
authorities.

DO328 Extended Capacity: On this Aermacchi
project, Finmeccanica referred to the observations of
the Italian authorities. It added that the project was

(18) Letter dated 20.2.2004.
(19) Latest information available on the website of the company indicates
that the Italian State controls 32,45 % of the shares of the company,
which is listed on the Milan Stock Exchange. The rest of the shares
are in the hands of private and institutional investors.

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fundamentally different to the preceding one, as it led
to the production of two prototypes, which could still
be seen on the companys website.

(80) The third party confirmed that in its view the doubts
expressed by the Commission regarding the six projects
were well founded.

(76) Concerning the incentive effect of the aid received for these

(81)

projects, Finmeccanica submitted the following:

It said that the Commission ought to widen the scope of the
investigation to include various other projects (including
the AB139, BA609 and A119 helicopters).

a)

b)

c)

the aid, because of

For the two helicopters (A109 D/E/F and A109 X),
Finmeccanica submitted that in its view the company
would not have been able to carry out the projects
without
involved,
associated with the prospect of return only over a
long period of time. Second, Finmeccanica submitted
that the expenditure and personnel devoted to R & D
at Agusta had increased by four percentage points in
the period from 1995 to 1999.

the risks

Finmeccanica said that
the avionics projects con-
ducted by Alenia (MD11 and MD95) had enabled
Alenia to specialise in the development of fuselage
sub-systems. Alenia had had to significantly upgrade
its
technological know-how for prototyping and
testing in both development processes.

avionics projects

The
conducted by Aermacchi
(DO328 Panels and DO328 Extended Capacity),
Finmeccanica said, were not part of the core business
of the company, which was specialised in the military
sector, and especially aircraft for the training of pilots.
The aid had enabled Aermacchi
to embark upon
R & D in the civilian area which was clearly additional
to the R & D otherwise carried out by the company.

6.2.

France

(77) The French authorities submitted observations after the first
initiating decision only (20). The French authorities raised
three issues: a) they drew attention to the aid instrument,
which in their view was a repayable advance; b) they asked
that reimbursement be ensured; and c) they indicated a
number of projects not mentioned in the decision which
might potentially have received aid under the scheme and
which they believed Italy had failed to notify individually.

(82) The third party asked the Commission to verify that aid
granted under Law No 808/1985 had indeed been applied
to the projects in question, and that other projects had been
excluded because of a lack of prototypes or a lack of
participation on the part of Italian industry.

(83)

It asked the Commission to verify the amounts of money
actually associated with the six projects under assessment.

(84)

It asked the Commission to request
payment in respect of the projects under way.

Italy to suspend

(85)

It asked the Commission to verify the aid instrument used
under Law No 808/1985, and on that basis to request the
repayment of aid paid unlawfully.

(86)

It asked the Commission to ensure that Law No 808/1985
was amended so as to ensure repayment on financial terms
consistent with the R & D framework.

(87)

It asked the Commission to impose a yearly reporting
obligation, together with effective auditing measures to be
carried out by the Commission if necessary.

(88) With its observations the anonymous third party supplied a
number of documents, among others the reports on the
state of the aerospace industry made by the Minister of
Industry to the Italian Parliament, years 1996 to 2001.
From the information in those reports the anonymous third
party also argued in particular that the number of non-
notified projects was much larger than the six projects
under assessment in the proceedings.

6.3.

The anonymous third party

7.

OBSERVATIONS FROM ITALY REGARDING THE

COMMENTS FROM THIRD PARTIES ON THE FIRST
INITIATING DECISION

(78) The anonymous third party submitted observations in the
proceedings twice, once after the first initiating decision
and again after the second initiating decision.

(89)

Italy did not put forward any observations regarding the
comments from Finmeccanica.

(79)

Its observations on the first initiating decision were as
follows.

(20) Letter dated 20.2.2004

(90) Regarding the comments from France and the anonymous
third party, Italy observed, first, that they went far beyond
the scope of the proceedings. Italy complained that these
attempts to widen the scope of the proceedings were not
supported by evidence.

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(91)

Italy reiterated that in its view the scheme constituted
existing aid, because it had been approved in 1986 (21), and
because the Commission had accepted in 2002 that it had
in effect been brought
into line with the rules now
governing aid to R & D (see recital 50). As it had been
then be
declared compatible,
challenged in proceedings that were concerned only with
individual measures adopted under it, unless it was shown
that the original decision to approve the scheme was based
on faulty information, in which case the decision might be
revoked in accordance with Article 9 of the Procedural
Regulation.

the scheme could not

(92) Second, Italy said that in its view the aid instrument was

compatible with the EC Treaty.

(93) The anonymous third party, Italy argued, was wrong to
base itself on the reports to Parliament on the implementa-
tion of Law No 808/1985, because the figures indicated in
the reports were not those actually granted for the projects.
In the reports the Ministry had included its own targets for
projects that could be financed under Law No 808/1985.
However, in the budgetary process, the normal practice was
that these targets were not covered by the available funding,
which had been at levels far below those indicated in the
abovementioned reports. The amounts indicated in the
reports for the individual projects were also merely targets,
because the Ministry decided the amount of aid actually to
be granted to the individual project only after it had
received the final budget, which, as already said, was usually
normally far below the levels called for.

(94)

Italy contested the argument put forward by France and by
the anonymous
third party according to which aid
recipients might not be required to reimburse the aid.
According to Italy, reimbursements had to be made in
accordance with the schedules laid down in the granting
decisions. Under domestic law the State could renounce
such a claim only in the specific case of liquidation of a
company.

(95) The payments had been made using what were known as
‘commitment limits’ (limiti d'impegno), under which pay-
ments were made to the recipient after the expenses were
incurred, beginning the year after
the first year of
expenditure and continuing for a period of 10 to 15 years.
Reimbursement started one year after the end of the period
of payment, that is to say 11 or 16 years after the start of
the project.

(97) Second, in reply to the comments of the anonymous third
party, Italy provided observations on the specific projects.
Concerning the A109 X, Italy indicated that the project
concerned the development of technologies that would be
applied in helicopters only after a long period of
development. The name A109 X was used as a generic
name; when the development was finished, the resulting
helicopter would be radically new.

(98) The A109 Power project had been considered at one point,

but had never been supported under Law No 808/1985.

(99) As regards the funding for the A109 X, the figure referred
to by the anonymous third party was only a forecast. The
aid actually granted towards the project was EUR 33,6 mil-
lion; the additional ITL 49 billion for the period 2002-
2005 which the anonymous third party had referred to had
never been paid.

(100) Concerning the A109 D/E/F, Italy contested the argument
put forward by the anonymous third party that this in
reality related to the A109 Power, certified in 1996. The
main objective of the project was to develop the new A109
F version, with a new engine, rotor and skids, which was
subsequently certified in June 2001, 30 months after the
end of the R & D project.

(101) In reply to the allegations by the anonymous third party
regarding the development of Agusta, Italy wrote that the
information and data provided by the anonymous third
party were not correct. Agusta had an average share of
around [20-30 %] of the European market for light twin-
engine helicopters in the period 1994-2000, compared to
over 60 % for its main competitor, Eurocopter (22).
Its
turnover derived mainly
sector
([> 70 %]). In terms of products, Agusta had only one
helicopter in two of the segments, compared to Euro-
copters three or four in each of these segments. In the view
of the Italian authorities, Agusta was a company that had
been able to develop from being a minor player in the
sector
to legal and
compatible aid towards R & D, to strategic alliances and
to technological innovation.

into a full competitor,

from the military

thanks

(102) Finally, the observations from France and the anonymous
third party concerning the existence of other non-notified
projects were based on a misinterpretation of the reports to
Parliament. Italy also commented on some of the projects
referred to by the anonymous third party.

(96) Concerning the comments made by the anonymous third
party on the specific R & D projects, Italy in the first place
referred back to the observations it had submitted in
response to the initiating decision.

(103) According to Italy, some of these projects had never been
funded; some had received aid below the threshold for
individual notification; some were military; some others
were already within the scope of the proceedings (MD95
and MD11); while another had been excluded by the
Commission in the decision to open proceedings.

(21) Letter ref. SG(86) D/5685, 14.5.1986.

(22) A European competitor of Agusta in the helicopter industry.

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(104) Given the doubts raised in the second initiating decision,
and the subsequent discussions on the final list of non-
notified projects, it is not necessary to detail these projects
at this stage in the Decision.

(113) This assumption was a decisive factor in the Commission's
assessment,
in particular because when it has to be
determined whether an individual aid measure exceeds
the notification threshold it is essential to establish the
gross grant equivalent of the aid.

8.

FRESH DOUBTS

(105) In the first initiating decision the Commission expressed
doubts regarding the R & D content of six projects and
regarding their incentive effect.

(114) Since the Commission began investigating the original
complaint regarding the application of Law No 808/1985,
the Italian authorities have maintained that at least in the
13 cases referred to in the first initiating decision aid has
been granted in the form of soft loans, which are interest-
free but always reimbursable in full.

(106) The Commission there pointed out that its assessment of
the R & D projects had to take account of the following
factors:

a)

b)

the time that had passed since the date of
granting;

the

the difficulty of making a reasonable assessment of
the incentive effect of the projects at that stage (in
2003), applying the criteria of the 1986 and 1996
Frameworks in the scientific, technical and economic
context of the aeronautical industry 10 to 15 years
before;

c)

the general terms in which some of the rules in the
1986 Framework were expressed.

(115) France and the anonymous third party challenged this
understanding of the matter, contending that the principal
had to be repaid only to the extent the programmes
concerned were commercial successes (23).

(116) The Commission tried to establish which view was the
correct one, at least for the six cases that were the subject of
the proceedings in which France and the anonymous third
party had intervened.

(117) The Commission accordingly had to turn to the detailed
implementing mechanisms which, as provided in the
original Law No 808/1985 and in the Commission's
1986 decision on the Law (24), were to be determined in
further rules.

(107) The Italian authorities provided detailed information about
the activities eligible for aid. They acknowledged that on the
basis of the information available to the Commission at the
time the Commission's doubts were justified.

(118) In order to ascertain in detail whether and in what way the
loans had to be repaid, the Commission asked the Italian
authorities to provide it with a copy of each of
the
decisions (provvedimenti di concessione) granting aid in the six
cases.

(108) With the information provided, the Commission was now
in a better position to understand the content of
the
different projects and in particular of the work packages
that were identified in the first initiating decision.

(109) As regards the classification of the activities as eligible
R & D activities, the Commission could now say that the
information provided by Italy on each project allowed a
clear distinction to be made between industrial research
and precompetitive development.

(119) The Italian authorities first provided the Commission with
extracts from the granting decisions. Among other things
the extracts did not include the recitals to the decisions. The
Italian authorities maintained that the recitals could not be
provided to the Commission for
reasons of national
security. The recitals of granting decisions under Law
No 808/1985, they said, were common to civilian and
military projects. Even though the six cases related to
civilian aircraft,
the recitals to the granting
decisions also referred to matters of national security.

therefore,

(110) The Commission also accepted that

the information
supplied by Italy concerning the incentive effect of the
aid given for these projects was sufficient to show that the
recipients would not have carried out the projects without
the aid.

(120) The extracts from the granting decisions provided by the
Italian authorities did not enable the Commission to arrive
at a definitive view of the conditions for the reimbursement
of the loans.

(111) However, this assessment was made on the basis of the
information available at the time, notably concerning the
number of projects to be assessed.

(121) In particular, the clause concerning reimbursement (25) was
worded in an ambiguous manner: it first stated that the aid
‘will be reimbursed in progressive instalments computed on
the basis of revenues deriving from sales’ (verrà restituito
mediante quote progressive calcolate sulla base degli incassi

(112) When it reached these conclusions, the Commission took it
that the Italian authorities were right to describe the form
of the aid as that of a soft loan, with the principal always
being fully reimbursable.

(23) No-one denied that the loans were interest-free.
(24) Letter ref. SG(86) D/5685, 14.5.1986.
(25) Numbered Article 3 in all the granting decisions.

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relativi alle vendite), but then added that this would be
done in accordance with the mechanisms laid down in the
granting decision, which included a chart with a fixed
schedule for reimbursement of 100 % of the principal.

DOUBTS EXPRESSED IN THE DECISION TO
10.
EXTEND PROCEEDINGS (THE SECOND INITIATING
DECISION)

(122) No provision that might reconcile these two apparently
the extracts

inconsistent aspects appeared in any of
provided.

9.

INFORMATION INJUNCTION

(123) Since a provision of this kind might appear in the missing
parts of
the Commission issued an
information injunction requiring that the full texts of the
decisions be produced (26).

the decisions,

(124) Italy replied to the information injunction (27) by stating
that in its view it had sent the Commission all the relevant
information concerning the granting decisions. It added
that the recitals to the decisions referred to matters of
national security, which could not be disclosed to any third
Italy
party, and not even to the recipient of
concluded that in its view the recitals could not in any
circumstances contain any clause additional to those in the
main text.

the aid.

(125) It should be pointed out that Italy had not responded
positively to the information injunction. In other words, it
continued to refuse access to the full text of documents
requested by the Commission.

(126) However, when it subsequently submitted observations in
reply to the extension of the proceedings, Italy did in fact
transmit all the requested documents. In the last analysis,
therefore, it can be said that Italy did comply with the
information injunction.

(127) To conclude on this point, the Commission would observe
that
Italy's reply did not satisfy the requirements of
Article 12 of the Procedural Regulation. In addition, the
argument that the recitals concerned matters of national
security, and consequently could not be disclosed to the
recipient, has been proved wrong, because from the copies
that Italy subsequently sent the Commission it is clear that
the recipients received — and signed — full copies of the
granting decisions.

(128) However,
requested.

Italy did eventually provide the information

(26) Commission letter ref. C(2004) 5009, 10.12.2004.
(27) Letter by Mr Marzano, Minister for Productive Activities, to Ms
Kroes, dated 14.1.2005, forwarded to the Commission by the Italian
Permanent Representation by letter dated 19.1.2005.

(129) As explained in the second initiating decision, several new

issues arose in the course of the proceedings (28).

(130) First, the Commission became aware of the existence of
two documents indicating that the loans were not being
reimbursed.

(131) The first document was submitted by the anonymous third
party (29). This was a report by a major commercial bank
concerning Finmeccanica's
In this
report, dated 12 August 2004, [the investment bank]
wrote that Finmeccanica had stated that ‘the principal has
to be repaid only once deliveries exceed a certain ([…])
volume, so that Finmeccanica has very low repayments in
the first 15 years and is much less likely to have to repay all
of the advance’.

financial position.

(132) The second document was a report of the Italian Court of
Auditors (Corte dei Conti) on the application of Law
No 808/1985 (30).
In section 6 of this document, the
Court of Auditors analysed the position regarding the
reimbursement of loans.

(133) The report referred to a ministerial order (31) that laid down
loans
the precise mechanism for the reimbursement of
granted under Law No 808/1985. The order has never
been provided to the Commission by the Italian authorities,
and does not seem to have been made public even in Italy.
The Court of Auditors referred to it only by the number of
its registration at the Court.

(134) According to the Court of Auditors, the mechanism laid
down in the ministerial order required in particular that the
planned reimbursements be set out in a chart showing the
instalments to be paid back to the State. However, this
schedule of repayments did not have to be adhered to if the
programme was not technically or economically successful
in the manner originally expected.

(28) See in particular section 2.3 of the second decision.
(29) Letter dated 20.9.2004, registered by the Commission as incoming
mail on 22.9.2004. The document was subsequently transmitted to
Italy.

(30) Corte dei Conti, Indagine sulla promozione dello sviluppo tecnologico
dell'industria aeronautica ed aumento dei livelli occupazionali nel settore di
cui alla legge 24 dicembre 1985, n. 808. Available at that time on the
website of the Court of Auditors at http://www.corteconti.it/Ricerca-
e-1/Gli-Atti-d/Controllo-/Documenti/Sezione-ce1/Anno-2003/
Secondo-co/allegati-d7/indagine-industria-aeronautica.doc_cvt.htm.
(31) Order (decreto) of the Minister for Industry, Commerce and Crafts of
14 March 1988, registered at the Court of Auditors the following 20
July, registration number 11 ind. fg. 154. According to annexes to
several annual reports to Parliament on the application of the Law,
the title of the order was ‘General criteria for the mechanisms and
schedule for the granting of funding under Article 3 of Law No 808
of 24 December 1985 and conditions and manner of repayment’
(Criteri generali per modalità e tempi di erogazione, condizioni e
modo di restituzione dei finanziamenti ex art. 3 della legge 808 del
24 dicembre 1985).

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(135) The report of the Court of Auditors also stated that the
proportion of
loans actually reimbursed ranged from
0,86 % to 80,18 %, and that the overall proportion of
reimbursement of the total loans paid out was 68,92 %; the
Court said that in some cases reimbursements had been
delayed or had not taken place (32).

(136) Second, France and the anonymous third party submitted
lists of other projects which they said had received aid and
which Italy had failed to notify. The figures they gave were
for the amounts of the loans rather than gross grant
equivalents. The relationship between the amounts of loans
and their gross grant equivalents depends on the manner of
the aid. As has been explained in
reimbursement of
paragraphs 0 to 0,
the third parties and the Italian
authorities disagreed on these mechanisms.

(137) In reply to question on this point the Italian authorities
explained that the figures from the third parties were at
least in part incorrect. In particular, the reports that the
anonymous third party cited as its main sources merely set
out hypotheses for possible future aid. Not all the projects
report had actually been
considered for aid in this
launched. Some of
the projects that had in fact been
initiated had not received aid, or had received less than was
initially foreseen in the reports. Lastly, some of the projects
were of a military nature.

(144) The second initiating decision stated clearly that, although
the original
investigation concerned only six cases, and
although the comments provided by third parties were
submitted within the scope of those proceedings, it was
clear
raised in the comments
submitted went beyond the six cases.

the new doubts

that

(145) The doubts now expressed related to the entire application
of Law No 808/1985. Thus they concerned all individual
cases in which the Law had been applied, and among them
all of the 13 cases (33),
including those that had been
considered not to require prior notification and those to
which the Commission had raised no objection in its
decision of 1 October 2003.

(146) The second initiating decision did not concern projects
below the thresholds for individual notification, with the
following exception. The Commissions doubts did apply to
the application of Law No 808/1985 including all
individual decisions granting aid below the individual
notification threshold that had been taken since 22 Novem-
ber 2002.

(147) Finally, the second initiating decision indicated clearly that
its scope was limited to individual aid measures for civilian
projects.

(138) Third, the Commission learned of two further projects —
the AB139 and BA609 — and raised doubts in particular
as to whether they could be classified as military, as the
Italian authorities claimed.

(148) The Commission observed that, at that stage of its analysis,
it considered that projects which consisted in modifying a
military product to adapt it to civilian use should be
considered as civilian.

(139) To summarise, since the information available was not
conclusive, and since the Commission had become aware
of documents and information that raised new issues, the
Commission decided to widen the scope of
the Arti-
cle 88(2) proceedings (in the second initiating decision).

11.

ITALY'S OBSERVATIONS ON THE SECOND

INITIATING DECISION

a)

Concerning procedure

(140) In the

second initiating decision,

the Commission

expressed three main concerns.

(149) In the first place,

Italy indicated it was presenting its

observations together with Finmeccanica.

(141) The first was a question as to the nature of

the aid
instrument, namely whether the loans provided under Law
No 808/1985 were always fully reimbursed.

(142) The Commission also seriously doubted whether the Italian
authorities had informed it of all individual cases exceeding
the thresholds for individual notification, under the terms
of the initial decision of 1986 and of the appropriate
measures accepted by Italy in 1996.

(150) Italy pointed out that in the second initiating decision the
Commission had acknowledged that
the aid scheme
introduced by Law No 808/1985 constituted an existing
aid measure, as it had been approved by the Commission in
1986 and again in 2002.

(151) Italy observed that the second initiating decision was based
either on Article 16 of the Procedural Regulation or on
Article 13.

(143) Finally, the Commission seriously doubted whether the
AB139 and BA609 projects could be qualified as military,
as the Italian authorities claimed.

(152) Italy did not agree that there had been misuse of aid: that
concept would apply only to misuse by the recipient of the
aid it had received. All the aid granted under the scheme
had been used for the purpose it was granted for. Italy

(32) It is unclear however which individual cases the Court of Auditors
was referring to, and what was the basis for the computation of the
average.

(33) With the exception of the case which was judged to be of military

nature.

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objected to the term ‘misuse’ especially with regard to the
individual aid granted after 20 November 2002.

the aid. The recipient had to sign a clause requiring it to
repay the principal.

(153) If the Commission had wanted to examine the aid granted
in each case under the scheme, it should have done so in
the context of the constant review of existing aid schemes
provided for in Article 88(1) of the EC Treaty.

(162) Italy said the Commission had expressed doubts regarding
reimbursement partly because of the report from [the
investment bank] on Finmeccanica referred to in the
second initiating decision.

(154) Proceedings under Article 88(2) of the Treaty were not
possible under the Procedural Regulation unless the cases
were identified in a precise and specific manner.

(155) Concluding on the procedural aspects, Italy observed that
the second initiating decision generated a situation of legal
uncertainty because of the lack of a clear definition of its
scope.

(163) But that report, according to Italy, made it clear that the
sentence quoted in the second initiating decision — ‘the
principal has to be repaid only once deliveries exceed a
certain (high) volume, so that Finmeccanica has very low
repayments in the first 15 years and is much less likely to
have to repay all of the advance’ — was preceded by a
sentence that showed that it referred to the companys
defence business.

b) Development of the scheme

(156) In its reply to the second initiating decision, Italy clarified
the history of
the scheme. Military programmes had
historically been dealt with partly by the Ministry of
Industry.

(157) Italy summarised the way the scheme had been adapted to
the 1996 Framework and to the appropriate measures. It
sketched the essential outline of the scheme in the future,
which still needed to be transposed into a new internal
regulation (34).

(158) Italy commented on the question of reimbursement. For an
authentic interpretation of the Court of Auditors report
referred to in the second initiating decision, the Italian
authorities had approached the Court itself. In reply the
Court
the report was
concerned only with the period up to 1998. Given the
limited period covered, it would be wrong to draw general
conclusions.

first and foremost,

said,

that

the report
(159) In the second place,
for all projects sales had started and
confirmed that
reimbursements had been made, though with some delays.

the Court said that

(160) Lastly, as regards the possibility that

the State might
renounce its claim (which would be the case if the loans
were not to be reimbursed), the Court confirmed that it
was a general principle of Italian public administration that
claims could not be abandoned. A ministerial order, the
Court said, could not make provision for any such
abandonment. In the report the Court had not mentioned
any possibility that
the public administration might
renounce its claim to reimbursement.

(161) Italy acknowledged that

in
reimbursement in a few cases, but added that a schedule
for reimbursement was laid down in the decision to grant

there had been delays

(164) Finally, Italy said, the Commission had doubts regarding
reimbursement because it believed Italy had refused access
to the full texts of the granting decisions.

(165) Italy reiterated that the recitals to all the granting decisions
were identical, and this included those for military projects.
Furthermore, in Italy's view the recitals omitted could not
contain any conditions additional to what was in the main
text of the decisions themselves.

(166) The aid instrument used was a soft

loan, with fixed
reimbursement schedules that were always adhered to, with
a few limited exceptions. Furthermore, the loans had been
paid out to recipients under ‘commitment limits’ over 10 to
15 years, or immediately in a single payment, but in this
second case there was involvement on the part of a bank,
which had to be discounted. Reimbursement started the
first year after the last payment.

(167) To conclude on the aid instrument and the reimbursement,
Italy maintained that the instrument used was a soft loan.

(168) Italy also submitted observations on the two helicopters
referred to in the second initiating decision (the AB139 and
the BA609).

(169) Along with these observations, Italy provided the docu-

ments requested concerning the legal basis:

a)

b)

c)

decision (delibera) of the Interministerial Committee
on Economic Programming, dated 15 April 1986, on
the initial implementation of Law No 808/1985;

order (decreto) of
the Minister for Industry, dated
8 June 1986, on the mechanisms for the submission
of applications for aid;

order of the Minister of the Treasury, dated 7 February
1987, on the role of Mediocredito Centrale (35);

(34) Italy submitted a new notification for

the future scheme on

22.2.2008 (N 101/08).

(35) This aspect of the proceedings has been discontinued.

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d)

e)

order of the Minister for Industry, dated 14 March
1988, detailing further criteria for the implementa-
tion of Law No 808/1985 (36);

press release issued by the Interministerial Committee
on Industrial Policy (CIPI), dated 30 May 1991, on
collaboration with foreign partners;

f)

Law No 181 of 4 June 1991 refinancing the scheme;

g)

Law No 237 of 19 July 1993 refinancing the scheme;

h)

i)

j)

the

Interministerial Committee on
decision of
Industrial Policy dated 28 December 1993, with
new instructions for
the
scheme;

the implementation of

Law No 644 of 22 November 1994, converting the
aid instrument into commitment limits;

order of the Minister for Industry, dated 31 May
1995, on non-R & D aspects of the scheme;

k)

l)

the

Interministerial Committee on
decision of
Economic Programming, dated 8 August 1996,
modifying the conditions for eligibility and setting
priorities;

Law No 266 of 7 August 1997 refinancing the
scheme; this Law also funded the European fighter
aircraft (EFA) programme;

m)

the

Interministerial Committee on
decision of
Economic Programming, dated 22 December 1998,
amending the priorities and criteria for eligibility;

n)

o)

p)

order of the Prime Minister, dated 6 August 1999,
the
keeping the administrative management of
scheme in the hands of the Government;

Law No 388 of 23 December 2000 refinancing the
scheme;

the

decision of
Interministerial Committee on
Economic Programming, dated 2 August 2002,
amending the selection criteria, the activities eligible
and the intensity of the aid.

(170) Italy also provided a full picture of the overall funding of the scheme, which is shown in the table below

(the amounts are expressed in ITL billion):

Table 2

Budget for Law No 808/1985

Law

’93

’94

’95

’96

’97

’98

’99

’00

’01

’02

’03

’04

After

Total

808/85

181/91

237/93

50

237/93

644/94

644/94

266/97

488/99

488/99

388/00

350/03

Total

50

50

25

50

50

25

50

50

50

25

50

50

50

25

50

50

50

25

50

50

50

25

50

50

50

25

50

50

50

25

50

50

50

25

50

50

25

50

50

690

150

500

500

250

500

105

105

105

105

105

105

105

315

1 050

45

45

44

40

45

44

40

45

44

40

495

528

480

675

660

600

19,3

270,2

290

5 865

(36) This is the order referred to in the second decision.

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(171) Up to 22 June 2005, the date of the second initiating
decision, out of the total amount of EUR 3 029 million
(corresponding to ITL 5 865 billion), according to Italy,
EUR 2 878 million had been used, with EUR 151 million
not yet committed.

(172) Italy also specified the breakdown of expenditure:

(181) It asked the Commission to recover any aid granted in
violation of state aid rules, on the basis of Article 14 of the
Procedural Regulation.

(182) It asked the Commission to require a suspension of future
payments under the scheme, on the grounds that there was
no proper evidence to show that the aid would be used for
R & D purposes.

a)

b)

c)

EUR 1 311 million had been used for projects relating
to national security;

EUR 1 327 million had been used for civilian projects
approved up to November 2002;

EUR 239 million had been used for civilian projects
approved after November 2002.

(173) According to Italy, EUR 510 million went to fund projects

of European interest.

(174) Italy also responded to the request for a list of all civilian
projects funded under Law No 808/1985 that were above
the thresholds for individual notification, and a complete
list of all projects funded since 22 November 2002. In its
letter of 24 October 2005, Italy submitted observations on
the projects referred to in the second initiating decision.

(175) Italy stated that there were no other aid projects above the

thresholds for individual notification.

(176) Italy provided a table listing the programmes relating to

national security which had been funded by the scheme.

(177) Finally, concerning delays in the reimbursement of specific
projects, Italy said that there had been difficulties with only
two projects, DO328 Panels and DO328 Extended
Capacity. The project, conducted by Aermacchi, had had
problems because of
the main partner,
Fairchild Dornier GmbH.

the failure of

12.

COMMENTS BY THE ANONYMOUS THIRD PARTY
ON THE SECOND INITIATING DECISION

(178) The observations and requests put

forward by the
anonymous third party after the second initiating decision
are set out below.

(179) The third party asked the Commission to declare the aid
granted under Law No 808/1985 to be unlawful, and
accordingly to order its recovery on the basis of Article 11
of the Procedural Regulation.

(183) It asked the Commission to ensure that Law No 808/1985
was amended so that aid was reimbursed on financial terms
consistent with the R & D framework.

(184) It asked the Commission to widen its investigation further
in order to verify the compatibility with the State aid rules
of other schemes applying in the aerospace industry in
Italy, and to ensure that such schemes were not used to
circumvent the Commission's decision on Law No 808/
1985.

(185) It asked the Commission to require the Italian Government
to present a full report every year, which the Commission
might if necessary ask to have audited.

(186) The anonymous

third party annexed a number of
documents to its observations, among them the report
from the Italian Court of Auditors on the implementation
of Law No 808/1985, dated 12 August 2003, with a table
referring to 164 projects; the text of the ministerial order
dated 14 March 1988; the text of the laws refinancing Law
No 808/1985; and extracts from the annual reports of
Avio and Finmeccanica for 2003 and 2004.

13.
OBSERVATIONS SUBMITTED BY ITALY
REGARDING THE ANONYMOUS THIRD PARTYS
COMMENTS ON THE SECOND INITIATING DECISION

(187) Following the comments of the anonymous third party, the
Italian authorities asked for clarification of the scope of the
proceedings: did they relate to the whole scheme, or only to
aid granted under the scheme in those cases that had to be
notified to the Commission individually?

(188) Italy contended that

the figures put

forward by the
anonymous third party, taken from the Ministry's website,
covered ground broader than this particular scheme alone.
They included not just aid granted under Law No 808/
1985 but also other industrial programmes relating to
national security ([…]) which were funded under other
legislation.

(180) It asked the Commission to verify the aid instruments used

under the scheme.

(189) […]

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(190) Italy argued that the fact that the scheme introduced by
Law No 808/1985 allowed for funding of both civilian and
military programmes had confused the anonymous third
party. The Court of Auditors had been similarly misled in
its report on Law No 808/1985.

(198) According to Italy, the proceedings were concerned only
with individual applications of the scheme, the projects that
the Commission had specifically identified, which were the
13 projects referred to in the first initiating decision. Italy
had already suspended payments towards those projects
pending a final decision by the Commission.

(191) Italy provided the following table comparing the funding
referred to in the reports cited by the anonymous third
party and the funding provided under Law No 808/1985.

Table 3

Comparison between sources of information on funding
under Law No 808/1985

(EUR million)

Commitments

2000

2001

2002

2003

2004 report on incentives
(p. 181)

287

492

710

501

Measures under Law
No 808/1985

18

94

280

189

Difference

269

398

430

312

(192) Italy also provided a list of relevant military programmes
funded in these years, which it said might explain the
discrepancies: […].

(193) Concerning the annual report of Finmeccanica for the year
Italy
2003 referred to by the anonymous third party,
argued that a large part of
the increase in R & D
expenditures was due to the incorporation of Aermacchi
into the company (around […]).

(194) Italy acknowledged that there had been delays in some
reimbursements, which it said were due primarily to the
long periods of payment (10 to 15 years), so that they
should rather be interpreted as late reimbursements.

(195) Italy acknowledged that there were difficulties with one
specific project, the DO328 Extended Capacity, but said it
was out of the question that the State should abandon any
claim.

(196) In reply to the specific points raised by the anonymous
third party, the Italian authorities provided the following
arguments.

(197) The request by the anonymous third party that

the
Commission should declare unlawful the aid given to the
six projects on which it had raised doubts in the first
initiating decision, and require that the aid be recovered,
was not acceptable. It was contrary to Article 11 of the
Procedural Regulation.

(199) As regards the anonymous third party's request that the
Commission impose monitoring conditions and other
control measures on a yearly basis, the Italian Government
said it was ready to present any report called for under
Article 21 of the Procedural Regulation. But the Italian
authorities did not agree that additional reporting obliga-
tions should be imposed: that would be disproportionate
and unfair by comparison with the obligations that other
Member States had to comply with in respect of aid
schemes in the same industry.

(200) The anonymous third party referred in its observations to
the 2004 annual report of Avio, quoting in particular the
phrase ‘If no revenues are earned, no reimbursement is
due’. The Italian authorities said they had asked the
company for an explanation. The lawyer consulted by Avio
had confirmed that the recipients of aid under the scheme
were obliged to reimburse the sums received in full,
irrespective of the success of the programme. Avio had
stated that the statements in its 2004 annual report were
based on an incorrect interpretation of the scheme, and
would be modified in the following annual report.

(201) Italy provided information on the other

legislation
mentioned by the anonymous third party in its observa-
tions, indicating that Law No 421/96, Law No 388/00, the
2003 Finance Law and Law No 140/99 (which related
specifically to military transport aircraft) were concerned
only with the funding of military projects relating to
national security.

(202) On the report by the Court of Auditors, Italy first noted
that
the anonymous third party had annexed to its
comments two ‘tables or charts extracted from fig. 3 and
fig. 5’ of the report. These were Excel files that did not
appear in the version referred to in the second initiating
decision, but only in the Word version of the report. It was
not clear by what investigative methods the anonymous
third party had secured access to these tables.

(203) Italy stressed that in its view it was completely inappropri-
ate to attribute these figures to the Court of Auditors, given
that they did not appear as such in the text of the report.

(204) Nevertheless, Italy did provide some observations on the
the tables, which referred to 164 granting

content of
decisions for a total of around EUR 3 billion.

(205) There were several mistakes in that total, including sums
counted twice and figures for aid that had not been
granted. The tables also showed projects relating to

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national security, including some that were funded under
other laws and were thus outside the scope of the scheme.
The correct figure for aid granted on the basis of the
scheme was the one supplied in the observations submitted
by Italy […].

14.

ASSESSMENT

(215) The loans do not bear

interest,

thus conferring an
advantage on companies receiving them over companies
that have to finance their projects on market terms. In a
soft loan the element of advantage is the difference between
the interest that the undertaking would have to pay on an
equivalent loan on commercial terms and the special low
interest rate, which in the present case is zero. The principal
is always reimbursed according to the schedule fixed at the
time of granting, and the aid is the sum of the interest
payments forgone by the State.

(206) In order to assess the case the Commission will

first
consider whether there is State aid and how its compat-
ibility should be assessed.

(216) In most cases, the projects involved here concern products
where there is large-scale intra-Community trade (helicop-
ters, small aircraft, or sometimes parts of larger aircraft).

(207) Second, the Commission will clarify the scope of these
proceedings and the correct procedure to be followed.

(217) The support granted by Italy to R & D projects in the
aeronautical industry under Law No 808/1985 thus falls
within the scope of Article 87(1) of the EC Treaty.

(208) Third, the Commission will assess whether the doubts

expressed in the first initiating decision can de dispelled.

(209) Fourth, the decision will list the projects to which it relates
and on the basis of the information available will assess
their compatibility, including any conditions to be imposed
in order to ensure that they are properly applied.

(210) Finally, the Commission will draw conclusions on the
individual projects, and explain why its conclusions do not
concern the two helicopters whose military character was
questioned in the second initiating decision.

(218) Italy and the intervening parties also agree that

the
compatibility of the aid with the Treaty should be assessed
on the basis of the rules concerning the application of
Article 87(3)(c) to R & D aid.

(219) The aid under assessment was granted unlawfully, as it was

never notified by Italy.

(220) The Community framework for state aid for research and
development and innovation (the 2006 Framework) (37)
clearly indicates, in line with the Commission notice on the
determination of the applicable rules for the assessment of
unlawful State aid (38), that in the case of non-notified aid
the Commission will apply:

14.1.

Existence of aid within the meaning of

Article 87(1) of the EC Treaty and applicable
compatibility guidelines

— the 2006 Framework if the aid was granted after its

entry into force,

(211) A measure constitutes aid caught by Article 87(1) of the EC
Treaty if state resources are used in a manner that distorts
or threatens to distort competition by favouring certain
undertakings, and trade between Member States is affected.

— in all other cases, the framework in force when the aid

was granted.,

(212) As indicated in the first and second initiating decisions, the
measures under assessment constitute aid. This assessment
has not been disputed by Italy, or by any of the parties that
have intervened in the proceedings.

(213) The loans provided under Law No 808/1985 are clearly
selective, because they benefit only companies operating in
the aeronautical sector.

(221) To assess the compatibility of these projects with Article 87
(3)(c) of the EC Treaty, therefore, the Commission will
apply the 1986 Framework or the 1996 Framework as the
case may be, depending on the date on which the aid was
granted.

14.2.

The subject-matter of the Decision

(222) This Decision is concerned only with individual aid granted
by Italy to civilian R & D projects in the aeronautical
industry under Law No 808/1985.

(214) These loans are provided via funds coming from the State

budget, and therefore involve the use of state resources.

(37) OJ C 323, 30.12.2006, p. 1.
(38) OJ C 119, 22.5.2002, p. 22.

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(223) It relates in the first place to the six projects regarding
which the Commission expressed specific doubts in the
first initiating decision.

individual notification was required for projects with
eligible costs above ECU 20 million.

(224) It also relates to the other projects referred to in the first
initiating decision,
in so far as the information subse-
quently assembled concerning them allows a different
assessment to be made, especially as regards the obligation
of individual notification.

(231) Under the 1996 Framework projects were to be notified
individually to the Commission if the eligible costs were
above ECU 25 million and the aid was above ECU
5 million (39).

(225) Third, the Decision relates to other individual aid granted
by Italy for projects above the notification thresholds set by
the R & D frameworks of 1986 and 1996. These projects
were not known to the Commission at the time of the first
initiating decision. Some of them were mentioned in the
second initiating decision as possible cases of non-notified
individual aid.

(226) It cannot be argued, as Italy seeks to do, that investigation
proceedings must define from the outset all the projects to
which they relate, because when it initiates the proceedings
the Commission does not necessarily know how many
projects may be concerned.

(227) The present proceedings are concerned with individual
applications of a scheme, individual cases that Italy should
have notified but did not notify. The scale of Italy's failure
to notify is exceptional: among other things, Italy failed to
notify any of the projects over a period of more than ten
years. As a consequence of this persistent violation of the
obligation to notify laid down in Article 88(3),
the
Commission clearly indicated in the second initiating
decision, in the light of the comments received from third
parties and on the basis of the information available, that
the proceedings related to all individual projects under the
scheme that ought to have been notified individually.

(228) The second initiating decision did not set any specific date
with effect from which individual projects that had not
been notified were to begin to be included in the scope of
the proceedings and to be considered individual applica-
In any event, the Italian
tions of Law No 808/1985.
authorities
to
reimburse the aid in full, and this must be considered to
constitute new aid.

frequently allowed the

recipient not

(229) It is worth drawing attention to the importance of the
individual notification of aid above certain thresholds for
purposes of state aid control. The 2006 Framework clearly
indicates that, in order better to focus the Commission's
scrutiny, individual measures above certain thresholds are
subject to a detailed assessment by the Commission. The
purpose of the individual assessment is to ensure that high
amounts of aid for R & D&I work carried out by the same
recipient do not distort competition to an extent contrary
to the common interest, but rather contribute to the
common interest in a proportionate manner.

(230) In the period under assessment

for
individual notification varied. Under the 1986 Framework

the thresholds

(232) With regard to the need for the decision initiating the
procedure in Article 88(2) of the EC Treaty to indicate the
individual projects concerned precisely and specifically, the
Commission would make the following observations.

(233) When the Commission initiated the Article 88(2) proced-
ure it precisely identified 13 projects. On the basis of the
information available at that time, it expressed doubts with
regard to six of these, and raised no objection to the other
seven.

(234) It became evident, however, that the aid instrument used by
Italy, coupled with the way it was implemented, with delays
in reimbursement, were such as to modify the assessment
of
the
information available to the Commission at
time
was not correct and did not correspond to the real
conditions of the aid which had been granted and which
had not been correctly reimbursed.

Italy has acknowledged that
that

the 13 projects.

(235) It also became evident that there were other cases which
Italy had failed to notify individually, despite the clear
statements in the R & D frameworks and the 1986
decision.

(236) It became evident, too, that in most of the cases assessed in
this Decision the reimbursements did not follow the initial
schedule; delays were allowed, making the terms more
generous to the recipient. These new and more generous
terms constitute new aid.

(237) To conclude, the present proceedings concern a number of
projects to which new unlawful aid has been granted.

(39) See for instance point 4.7: ‘Individual grants of aid under an R & D
scheme that has been authorized by the Commission do not, in
principle, need to be notified. However,
in order to allow the
Commission to assess significant amounts of aid under approved
schemes and the compatibility of such aid with the common market,
the Commission requires prior notification of any individual
research project costing more than ECU 25 million and for which
it is proposed to provide aid with a gross grant equivalent of more
than ECU 5 million. This new notification rule must be regarded as
an appropriate measure within the meaning of Article 93(1) of the
EC Treaty. Its substance was examined by the representatives of the
Member States at a multilateral meeting.’

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14.3.

The doubts expressed in the first initiating

decision

(238) The Commission has assessed the information submitted
by Italy on eligible costs and incentive effect for the six
programmes referred to in the first initiating decision,
which are now included in the list of projects (recital 281,
table 4).

(247) Italy has provided sufficient information on the overall
funding of the projects to enable the Commission to form a
more general view. This is particularly relevant to the
problem that the scheme under assessment has been used
by Italy to fund both civilian projects and projects relating
to national security. The figures for overall funding would
thus be misleading if
they were to be interpreted as
showing only funding used by Italy towards civilian R & D
projects in the aeronautical industry.

(239) The Commission has established that for each project the
costs were incurred for industrial research and precompe-
titive development.

14.4.2. Nature of the aid instrument

(240) The Commission has established that the aid for each of
these six projects had an incentive effect. The assessment
was carried out taking into account the time that has
elapsed since Italy took the decision to grant the aid.

(248) As regards the nature of the aid instrument, the Italian
authorities have provided full documentation concerning
the projects that Italy should have notified individually on
the basis of the thresholds set in the successive R & D
frameworks.

(241) As described in recitals 105 to 122, however, it appeared
that other crucial aspects of these aid measures, notably the
aid instrument, were not clearly defined, and did not allow
the Commission to take a final view of their compatibility.
Before presenting the assessment of the individual projects,
therefore,
it will be necessary to assess the information
available concerning the other doubts expressed in the
second initiating decision.

14.4.

The doubts expressed in the second initiating

decision

(242) In order

to arrive at a final conclusion concerning
the scheme it will be
individual aid granted under
necessary,
the information
concerning the development of the scheme, including the
legal basis and the budgetary changes.

first of all, to assess all of

(243) Second, it will be necessary to assess the nature of the aid
the granting

instrument and the implementation of
decisions.

(244) Third, it will be necessary to draw up a list of individual
projects that Italy has failed to notify, to assess the financial
terms for each of these projects, and if necessary to verify
the terms of reimbursement and the mechanisms for
monitoring compliance with those terms.

(249) The Italian authorities have indicated that the nature of the
instrument was hybrid, in the sense that it was a soft loan
whose reimbursement schedule was constructed according
to the sales forecast for the product being developed.
According to the Italian authorities these reimbursement
schedules were fixed from the outset.

(250) The loans were granted on the basis of the reference rate at

the time of the granting plus a premium.

(251) For each project,

the Italian authorities determined a
theoretical maximum aid intensity at the moment the aid
was granted, calculated on the basis of the eligible costs,
with the inclusion of any bonuses that might be relevant.

(252) In some cases, however, this intensity was not complied
with, and the aid was granted on terms more favourable to
the recipient, at an intensity higher than the maximum
intensity allowable under the R & D frameworks.

(253) Moreover,

in practice,

these schedules were often not
adhered to, in two different ways. First, payments to the
recipients were late compared to the initial schedules, either
because the project was late, or because the State was late in
making the payments. In some cases, therefore, the actual
intensity of the aid was lower than the initial intensity.

(245) Finally, a separate section,

in paragraphs 0 0, will be
devoted to the assessment of the information concerning
the two allegedly military helicopters.

(254) But more importantly, reimbursements did not abide by
the initial schedules. As a consequence, in many cases the
initial intensity increased as the recipients benefited from
the further advantage of late reimbursement.

14.4.1. The development of the scheme

(246) The Commission now has a

clear picture of

the

development of the overall scheme.

(255) While Italy has provided the Commission with a number of
letters it sent to recipients requesting reimbursement, it is
clear that such letters had limited effect. In some instances,
several letters were sent to a recipient on the same project,

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but no steps were taken effectively to reimburse the loan,
and there was no action on the part of the State to recover
the claim (40).

the nature of the aid instrument meant that Italy itself had
no clear view of which projects needed to be notified
individually (43) and which projects had to be included in
the ex post list of cases that ought to have been notified..

(256) In conclusion, there were two potential problems with the
aid granted to the projects: a) an initial intensity that in
some cases was higher
than the maximum intensity
allowed; and b) insufficient reimbursement that allowed
the intensity to increase even further.

(257) The Italian authorities, working together with the Commis-
sion, have defined a methodology that allows both
problems to be solved. As a first step, a maximum
intensity is defined for each project, which is the lower of
two intensities, the maximum theoretical intensity (41) and
the initial intensity. If the initial intensity is the lower, it can
be said that the incentive effect of the specific amount of
aid granted was sufficient to convince the company to
commit itself to the project. Any increase in the intensity
over the one fixed initially must necessarily be considered
new aid.

the

(258) The cumulative aid intensity is then calculated. In the year
in which this cumulative intensity reaches the level of the
maximum intensity defined in recital 257, the recipient has
the
to reimburse
If
maximum intensity has already been reached,
then
compound interest is to be charged on the outstanding
debt for the years until the date of the final reimbursement
of the entire loan. The level of interest is the reference rate
for the year in which the maximum intensity was reached,
and then for each year of further delay.

full outstanding principal.

(259) The methodology thus makes

it possible to ensure
compliance with the maximum intensities defined in the
successive R & D frameworks (42).

14.4.3. The list of non-notified projects

(260) A shared and accurate understanding of the aid instrument
made it possible to establish the list of projects that Italy
ought to have notified individually. When aid takes the
form of a soft loan, the significant value is the amount of
interest forgone by the State. The uncertainty surrounding

(40) The Italian authorities have indicated that they have no intention of
abandoning their claims on the recipients. However, the number of
cases in which letters were sent asking for reimbursement, but no
further action was taken, while new aid was granted to the same
recipients for new projects, suggests that in some cases at least
recipients believed that the aid they had received was not to be
reimbursed.

(41) Being the 25 % or 50 % intensity plus bonuses for precompetitive
development and industrial research provided for in the R & D
Frameworks.

(42) The Commission has adopted a similar approach in two cases
concerning R & D aid to the aeronautical sector, C27/06 and C 28/
06.

(261) In order to arrive at a final list, a series of requests for

information had to be sent.

(262) Italy initially denied that

it had failed to notify any
individual project other than those referred to in the first
initiating decision. It subsequently acknowledged that the
list of non-notified projects was longer, and submitted all
the necessary information and evidence.

(263) The difficulty of drawing up the list of non-notified projects
can be explained by a conjunction of several factors.

(264) First, the scheme has been applied since 1986.

(265) Second, the number of projects involved is necessarily high.
Including those not subject to individual notification, the
number of projects funded through the scheme in the
period under assessment is well above 100.

(266) Third, the fact that the lists include numerous military
projects has increased the confusion. The Commission
notes that even in a report by the Italian Court of Auditors
there was some confusion as to the nature of the projects.

(267) The information available on the projects supported was
least because the
piecemeal and often confused, not
reporting from the Government
to the Italian
Parliament was in terms of a list of future projects rather
than projects actually supported.

itself

(268) There are lists submitted by the anonymous third party,
and others referred to directly by the Commission, such as
the 13 projects specified in the first initiating decision and
the list of projects cited in the second initiating decision.

(269) The report of the Court of Auditors did not contain a list of
the projects, but only overall figures, graphs and tables.
However, the Word version of the document, available on
the Courts website in 2005, allowed the underlying data to
be extracted from the overall graphs.

(43) It should be noted, though, that there is no trace in the history of the
file of any intention on the part of the Italian authorities to notify
any project individually, whatever the size of the project or the
amount of the aid.

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(270) In its submission of 11 November 2005 the anonymous
third party included these data.
for
information of 23 May 2006 the Commission referred to
most of the projects entered on the list submitted by the
anonymous third party (44) to point out to Italy that in all
likelihood there were still a number of non-notified
projects on which Italy had not provided the requested
information.

request

In its

not currently aware, or projects of which it is aware but for
which it does not possess information sufficient
for
purposes of a decision, either because the information
available is not complete or because the information
indicates that the project is currently below the threshold
for notification, whereas fresh information may modify this
assessment.

(271) Italy denied that the list could be attributed to the Court of
Auditors (45):
it had been derived from the information
system of the Court by a person unknown. It would be
misleading, therefore, to attribute the list to the Court itself,
since it was the result of manipulation of data by a third
party. It contained a number of errors and inaccuracies, and
it would be wrong to imagine that the Court of Auditors
itself was responsible for it.

(277) For each project the Commission has the initial schedule
for disbursement and reimbursement laid down at the time
the aid was granted and the real figures for payments by the
State and reimbursement by the recipients. The schedules
incorporate the corrections imposed by the methodology
described above (48).

(272) Ultimately Italy decided that

it would itself provide a
complete list of individual projects that were subject to
individual notification, so that it is not necessary for the
the
Commission to state a view on the accuracy of
information received previously (46).

(278) On the basis of the information available on the projects,
and bearing in mind that all the projects are individual
applications of the same aid scheme, the Commission has
no evidence that would lead it to suspect that the aid was
aimed at supporting activities that did not qualify as R & D
activities under the R & D frameworks.

(273) The discussion on the list of non-notified projects was
difficult, but after about two years, it enabled the Italian
authorities and the Commission to identify a number of
individual projects that Italy had failed to notify.

(274) As requested in the second initiating decision, Italy also
provided a list of the projects below the thresholds for
individual notification that had been approved after
20 November 2002. The Commission finds that that list
matches the overall budget for Law No 808/1985 in the
period concerned, and that it does refer to projects below
the thresholds for individual assessment (47).

(279) As regards the incentive effect, the Commission would
note, first of all, that point 8.2 of the 1986 Framework
required only that the aid should encourage additional
effort in the field of R & D or enable the recipients to
respond to exceptional conditions for which their own
the 1996
resources were too limited.
Framework, the incentive effect was to be verified on the
basis of quantifiable factors, or other relevant
factors
indicated by the Member State, showing that the same
R & D project would not have taken place without the aid,
or that it would have been less ambitious, or that it would
not have been carried out at the same pace.

In point 6 of

14.5.

Assessment of the final list of civilian

projects

(275) The list of projects that Italy failed to notify individually to

the Commission contains 17 projects.

(276) The list comprises the projects on which the Commission is
able to reach a final conclusion regarding compatibility
with the Treaty, but that leaves open the possibility that the
Commission may in future take measures in respect of
other projects that have not been notified and of which it is

(44) It excluded those whose military character was evident, either
because they had been assessed in the course of the proceedings or
because the public information available left their nature in no
doubt.

(45) See letter dated 5.5.2006.
(46) Irrespective of whether or not it should be attributed to the Court of

Auditors.

(47) The list also shows that Italy has spent a large part of the budget of
the scheme on small projects. This allows the overall figures for the
budget for the scheme to be reconciled with the number of large
projects now known.

(280) The Commission has no reason to doubt the incentive
effect of the aid under assessment. The aid allowed the
recipients to engage in R & D activities additional to their
normal research, and to undertake R & D projects they
would not have been able to undertake alone. Furthermore,
consistently with its assessment of similar projects in the
aeronautical industry, the Commission finds that the aid to
the projects under assessment allowed the recipients to
engage in risky projects which they would not have been
able to finance alone. Finally, the Commission notes that
most of
the projects were international projects that
required additional collaborative efforts.

(281) Each project is described below with its overall eligible
costs and the amount of aid received. For the six projects
initiating decision expressed
regarding which the first
doubts,
the information
available on the eligible activities and the incentive effect.
For all the projects the consequences of the application of
the methodology are detailed in recital 257.

the assessment also covers

(48) See recitals 248 to 259.

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Table 4

List of projects to which this Decision relates

Project

Company

Purpose

A109 D/E/F

Agusta

Helicopter

A109 X

Agusta

Helicopter

A119 Koala

Agusta

Helicopter

DO328

Aermacchi

Aero struc-
ture

Aero struc-
ture

Aermacchi

DO328
Extended
Capacity

DO 328
Panels

Aermacchi

Aero struc-
ture

Year

1997

1999

1997

1991

1996

1996

ATR72

Alenia

Aero struc-
ture

1988 to 1994
(5 projects)

ATR 42 500

Alenia

MD11 LWRP
J/S

Alenia

Falcon 2000

Alenia

MD11 Wing-
let

Alenia

Aero struc-
ture

Aero struc-
ture

Aero struc-
ture

Aero struc-
ture

1992

1996

1994

1989

MD95

Alenia

Aero struc-
ture

1996 and
1998

GE90 B

GE90 Growth

LPT PW308

Avio

Avio

Avio

Falcon 2000

Piaggio

Cabins

Alenia

Engine

Engine

Engine

Aero struc-
ture

Aero struc-
ture

1994

1996

1997

1994

1999

a)

A109 D/E/F project carried out by Agusta

(282) The project concerned a helicopter, and was carried out by
it consisted in the development of different
Agusta;
versions of the A109, adapting it to different engines in
order to satisfy the most stringent criteria in terms of
security, flight performance and environmental impact. The
D, E and F versions corresponded to engines provided by
Allison, Pratt & Whitney and Turbomeca. The D and E
versions, according to Italy, were never developed.

(283) The project was listed in the first initiating decision as
project No 4. Investments were carried out in the period
1996 to 1998.
initiating decision the
Commission expressed doubts regarding the classification
of R & D activities and the incentive effect.

In the first

(284) As regards the R & D activities, the Italian authorities have
provided more detailed information on the work packages.
The Commission would observe, first, that several proto-
types were developed, and that the D and E versions were
not completed or marketed.

(285) Second, the Commission notes that the technologies more
directly concerned — new engine and skids — were
the
certified only in June 2001. According to Italy,
developments in the rotor still have to be incorporated
into the final product, even though the result of the R & D
was successful.

(286) The sequence of events would seem to indicate that the aid
for the R & D project carried out in the period 1996-1998
enabled Agusta to introduce new technologies, with a time
horizon of more than 30 months. The aid consequently
had an incentive effect on Agusta.

(287) The eligible investment (49) was ITL 69 790 million (50).
The amount of aid in the form of interest forgone by the
State was ITL 24 450 million. Thus, the initial aid intensity
was 35,03 %, as compared with a theoretical maximum
intensity of 31 % allowed by the 1996 Framework. The
year
in which the cumulative intensity reached the
maximum 31 % allowed was 2004.

(288) In 2007, therefore, Agusta has immediately to repay the
outstanding principal (ITL 19 300 million) plus the ITL
7 811 million called for in the reimbursement schedule for
the year. Interest has also to be paid from 2005 onwards,
amounting on 31 December 2007 to ITL […] million.

(289) The Commission concludes, therefore, that the aid can be
considered compatible under the 1996 Framework, since it
concerned R & D activities and had an incentive effect on
Agusta, on the
immediately
reimburses the outstanding principal and the compound
interest.

condition that Agusta

b) A109 X project carried out by Agusta

(290) The project concerned an Agusta helicopter. It was listed in
the first initiating decision as project No 2. The Commis-
sion expressed doubts regarding the classification of R & D
activities and the incentive effect.

(291) According to Italy, the project, carried out in the period
1999-2001, aimed at developing an entirely new helicop-
ter, to enter the market after 2009. The helicopter would be
in the range between 3 and 3,5 tonnes, and would also be
used for developments in the military market.

(49) For all the projects, all the figures presented here are discounted

figures.
(50) Since all

the projects concerned were approved before the
introduction of the euro, all granting decisions and all reimburse-
ment schedules are expressed in Italian lire. table 5 in recital 381
shows the impact in euro.

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(292) Italy was able to demonstrate that the A109 X was a
project totally different from the A109 D/E/F, A109 Power
and A119 Koala. The main technological differences related
to the five-blade rotor, the tail rotor, and the transmission
using face gears.

1996 Framework provided that
schedule is adhered to.

the

reimbursement

d) DO328 project carried out by Aermacchi

(293) On the incentive effect, Italy was able to show that the
A109 X was a new project, which would not be finalised
before 2009. The aid thus enabled Agusta to engage in
R & D activities which were very distant from the market
and were very risky from a technological point of view.

(303) This project concerned the basic version of the DO328 and
was carried out by Aermacchi. The DO328 is a regional jet
developed by Dornier. Aermacchi was entrusted with the
development of two segments of the fuselage and the
assembly of the entire fuselage, made up of 13 panels
produced for Dornier by the Korean company Daewoo.

(294) Eligible investment by the company was worth ITL
interest
67 144 million. Aid received in the form of
forgone was ITL 13 902 million, giving an intensity of
20,70 %, which is below the maximum initial intensity of
33 % allowable under the 1996 Framework.

(295) The

reimbursement

schedule has nevertheless been
adjusted to take account of
the fact that the aid was
disbursed in a manner different from what was foreseen,
and the fact that the loan was smaller. Reimbursements for
this project will follow the adjusted schedule until 2018.

(304) The R & D project allowed Aermacchi to acquire the
knowledge necessary to develop the two segments and to
assemble the fuselage. These activities were new to the
company, which until then had concentrated on military
training aircraft. The eligible activities were carried out in
1990 and 1991.

(305) The project was listed in the first initiating decision as
project No 10. The Commission there decided to raise no
objection to the project because, based on the information
available, it considered it to be compatible.

(296) The Commission can therefore conclude that the aid is
compatible with the 1996 Framework, since it concerned
R & D activities and had an incentive effect, on the
condition that that the reimbursement plan is completed in
2018.

(306) But

the information submitted by Italy during the
proceedings clearly shows that that initial conclusion has
to be modified in the light of the financial situation of the
project.

c)

A119 Koala project carried out by Agusta

(297) The project concerned the development of a helicopter by
Agusta. The A119 Koala is the utility version of an eight-
seat helicopter, powered by a single turboshaft engine, and
produced for the civilian market.

(298) It was listed in the first initiating decision as project No 3.
On the basis of the information available at that time, the
Commission there took the view that the project was not
subject to individual notification to the Commission, so
that it fell outside the scope of that decision.

(299) Subsequently,

it appeared that

the amount of eligible
investment and the amount of aid were in fact such that the
project should have been notified individually to the
Commission.

(300) Aid was granted in 1997 for eligible investment of ITL
58 137 million in the period 1997-1999. The aid received
had an intensity of 26,92 %, which was below the initial
maximum intensity of 32 % allowable under the 1996
Framework.

(301) The reimbursements for this project will thus follow the

schedule until 2009.

(302) The Commission can therefore conclude that the A119
Koala project carried out by Agusta is compatible with the

(307) The information available today indicates that the eligible
investment amounted to ITL 60 722 million, and that the
initial maximum intensity was 43 %.

(308) However,

in the
there have been numerous delays
reimbursement, as the Italian authorities themselves have
acknowledged. The intensity of 43 % allowable under the
1986 Framework was reached as long ago as 1996. As the
maximum intensity has been reached, Aermacchi must
immediately repay the outstanding balance, which is ITL
34 019 million. Compound interest has also to be paid on
the sums owed by Aermacchi from 1996, amounting to a
total of ITL […] million on 31 December 2007.

(309) The Commission concludes that the project relating to the
basic version of the DO328 can be considered compatible
with the EC Treaty on the basis of the 1986 Framework, on
the condition that Aermacchi immediately reimburses the
outstanding principal and the compound interest.

e) DO328 Extended Capacity project

carried

out by

Aermacchi

(310) The project was to be carried out by Aermacchi, and
concerned the development of an extended version of the
DO328 regional jet developed by Dornier. The extended
version would have allowed the transport of 40 to 50
passengers. The project does not seem to have been
finalised, not least because Dornier, or Dornier-Fairchild as
it later became, went into liquidation. The project was
carried out in the period from 1995 to 1997.

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(311) The project was listed in the first initiating decision as
project No 8. The Commission expressed doubts regarding
the classification of R & D activities and the incentive effect.

(312) On the R & D activities, the Italian authorities were able to
demonstrate that extending the jet meant that the firm had
to redevelop entire
fuselage, while
sections of
minimising the impact on the weight of the aircraft and
on the costs of the project. During the project Aermacchi
developed two prototypes.

the

(313) On the incentive effect, the Italian authorities demonstrated
that the funding for this project (together with the other
project, DO328 Panels) allowed a substantial increase in
the level of R & D spending by Aermacchi. In the period
from 1993 to 1999 (covered by the two projects) the costs
the two DO328 projects amounted to […] % of
for
Aermacchis total R & D expenditures. Italy also argued that
owing to its military specialisation, Aermacchi was not
used to working on civilian projects, and had to adapt
substantially, making additional investments.

(314) Eligible investment

in the project amounted to ITL
66 360 million. The maximum initial
intensity defined
by the Italian authorities at the time the aid was granted
was 43,49 % (below the 44 % maximum intensity allow-
able under the 1996 Framework). The reimbursement
schedule indicates that this intensity will be reached in
2010, when the entire outstanding balance will have to be
reimbursed to the State.

(315) The Commission thus concludes that the aid given to
Aermacchi for the DO328 Extended Capacity project is
compatible with the EC Treaty and the 1996 Framework,
and that the doubts concerning the eligible R & D activities
and the incentive effect have been dispelled. Aermacchi
must reimburse the entire outstanding principal by 2010.

f)

DO328 Panels project carried out by Aermacchi

(316) This project was carried out by Aermacchi in the period
from 1993 to 1999, and related to the development of
innovative concepts
to obtain modular elements of
different longitudinal dimensions to serve in the develop-
ment of fuselages of different lengths, while reducing the
development costs.

(317) The project was listed in the first initiating decision as
project No 9. The Commission expressed doubts regarding
the classification of R & D activities and the incentive effect.

(318) On the R & D activities, the Italian authorities were able to
demonstrate that the project was aimed at transferring the
development of
the fuselage panels from Daewoo to
Aermacchi, and rethinking the entire project. The project
also concerned the use of composite materials.

(319) On the incentive effect, the Italian authorities provided
sufficient information on Aermacchis R & D activities to
show that the project involved activities that were new for
the company in terms of
scale and technology. As
mentioned above in connection with the DO328 Extended
the Italian authorities also provided
Capacity project,
information on the development of R & D spending by
Aermacchi.

(320) The eligible investment amounted to ITL 51 480 million.
Initial intensity at the moment the aid was granted was
42,30 % (below the 44 % maximum intensity allowable
under the 1996 Framework).

(321) This intensity was reached in 2006, when the cumulative
discounted intensity reached 42,51 %. This means that the
entire outstanding balance of ITL 54 454 million (com-
prising ITL 37 751 million planned for 2007 and ITL
16 703 million outstanding) has to be reimbursed, with
compound interest, which on 31 December 2007 totalled
ITL […] million.

(322) The Commission thus concludes that the aid given to
Aermacchi
for the DO328 project can be considered
compatible with the EC Treaty and the 1996 Framework,
since the doubts regarding the eligible R & D activities and
the incentive effect have been dispelled, on the condition
that Aermacchi
immediately reimburses the entire out-
standing balance of the debt with compound interest.

g)

ATR72 project carried out by Alenia

(323) A project for a regional jet to be conducted by Alenia (51)
was listed in the first initiating decision as project No 12.
On the basis of the information available at the time the
Commission did not express doubts regarding the project.
It became clear, however, that there were other projects
concerning the ATR72 (52) in respect of the eligible costs
incurred by the company in subsequent years. The final
conditions of the various measures to assist the ATR72
were laid down in the last granting decision.

(324) The project concerned the development of aero structures
jet developed by the ATR consortium,
for the regional
which is a 50 % joint venture between Alenia Aeronautica
and EADS.

(325) Overall, the eligible investment for the ATR72 amounted to
ITL 165 442 million. The maximum initial intensity was
49 %.

(326) However, the aid granted was above that level of intensity.
Reimbursements have taken place, but not completely and
not according to the schedule. Thus,
interest must be
charged from the point where the cumulative intensity
reached the maximum level of 49 % allowed by the 1986
Framework, that is to say beginning in 1998. Alenia must
immediately reimburse the outstanding balance of the loan,

(51) Initially Aeritalia, subsequently named Alenia Aerospazio.
(52) Granting decisions were adopted on 8.11.1988, 18.12.1990,

18.12.1991 and 21.12.1991.

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amounting to ITL 31 573 million. In addition, Alenia must
pay compound interest, which on 31 December 2007
totalled ITL […] million.

(327) On the basis of

the new information available,

the
Commission concludes that the projects concerning the
ATR72 carried out by Alenia can be considered compatible
with the EC Treaty and the 1986 Framework on the
condition that Alenia immediately reimburses the out-
standing principal with compound interest.

h) ATR42-500 project carried out by Alenia

(328) The project was carried out by Alenia, and concerned the
development of the latest version of the ATR42 regional
jet, an aircraft capable of transporting up to 50 passengers.
The project was not mentioned in the first
initiating
decision. Aid was granted in 1994.

(329) Overall, the eligible investment was ITL 35 997 million.
The initial intensity of the aid was 35,87 % (below the 49 %
maximum intensity allowable under the 1986 Framework).

(330) Since reimbursements have been slightly late, and the
actual calculation of the intensity brings it to 47,75 %, the
application of the methodology requires that the balance of
the debt be reimbursed immediately, comprising the
reimbursement already scheduled for 2007, amounting to
ITL 20 027 million, plus the remaining balance of ITL
17 961 million. Alenia must pay compound interest, which
for the period from 2003 until 31 December 2007 totalled
ITL […] million.

(331) The Commission concludes that the project concerning the
ATR42-500 carried out by Alenia can be considered
compatible with the EC Treaty and the 1986 Framework
on the condition that Alenia immediately reimburses the
outstanding principal with compound interest.

i) MD11 Lower Panels project carried out by Alenia

(332) The project,

concerned the
carried out by Alenia,
development and introduction of new processes and
concepts of automated development of aero structures, in
particular for the nose and the tail of the MD11. The
project was carried out in 1996-1997.

(333) The project was listed in the first initiating decision as
project No 7. The Commission expressed doubts regarding
the classification of R & D activities and the incentive effect.

(334) On the basis of the information supplied by the Italian
authorities,
the work
the Commission concludes that
packages in this project do constitute eligible R & D
and
activities, because
processes linked to prototypes.

to developments

they relate

(335) Concerning the incentive effect, the Italian authorities have
been able to show that the aid enabled Alenia to increase its
R & D spending to levels comparable with those typical of

the industry generally ([…]). Furthermore, the aid enabled
Alenia to carry out activities additional to its current ones.
Finally, according to Italy, the aid allowed a substantial
technological improvement in Alenias work, reducing the
need for re-working or re-engineering of panels, and
shortening assembly times.

(336) The intended investment amounted to ITL 69 711 million,
with an aid intensity of 30,32 %, which was below the
the 1986
35 % maximum intensity allowable under
Framework.

(337) However, the scope of the work actually done was much
more limited. The investment amounted to ITL 36 266 mil-
lion. The aid intensity was 15,65 %. The principal was fully
reimbursed in 2002.

(338) The Commission is therefore able to conclude that the aid
concerning the MD11 Lower Panels (MD11 LWR) project is
compatible with the EC Treaty and the 1996 Framework.

j)

Falcon 2000 project carried out by Alenia

(339) The project was carried out by Alenia, and concerned the
aero structure of the Dassault Falcon 2000 business jet.
Alenia worked on the rear fuselage, the engine nacelles and
engine support pylons, and the wing fairings.

(340) The project was not mentioned in the first

initiating

decision; it was carried out in the period 1991-1993.

(341) The eligible investment was ITL 30 520 million. The aid
intensity of the soft loan was 38,16 %, slightly above the
37,5 % maximum initial
intensity allowable under the
1986 Framework.

(342) Since this maximum intensity of 37,5 % was reached in
2006, Alenia must
immediately reimburse the entire
outstanding principal of ITL 11 605 million (ITL 5 725 mil-
lion due in 2007 plus the remaining ITL 5 880 million).
Furthermore, Alenia has to pay compound interest, which
on 31 December 2007 totalled ITL […] million.

(343) The Commission concludes that the support granted to
Alenia for the Falcon 2000 project can be considered
compatible with the EC Treaty and the 1986 Framework
on the condition that Alenia immediately reimburses the
entire outstanding principal with compound interest.

k) MD11 Winglet project carried out by Alenia

(344) This is a project carried out by Alenia, which concerned the
development of calculation methods, the development of
new materials characterised by high rigidity, and the
development of processes for advanced polymerisation for
aeronautical applications. The project also provided for the
application of these technologies to the development of a
structure that would reduce the turbulence generated by
the MD11's wingtips.

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(345) The project was listed in the first initiating decision as
project No 11. On the basis of the information available at
the time the Commission did not express any doubts
regarding the project. It became clear, however, that the
terms were not those that had been understood from the
information available.

(346) The project was carried out in the period from 1987 to
1989. The theoretical maximum intensity allowable for this
project under the 1986 Framework was 41 %. The eligible
investment was ITL 21 826 million.

(347) But the aid intensity of the loan paid out from 1990 was
48,63 %. The maximum intensity of 41 % was reached in
1995, at which point the debt should have been repaid, and
that is the date from which interest has to be charged. As a
to reimburse the outstanding ITL
result, Alenia has
4 236 million, and to pay compound interest which on
31 December 2007 totalled ITL […] million.

(348) The Commission concludes that the MD11 Winglet project
can be considered compatible with the R & D framework
on the condition that Alenia immediately reimburses the
outstanding principal with compound interest.

(354) This intensity will be reached in 2009. As a consequence,
Alenia has to reimburse the entire outstanding amount of
the loan (ITL 96 701 million) at the end of 2008

(355) The Commission takes the view that the doubts concerning
the R & D activities and the incentive effect of the aid to the
MD95 have been dispelled. The Commission concludes
that the aid to the MD95 can be considered compatible
with the EC Treaty and the 1996 Framework on the
condition that Alenia fully reimburses the entire out-
standing amount of the loan at the end of 2008.

m)

Falcon 2000 project carried out by Piaggio

(356) This is a project carried out by Piaggio, which related to the
Falcon 2000 (53). Piaggio worked in parallel with Alenia on
the project, but on distinct work packages. Piaggio worked
especially on the structural analysis (linear and non-linear),
the analysis of the damage tolerance of the structure, and
the structural analysis of specific events (bird impact,
crashworthiness and ditching).

(357) The project, which was not mentioned in the first initiating
decision, was carried out in the period from 1991 to 1993.

l) MD95 project carried out by Alenia

(349) This is a project carried out by Alenia which concerned the
development and introduction of new processes and
concepts for the automated development of
large aero
structures. The project also provided for the validation of
processes and concepts developed in the factory in Nola (in
the Region of Campania).

(358) The eligible investment was ITL 31 038 million. The aid
intensity was initially set under the terms of the soft loan at
37,75 %,
than the 38 % maximum intensity
allowable under the 1986 Framework.

lower

(359) Taking account of a different reimbursement schedule, the
intensity of the aid has been 33,23 %. According to the
schedule, Piaggio can reimburse until 2009.

(350) Work on the project was carried out in the period from
1996 to 1999. The project was listed in the first initiating
decision as project No 5. The Commission expressed
doubts regarding the classification of R & D activities and
the incentive effect.

(360) The Commission concludes that the Falcon 2000 project
carried out by Piaggio is compatible with the EC Treaty and
the 1986 Framework provided that the reimbursement
schedule is adhered to.

(351) On the R & D activities, the Italian authorities demon-
strated that Alenia had invested in new software and
calculation methods to be applied to the prototypes. The
activities further involved the comparative use of structural
solutions for fuselage components and the study of new
systems to protect fuselage components from corrosion.

(361) This is a project carried out by Avio on the GE90, an
engine developed by General Electric. Avio was responsible
for 7 % of the engine, a share of the work larger than for
previous engines. More specifically, Avio was in charge of
the development of large parts of the low pressure turbine.

n)

GE90 B project carried out by Avio

(352) On the incentive effect, the Italian authorities were able to
demonstrate that
together with the work
this project,
carried out on the MD11 (see the MD11LWR project),
enabled Alenia
the
development of fuselages. Furthermore, the aid enabled
Alenia to increase its R & D spending.

to develop new knowledge of

(353) The eligible investment costs for this project were ITL
149 629 million, and the maximum aid intensity allowable
under the 1996 Framework was 38 %.

(362) The project was not mentioned in the first

initiating
decision; it was carried out in the period from 1991 to
1993.

(363) The eligible investment was ITL 35 674 million. On the
basis of the R & D activities carried out, the maximum
intensity allowable under
the 1986 Framework was
32,5 %.

(53) See the description of the Alenia Falcon 2000 project above.

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(364) However, from the outset the soft loan provided for an
intensity higher than this maximum. From the point where
the cumulative intensity reached the permissible maximum,
therefore, the outstanding principal has to be reimbursed,
and interest has to be charged. In this case the initial
intensity was reached in 2005. The outstanding balance to
be reimbursed immediately by Avio is ITL 40 939 million
(ITL 4 688 million due for 2007 plus the outstanding ITL
36 251 million). On 31 December 2007 the interest
immediately payable by Avio totalled ITL […] million.

(365) The Commission therefore concludes that the aid given to
Avio for the GE90 B project can be considered compatible
with the EC Treaty and the 1986 Framework on the
condition that Avio immediately reimburses the out-
standing principal with compound interest.

(373) The eligible cost was ITL 30 688 million. The maximum
initial aid intensity allowable under the 1996 Framework
was 36 %. The aid paid out to Avio and the reimbursement
schedule give an intensity of 33,88 %. Avio will reimburse
the aid in accordance with the schedule up to the year
2013.

(374) The Commission concludes that the aid granted to Avio for
the project concerning the low pressure turbine of the
PW308 is compatible with the EC Treaty and the 1996
Framework provided that the reimbursement schedule is
adhered to.

q)

Pressurised Cabins project carried out by Alenia

o)

GE90 Growth project carried out by Avio

(375) This is a project carried out by Alenia which concerned

pressurised cabins for large civil aircraft.

(366) This is a project carried out by Avio which concerned an
upgraded version of the GE90 engine developed by General
three
Electric. The GE90 Growth project consisted of
different engines intended to equip Boeing and Airbus
aircraft for flight over the Pacific. Once again Avio was
responsible for 7 % of the programme. Here too Avio was
in charge of developing large parts of the low pressure
turbine.

(367) The project was not mentioned in the first

initiating
decision; it was carried out in the period from 1996 to
1997.

(368) The eligible investment was ITL 46 434 million. On the
basis of the R & D activities carried out, the maximum
intensity allowable under
the 1996 Framework was
36,25 %.

(369) That intensity was reached in 2006. From that date Avio
has to repay to the State the entire outstanding balance of
ITL 47 064 million (comprising ITL 2 123 million origin-
ally to be reimbursed in 2007 plus the entire balance of ITL
44 941 million) and to pay compound interest.

(370) The Commission concludes that the aid given to Avio for
the GE90 Growth project can be considered compatible
with the EC Treaty and the 1996 Framework on the
condition that Avio immediately reimburses the entire
outstanding loan with compound interest.

p)

LPT PW308 project carried out by Avio

(376) The project was listed in the first initiating decision as
project No 1. On the basis of the information available at
that time, the Commission took the view that it was not
subject to individual notification to the Commission, and
thus fell outside the scope of the decision.

(377) Subsequently,

it emerged that

the amount of eligible
investment planned at the moment of granting and the
amount of aid actually granted were such that the project
should have been notified individually to the Commission.

(378) The project was carried out in the period from 1999 to
2001. The aid was granted on the basis of expected eligible
costs of
intensity
ITL 67 758 million, with an initial
calculated by the Italian authorities at 25,74 % (below the
maximum intensity allowable under the 1996 Framework).

(379) However, the actual disbursements of aid and the eligible
costs were lower than initially planned; the costs were ITL
27 122 million. The aid will nevertheless reach the initial
intensity of 25,74 % in 2008. In 2008, therefore, Alenia
will have to reimburse the outstanding principal, worth ITL
29 244 million.

(380) The Commission concludes that the aid granted to Alenia
for the project concerning pressurised cabins is compatible
with the EC Treaty and the 1996 Framework on the
condition that Alenia reimburses the entire outstanding
loan in 2008.

(371) This project was carried out by Avio, and concerned the
low pressure turbine of a Pratt & Whitney engine (PW308)
for a large business jet (and small regional jets).

Summary of the projects

(372) The project, which was not mentioned in the first initiating
decision, was carried out in the period from 1997 to 1998.

(381) The following table presents the impact on each project of
the methodology adopted, with figures rounded in euro at
an exchange rate of ITL 1 936 per euro.

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Table 5

14.6.

Terms of reimbursement

List of projects and amounts involved

Project

Company

Reimbursement

A109 D/E/F

Agusta

Balance to be reimbursed immedi-
ately (EUR 14 million) with com-
pound interest

A109 X

Agusta

Schedule to be adhered to until full
reimbursement in 2018

A119 Koala

Agusta

Schedule to be adhered to until full
reimbursement in 2009

DO328

Aermacchi

Balance to be reimbursed immedi-
ately (EUR 17 571 million) with
compound interest

DO328
Extended
Capacity

DO328
Panels

Aermacchi

Schedule to be adhered to until full
reimbursement in 2010

Aermacchi

Balance to be reimbursed immedi-
ately (EUR 28 127 million) with
compound interest

ATR72

Alenia

ATR42-500

Alenia

Balance to be reimbursed immedi-
ately (EUR 16 308 million) with
compound interest

Balance to be reimbursed immedi-
ately (EUR 19 621 million) with
compound interest

MD11
Lower Panels

Alenia

Loan fully reimbursed

Falcon 2000

Alenia

Balance to be reimbursed immedi-
ately (EUR 5 994 million) with com-
pound interest

MD11
Winglet

Alenia

Balance to be reimbursed immedi-
ately (EUR 2 188 million) with com-
pound interest

MD95

Alenia

Schedule to be adhered to until full
reimbursement in 2008

GE90 B

Avio

Balance to be reimbursed immedi-
ately (EUR 21 146 million) with
compound interest

GE90
Growth

Avio

Balance to be reimbursed immedi-
ately (EUR 24 309 million) with
compound interest

LPT PW308

Avio

Schedule to be adhered to until full
reimbursement in 2013

Falcon 2000

Piaggio

Schedule to be adhered to until full
reimbursement in 2009

Cabins

Alcatel Ale-
nia

Balance to be reimbursed immedi-
ately (EUR 15 105 million)

(382) As indicated, for most of the projects that Italy failed to
notify it has been necessary to adjust the reimbursement
schedules. In many cases, the outstanding loan has to be
repaid immediately. In some of these cases the recipients
have to pay interest, calculated from the year when the
maximum allowable intensity was reached. In other cases,
the reimbursement of
the outstanding debt will be
advanced ahead of the schedule originally set out in the
granting decisions.

(383) The reimbursement schedule for each of

the above-
mentioned projects has been arrived at jointly by the
Commission and the Italian authorities. In their letter of
31 July 2007 the Italian authorities undertook to ensure
that the schedules for the reimbursement of the projects
would be adhered to.

two months. That period for repayment

(384) Where it is indicated that the recipients must reimburse
immediately, this should be understood to mean within a
period of
is
justified by the fact that some components of the aid may
have become partially incompatible because the intensity of
the aid provided was higher than the maximum intensity
allowable (i.e. either the intensity allowed under the R & D
frameworks or the intensity set at the time the aid was
granted) (54). Compound interest is to be charged from the
year in which the maximum intensity was reached,
in
accordance with Commission Regulation (EC) No 794/
2004 of 21 April 2004 implementing Council Regulation
(EC) No 659/1999 laying down detailed rules for the
application of Article 93 of the EC Treaty (55).

(385) The Italian authorities have acknowledged that some
projects contained elements of unlawful and incompatible
aid. They have agreed to the conditions attached to the
present decision to eliminate the distortion of competition
by means of effective and immediate recovery of the aid.

(386) The Italian authorities have undertaken to comply with the
conditions for the monitoring of all reimbursements of
report on the
compatible aid by sending an annual
payments
certified by
received from the
auditors.

recipients,

(387) This will enable the Commission to monitor compliance
with the conditions
the projects. The
monitoring does not impose any additional burden, but
merely seeks to ensure that the conditions imposed by this
Decision and accepted by Italy are complied with.

for each of

(388) The Italian authorities have informed the Commission of
Decree-law No 159/07 (56), which reallocates the sums that
Finmeccanica has to pay on the basis of this Decision
pending a payment that is to be made by ENEA, a public

(54) As explained above with regard to the methodology applied in this
case: see the section on the 14.4.2. Nature of the aid instrument,
paragraphs 0 to 0.

(55) OJ L 140, 30.4.2004, p. 1.
(56) Decree-law No 159 of 1 October 2007, converted into statute, with
amendments, by Law No 222 of 29 November 2007, published
Gazzetta Ufficiale, No 279, 30.11.2007.

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body operating in the energy sector, under a settlement
with Finmeccanica, following a decision by the Court of
Appeal in Rome.

(389) The Commission does not need to assess here whether the
arrangements
in Decree-law No 159/07 involve the
granting of new state aid in order to reimburse the
unlawful aid referred to in this Decision. Those arrange-
ments are outside the scope of the present proceedings.
This Decision consequently does not prejudice any further
investigation that the Commission may decide to undertake
into the arrangements made in Decree-law No 159/07.

(390) The Commission recalls that the case-law of the Court of
Justice is clear: it was recently summarised in the opinion
of Advocate-General Geelhoed (57) in the Lucchini case (58).
In that case the Court had to give a preliminary ruling on
the question whether a judgment of a national court could
prevent the exercise by the Commission of its exclusive
power to verify the compatibility of state aid with the single
market, and if necessary to order its recovery.

(391) It follows that a state has an obligation to respect the
primacy of Community law, and the exclusive power of the
Commission to determine the compatibility or otherwise of
state aid. A national decision concerning aid (be it a
Decree-law or a court
replace the
procedure laid down for the valid granting of aid, which
is concluded only when the Commission grants
its
authorisation.

judgment) cannot

14.7.

Conclusion of the assessment of the

individual projects

(392) As described in paragraphs 0-0, the methodology adopted
ensures that the aid granted to a project does not exceed
maximum aid intensity allowed by the applicable R & D
frameworks. When assessing aid to large R & D projects,
the intensity of the aid — its proportionality — is one of
the main factors the Commission takes into account.

(393) The Commission has also verified whether the initial
maximum intensity was adhered to. If a soft loan, because
of the way it is disbursed or reimbursed, reaches an aid
intensity above the level set at the moment of granting, the
aid beyond that initial intensity has to be considered new
aid. Since this new aid is in all likelihood granted after the
project has been terminated, and in any event only as a
consequence of late payment, it has no incentive effect on
the recipient. Thus it is not compatible under any of the
R & D frameworks. If the reimbursement schedules are
adjusted to ensure that the maximum allowable intensity is
adhered to,
these projects can be
considered compatible.

then the aid for

(394) The Commission further notes that it is a regular feature of
the aeronautical
industry that projects have a long
duration, and that reimbursements take place over periods
that can even exceed fifteen years, bearing in mind among
other things that projects often show a return only in the
long term. In the present case, aid payments have often
been spread over
several years, with reimbursement
starting only after the end of the last payment and lasting
more than ten years. Overall the average duration of the
projects, calculated from the beginning until final reim-
bursement, is around eighteen years.

(395) For the 17 projects referred to above, the Commission can
conclude that the aid intensity corrected in accordance with
the methodology adopted satisfies the requirements of the
successive R & D frameworks.

(396) This conclusion has been reached on the basis of the
information available and in view of the measures very
long duration.

(397) For the six projects regarding which it expressed doubts in
the first initiating decision, the Commission has estab-
lished, taking into account the long time that has elapsed
since these projects were carried out, that the classification
of the R & D activities was correct and was in line with the
Commissions practice.

(398) Finally, the Commission has also established that the six

projects had an incentive effect.

15.

THE TWO HELICOPTERS DESCRIBED AS

MILITARY HELICOPTERS

(399) As Italy explained in its reply of October 2005, the scheme
has also been used to fund military R & D. In the first
initiating decision it was accepted that one project was to
be considered military, and thus fell within the scope of
Article 296 of the Treaty.

(400) The Italian authorities have provided some information on
the two helicopters referred to in the second initiating
decision.

(401) The anonymous third party submitted comments on both

helicopters.

(57) Opinion of Advocate-General Geelhoed in Case C-119/05 Ministero
dell'Industria, del Commercio e dell'Artigianato v Lucchini SpA, formerly
Lucchini Siderurgica SpA.

(58) Judgment in Case C-119/05 Ministero dell'Industria, del Commercio e
dell'Artigianato v Lucchini SpA, formerly Lucchini Siderurgica SpA, not
yet reported.

(402) In summary, Italy explained the development of the A139
helicopter, and of the number assigned to it, saying that the
civilian AW139 helicopter had been developed by Agusta
with a number of partners without receiving any state
support.

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(403) But Italy stated that Agusta had indeed received assistance
to develop a military helicopter, the […], which was in its
final phase of development.

activities, and that the aid had an incentive effect on the
recipients.

(404) The anonymous third party indicated that in its view the

A139 was an entirely civilian helicopter.

(405) On the BA609, Italy said that Agustas involvement in the
project was targeted at developing a tilt-rotor for military
use.

(406) The anonymous third party said, however, that all the
information publicly available on the project indicated that
the BA609 was a helicopter intended for civilian use.

(407) On the basis of the information available, the Commission
cannot reach a conclusion on these two projects. It reserves
the right to put further questions to Italy in order to clarify
certain aspects of the projects before taking a final decision.
The two projects are consequently outside the scope of the
present decision, and will be the subject of a separate
decision.

(408) In any event, however, the fact that an item of equipment is
military in its nature and purpose is not by itself sufficient
for an exemption from the Community rules on the basis
of Article 296 of the EC Treaty. The measure must also be
necessary for the protection of the essential interests of a
Member States security. According to the case-law of the
Court of Justice, Article 296 must be interpreted strictly,
and confined to exceptional, clearly defined cases. More-
over, the burden of proving that the tests for exemption are
satisfied rests on the Member State.

16.

CONCLUSION

(409) Taking account of all

the factors set out above,

the
Commission has decided to close the proceedings under
Article 88(2) of the EC Treaty with respect to the 17
individual R & D projects which Italy failed to notify and
which were consequently granted unlawfully.

(410) Individual aid within the meaning of Article 1(e) of the
Procedural Regulation which was notifiable, but was not
notified, constitutes unlawful aid within the meaning of
the Procedural Regulation. Since this
Article 1(f) of
Decision concerns unlawful aid, it will be adopted on the
basis of Article 13 of the Procedural Regulation.

(411) Article 13 states that in the case of decisions to initiate the
formal
investigation procedure, proceedings are to be
closed by means of a decision pursuant to Article 7. The
present Decision is adopted under Article 7(4) of
the
Procedural Regulation with respect to all the individual
projects referred to above, subject to the conditions of
reimbursement indicated for each of the projects.

(412) With regard to the doubts expressed in the first initiating
the Commission
the work packages constituted R & D

decision in respect of
concludes that

six projects,

(413) The Commission can conclude that the aid instrument used
throughout the application of the scheme has been a soft
loan with an interest rate of zero. In the operation of the
loan mechanism, however, the initial conditions have in
several cases not been complied with, and the recipients
have been allowed more generous terms.

(414) The Commission and the Italian authorities have been able
to define a methodology to correct excessive initial
intensities and insufficiently rigorous application of the
aid mechanism.

(415) The Commission has received from the Italian authorities a
list of non-notified projects, with a reimbursement
schedule calculated using this methodology for each
project.

(416) The Italian authorities have undertaken to adhere to the
reimbursement schedule for each of the projects referred
to.

(417) The Italian authorities have undertaken to comply with the
monitoring conditions indicated, that is say to ensure that
the immediate reimbursements are made within two
months from this decision, and that
the Commission
receives detailed yearly reporting on future reimburse-
ments.

(418) The list of projects is without prejudice to any case in which
the Commission may become aware of a project or may
receive further information on any project.

(419) The Commission cannot reach a conclusion, however, on
the two projects regarding whose military character it
expressed doubts in the second initiating decision. The
Commission reserves the right to ask Italy for further
information on these projects with a view to a decision in
the near future,

HAS ADOPTED THIS DECISION:

Article 1

The individual aid to the R & D projects in the aeronautical
industry listed in paragraph 2 which was granted by Italy under
Article 3(a) of the Italian Law of 24 December 1985, No 808, is
compatible with the common market
in accordance with
Article 87(3) of the EC Treaty, subject to compliance with the
conditions set out in Articles 2 and 3.

The projects concerned are the following:

(a)

(b)

aid to Augusta: the A109 D/E/F, A109 X, and A119 Koala
projects;

aid to Aermacchi: the DO328, DO328 Extended Capacity
and DO328 Panels projects;

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(c)

aid to Alenia: the ATR72, ATR42 500, MD11 LWRP J/S,
Falcon 2000, MD11 Winglet, MD95 and Pressurised
Cabins projects;

(d)

aid to Avio: the GE90 B, GE90 Growth and LPT PW308
projects; and

(v)

(vi)

for the MD95 project, the reimbursement schedule is
to be adhered to until full reimbursement of the loan
by 31 December 2008;

for the Pressurised Cabins project, the outstanding
principal
to be reimbursed immediately, with
compound interest;

is

(f)

aid to Piaggio: the Falcon 2000 project.

(d)

aid to Avio

Article 2

For the following projects and recipients the Italian Republic
shall ensure that the following conditions are met:

(i)

(ii)

(a)

aid to Augusta

for the GE90 B project, the outstanding principal is to
be reimbursed immediately, with compound interest;

the GE90 Growth project,

the outstanding
to be reimbursed immediately, with

for
principal
compound interest;

is

for the A109 D/E/F project, the outstanding principal
is to be reimbursed immediately, with compound
interest;

(iii)

the LPT PW308 project,

for
the reimbursement
schedule is to be adhered to until full reimbursement
of the loan by 31 December 2013;

for the A109 X project, the reimbursement schedule is
to be adhered to until full reimbursement of the loan
by 31 December 2018;

(iii) For

the A119 Koala project,

the reimbursement
schedule is to be adhered to until full reimbursement
of the loan by 31 December 2009;

(b)

aid to Aermacchi

(i)

(ii)

(iii)

for the DO328 project, the outstanding principal is to
be reimbursed immediately;

for
the
the DO328 Extended Capacity project,
reimbursement schedule is to be adhered to until full
reimbursement of the loan by 31 December 2009;

the DO328 Panels project,

the outstanding
to be reimbursed immediately, with

for
principal
compound interest;

is

(c)

aid to Alenia

for the ATR72 project, the outstanding principal is to
be reimbursed immediately, with compound interest;

for the ATR42-500 project, the outstanding principal
is to be reimbursed immediately, with compound
interest;

(e)

aid to Piaggio

(i)

the Falcon 2000 project,

for
the reimbursement
schedule is to be adhered to until full reimbursement
of the loan by 31 December 2013.

Article 3

Immediate reimbursement must

1.
take place within two
months of this Decision, in accordance with the procedures of
they allow the immediate and
law, provided that
national
effective enforcement of the Decision.

In the cases of

2.
the interest
applied shall be calculated on a compound basis in accordance
with Regulation (EC) No 794/2004.

immediate reimbursement

3. Within two months of notification of this Decision, the
Italian Republic shall provide the following information to the
Commission:

(a)

the total amount reimbursed by the recipients;

(b)

a detailed description of the measures taken and to be taken
to comply with this Decision;

(c)

documents demonstrating that aid has been reimbursed.

for the Falcon 2000 project, the outstanding principal
is to be reimbursed immediately, with compound
interest;

4. The Italian Republic shall keep the Commission informed of
the progress of the national measures taken to implement this
Decision until reimbursement of the aid referred to in Article 2
has been completed.

the MD11 Winglet project,

the outstanding
to be reimbursed immediately, with

for
principal
compound interest;

is

If so requested by the Commission it shall immediately provide
information on the measures already taken and to be taken to
comply with this Decision.

(i)

(ii)

i)

(ii)

(iii)

(iv)

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It shall also provide detailed information concerning the amount
of aid reimbursed and interest paid by the recipients.

Article 4

This Decision is addressed to the Italian Republic.

5.
In those cases where reimbursement schedules continue
beyond 2008, Italy shall supply to the Commission an annual
report on the payments received by the recipients, certified by
auditors.

Done at Brussels, 11 March 2008.

For the Commission

Neelie KROES

Member of the Commission