REPLIES OF THE COMMISSION TO THE SPECIAL REPORT OF THE EUROPEAN COURT OF AUDITORS "EU-FUNDED AIRPORT INFRASTRUCTURES: POOR VALUE FOR MONEY"
Date: 2014-12-12
Institutions: European Commission
Subjects: EU investment, European Court of Auditors, airport, audit, fund (EU), investment project, profitability













EUR-Lex - 52014DC0747 - EN











|



52014DC0747

REPLIES OF THE COMMISSION TO THE SPECIAL REPORT OF THE EUROPEAN COURT OF AUDITORS "EU-FUNDED AIRPORT INFRASTRUCTURES: POOR VALUE FOR MONEY" /* COM/2014/0747 final */









REPLIES OF THE
COMMISSION TO THE SPECIAL REPORT OF THE EUROPEAN COURT OF AUDITORS
"EU-FUNDED
AIRPORT INFRASTRUCTURES: POOR VALUE FOR MONEY"

Executive summary

III. The Commission
acknowledges the Court's conclusions for the audited projects of the 2000-2006
and 2007-2013 periods and accepts that in these programming periods support
from cohesion funding for airport infrastructure did not in certain cases
represent an effective use of EU funds. It wishes to underline that lessons
have already been learned from this experience, and as a result there is a
radically different approach in the legislation for the programming period
2014-2020.
The new regulatory framework has
been made stricter when it comes to investing in airport infrastructures,
limiting the possible options to improving the environmental performance or
safety features of the infrastructures. On top of
that, the Commission services are following a more limited line in the
negotiations, focusing in particular on airports belonging to the core TEN-T
network.
As far as strategic planning is
concerned, the new framework requires the existence of transport plans at
regional or national level as a specific ex ante conditionality, which set out
a comprehensive transport strategy per sector, the contribution to the
completion of the TEN-T and which include a list of projects to be implemented
( a "mature and realistic project pipeline"). The Commission
takes these plans fully into account before approving any operational programme
which provides for investments in the transport sector. 
Concerning major projects, the
Commission has adopted delegated and implementing acts that will define the
quality review process and the quality elements of the CBA to be respected by
all major projects, such as the main benefits and costs by sector, list of
risks to be considered, precise reference periods by sector etc. In addition,
CBA guidance will be soon issued including practical recommendations for
specific sectors and case studies to allow the beneficiaries to modulate their
projects towards the best EU added value.
All major projects will have to
go through a quality review, either by the Commission or by independent experts
(Jaspers or other entities nominated by Member States and agreed by the
Commission) before approval by the Commission. 
IV. The Commission notes that
regional airports may often serve communication purposes for a region or
community and the public authorities may wish to maintain their functioning for
other than simply financial reasons. That is why public transport
infrastructures which are not profitable and require state support are kept in
functioning.
The fact that the Commission does
not have full detailed knowledge of all EU-funded projects throughout the EU
and throughout sectors does not mean that it fails to fulfil its regulatory
supervisory role. On the contrary, the Commission exercises its supervisory
role – often beyond its regulatory prerogatives – through annual reporting and
monitoring also at project-by-project level if needed, ad hoc treatment of
problematic issues and specific audits. What is more, the Commission has in the
past refused co-financing to regional airports for which the business case was
not evident and which did not seem justified from the cohesion point of view.
The Commission also notes that
Cohesion Fund projects were directly approved by it in the 2000-2006 period,
while in the 2007-2013 period they were included in the programmes and approved
individually only if they were major projects. The Commission took steps in
2007-2013 period to improve the assessment of major projects, through the
establishment of the Jaspers initiative, which provides technical assistance to
Member States, the preparation of a comprehensive CBA guide and the use of
outside expertise if needed. 
In the 2007-2013 period, the
Commission received 17 major projects applications for airports. During the
appraisal, the Commission pays significant attention to the issue of overall
cost of the project, their benefits and added value for the society. This
resulted in specific cases such as the reduction of scope of projects (e.g. Iasi airport and Wroclaw airport) or the inclusion of conditions in the approval decision
(for Gdansk airport due to construction plans for adjacent airport in Gdynia). The Commission always carefully verified the demand analysis. In some cases, the
Commission urged national authorities to abandon projects (e.g. airports in Kielce, and in Bialystok) due to insufficient demand and the Commission’s concerns linked
with the financial sustainability of those airports.
V.
(i) The Commission accepts the
recommendation and will implement it during the negotiations on operational
programmes for the period 2014-2020. The approach of the Commission's services in
the negotiations is that EU funding to airport infrastructure is focused in
particular to airports belonging to the core TEN-T network. The Commission also
requires that the Comprehensive Transport Master Plans should serve as a basis
for the choice of transport investment priorities. All investments should
contribute to delivering the objectives for the priority axis concerned and
investments in any airport would in particular need to be subject to a prior
detailed assessment of economic viability and competition (e.g. whether private
operators could finance the investment). Finally, investments should be
underpinned by plausible results of the required feasibility study and a
positive Cost Benefit Analysis.
(ii) The Commission agrees with
the importance of coherent airport strategic planning as a means to avoid
misplaced capacity in the future.
The
Commission agrees with the recommendation which is addressed to the Member
States (coherent regional, national and where appropriate and possible
supranational plans for airport development). On its side, it will verify the
implementation during the negotiations on operational programmes for the period
2014-2020 through the assessment of transport plans in the framework of the
fulfilment of ex ante conditionalities. See also reply to §§68-71.
At another level, the Commission
will intensify the monitoring and assessment of the ability of the EU air
transport market to meet future challenges and opportunities.

Introduction

1. The latest
Eurocontrol Challenges of Growth 2013 study confirms and reiterates the
capacity challenge identified in previous studies.
In the most-likely (capacity
constrained) scenario, there will be 50% more flights in 2035 than in 2012.
Nearly two million flights will not be accommodated (12% of total demand for travel)
because of reduced airport expansion plans. That is equivalent to an estimated
120 million passengers unable to make their return flights (in total, 240
million passengers per year).
In addition, by 2035, more than
20 airports will be running at or close to capacity, compared to just three in
2012 (hotspots - including airports in Spain and Greece).
This study shows that misplaced
capacity is an issue for further discussion and that based on the recently
reported airport expansion plans, capacity shortages will occur in Europe in the next 20 years.
Source: Challenges of Growth 2013
study, available at https://www.eurocontrol.int/articles/challenges-growth
6.
In its 2011 White Paper on Transport Policy, the Commission considered
congestion as a major concern. It went on affirming that "airport capacity
needs to be optimised and, where necessary, increased to face growing demand
for travel". [Insert footnote: The 2011 White Paper Road Map to a Single
European Transport Area (§28), available at http://eur-lex.europa.eu/legal-content/EN/ALL/;ELX_SESSIONID=HjP8JnxMmKkbg0nMHrxTqR3DX1042Lqfy2gdgLbQLf5rnTVZwSq6!1996567712?uri=CELEX:52011DC0144]
In its subsequent 2011
Communication accompanying the Airport package, the Commission confirmed that
congestion at airports is an issue for Europe. Besides, if capacity on the
ground is lacking, the success of the Single European Sky project as a whole
will be threatened. At the same time, Europe's aviation sector faces increased
competition and a shift in the global aviation market towards regions such as
Asia Pacific, the Middle East and Latin America, which threaten Europe's privileged position as a crossroad of the global aviation network and the benefits
in terms of connectivity that this position provides. [Insert footnote: 2011
Communication on Airport policy in the EU, available at http://ec.europa.eu/transport/modes/air/airports/index_en.htm]

Audit
scope and approach

21.
First alinea: While
air transport picked up in EU27 since 2010 the Commission considers that there
has been no general recovery in the air transport in the years 2007-2013. The
average EU-wide figures alone cannot reflect the different developments in air
transport in different Member States which vary considerably from each other.
In 2010, 21 Member States faced an increase and 6 a decrease in passenger
volumes; in 2011, 25 an increase and 2 a decrease; in 2012, 18 an increase and
9 a decrease; in 2013, 21 an increase, 6 a decrease. The fluctuation between
increase and decrease during the last few years was significant in Spain, Italy and Greece – the economic woes of all three being well documented..  Eurostat data for
2013 confirm that air passenger numbers have not reached the pre-crisis level
for Greece and Spain.  
Second alinea: The
Commission considers that there is no clear trend in air passenger transport
development in the audited Member States. For the years 2007-2013, air
transport in Greece decreased by 3,3% and in Spain by 3,5%. In Spain, air passenger transport decreased in 2008, 2009, 2012 and 2013, in Greece it decreased in
2008, 2009, 2010 and 2012 and in Italy, it decreased in 2008, 2009, 2012 and
2013. 
Third alinea: The
Commission notes that the economy of EU-27 is either in stagnation or in
recession since 2007, with the only exception of 2010 and 2011. Some of the
audited Member States experience dramatic GDP drops: Greece is in its sixth
consecutive year of recession, Italy and Spain were in recession in four out of
six years. Therefore, the Commission considers that the crisis has a serious
and continuous impact in air transport.

Observations

Common
reply to §§ 28 and 30.
Airports are infrastructures
which have a long lifetime. The Commission considers that the utilisation rate
of the airport should be verified over the lifetime of the investments made in
order to assess whether they have reached fully their operational usage. In
addition, building airport infrastructure in phases to keep close or just above
the benchmark, while ideal, would in practice mean that works would have to be
constantly carried out in the airport, requiring particular arrangements and
disturbance in the functioning and services offered by the airport.
37. The Commission considers it
difficult to identify a trend in passenger traffic figures for the years
2007-2013, on which the Court bases itself for the re-calculation of the cost
per additional passenger. The Commission therefore considers that an assessment
on the basis of milestones and mid-term reviews would provide a suitable basis
for the assessment of cost effectiveness of projects.  See also the
Commission's reply to § 21.
Common reply to §§ 40 to 43.
For the purposes of assessing
major projects in cohesion policy, financial sustainability is understood by
the Commission as the capacity of a project to generate enough revenues to
cover the operating costs in every year of its operation, and not the
capacity to generate profits. Though indeed EU support should ideally be
provided to profitable infrastructures, it happens that some transport
infrastructures are loss-generating, despite the existence of revenues and in
such cases the decision to provide EU support is based on whether the project
is socio-economically desirable (i.e. brings more benefits than costs).
45. Regional airports
may serve communication purposes for a region or community and the public
authorities may wish to maintain their functioning for other than simply
financial reasons. That is why public transport infrastructures which are not
profitable and require state support are kept in functioning.
50. Air passenger transport in Spain decreased between
2007 and 2013 by some 3,5% and in Greece by 3,3% . The Commission considers
that the audited airports followed this trend and noted also a decrease in
traffic, which follows the course of the Spanish and Greek economies, which is
in recession almost without interruption since 2007. 
See also the Commission's reply
to § 21.
Common Commission reply to
paragraphs 53 to 55
The definition used by the
Commission for issuing state aid decisions is that "catchment area of an
airport in general means a geographic market boundary that is normally set at
around 100 kilometres or around 60 minutes travelling time by car, bus, train
or high-speed train. However, the catchment area of a given airport may be
different and needs to take into account the specificities of each particular
airport. The size and shape of the catchment area varies from airport to
airport, and depends on various characteristics of the airport, including its
business model, location and the destinations it serves." The 100km
threshold (200km if a high-speed railway line exists) is equally defined in
article 24 of the TEN-T Regulation setting out the criteria for air transport
infrastructure components. As mentioned by the Court, in a recent study of the
Commission's services on accessibility to passenger flights in Europe, the Commission's services drew conclusions on the basis of a catchment area of 90
minutes travel time to the airports. The Commission considers that the
catchments areas should also take into account other elements such as business
model of the airport, number and type of destinations served, availability of
airport capacity at other airports, public transport links, time-sensitive
travellers, whether the airport mainly serves the residents or visitors coming
to the area.
Regional airports often do not
serve the same destinations with the same frequency as their neighbouring
airports and even more so as the main airport in the Member State. 
Common reply to §§ 61
to 63.
As far as strategic planning is
concerned, a radical reform has been put in place for the 2014-2020 period,
whereby the legal framework provides for the fulfilment of specific ex ante
conditionalities in the transport sector, which require the existence of a
specific comprehensive transport plan or framework at national or regional
level prior to approval of support to operational programmes. The transport
plan is to set out the contribution to the Single European Transport Area, the
core and comprehensive TEN-T where investment from the ERDF and the CF will be
made, as well as a realistic and mature project pipeline for implementation by
the operational programmes.
Operational programmes include an
analysis of the situation and specific needs at the time of programming and a
link with the interventions planned. As such the Commission considers them as
planning documents for the purposes of EU co-financed interventions.
Common reply to §§ 66 and 67:
Under the system of shared
management powers are shared between the Commission and the Member States, the latter being responsible for the day-to-day management and the former being
responsible for the monitoring and overview at programme and not at project
level. This means that the Commission is not supposed to and cannot base its
implementation and monitoring compliance activity by reference to detailed
information on every single project, given that thousands of projects are
co-financed every year through cohesion policy. 

Conclusions and recommendations

Common reply for §§ 68 to 71.
The Commission acknowledges the
Court's conclusions for the audited projects of the 2000-2006 and 2007-2013
periods and accepts that in these programme periods support from cohesion
funding for airport infrastructure did not in certain cases represent an
effective use of EU funds. It wishes to underline that lessons have already
been learned from this experience, and as a result there is a radically
different approach in the legislation for the programme period 2014-2020.
The new regulatory framework has
been made stricter when it comes to investing in airport infrastructures,
limiting the possible options to improving the environmental performance or
safety features of the infrastructures. On top of that, the Commission services
are following a more limited line in the negotiations, focusing in particular
on airports belonging to the core TEN-T network.
As far as strategic planning is
concerned, the new framework requires the existence of transport plans at
regional or national level as a specific ex ante conditionality, which set out
a comprehensive transport strategy per sector, the contribution to the
completion of the TEN-T and which include a list of projects to be implemented
( a "mature and realistic project pipeline"). The Commission
takes these plans fully into account before approving any operational programme
which provides for investments in the transport sector. 
Concerning major projects, the
Commission has adopted delegated and implementing acts that will define the
quality review process and the quality elements of the CBA to be respected by
all major projects, such as the main benefits and costs by sector, list of
risks to be considered, precise reference periods by sector etc. In addition,
CBA guidance will be soon issued including practical recommendations for
specific sectors and case studies to allow the beneficiaries to modulate their
projects towards the best EU added value.
All major projects will have to
go through a quality review, either by the Commission or by independent experts
(Jaspers or other entities nominated by Member States and agreed by the
Commission) before approval by the Commission. 
69.
First alinea: The Commission
considers that the utilisation rate of the airport should be verified over the
lifetime of the investments made in order to assess whether they have reached
fully their operational usage.
70. Regional airports may serve
communication purposes for a region or community and the public authorities may
wish to maintain their functioning for other than simply financial reasons.
That is why public transport infrastructures which are not profitable and
require state support are sometimes kept in functioning.
Recommendation
1
The Commission accepts the
recommendation and will implement it during the negotiations on operational
programmes for the period 2014-2020. The approach of the Commission's services in
the negotiations is that EU funding to airport infrastructure is focused in
particular to airports belonging to the core TEN-T network. The Commission also
requires that the Comprehensive Transport Master Plans should serve as a basis
for the choice of transport investment priorities. All investments should
contribute to delivering the objectives for the priority axis concerned and
investments in any airport would in particular need to be subject to a prior
detailed assessment of economic viability and competition (e.g. whether private
operators could finance the investment). Finally, investments should be
underpinned by plausible results of the required feasibility study and a
positive Cost Benefit Analysis. 
72. The definition used by the
Commission for issuing state aid decisions is that "catchment area of an
airport in general means a geographic market boundary that is normally set at
around 100 kilometres or around 60 minutes travelling time by car, bus, train
or high-speed train. However, the catchment area of a given airport may be
different and needs to take into account the specificities of each particular
airport. The size and shape of the catchment area varies from airport to
airport, and depends on various characteristics of the airport, including its
business model, location and the destinations it serves." The 100km threshold
(200km if a high-speed railway line exists) is equally defined in article 24 of
the TEN-T Regulation setting out the criteria for air transport infrastructure
components. As mentioned by the Court, in a recent study of the Commission's
services on accessibility to passenger flights in Europe, the Commission's
services drew conclusions on the basis of a catchment area of 90 minutes travel
time to the airports. The Commission considers that the catchments areas should
also take into account other elements such as business model of the airport,
number and type of destinations served, availability of airport capacity at
other airports, public transport links, time-sensitive travellers, whether the
airport mainly serves the residents or visitors coming to the area.
Regional airports often do not
serve the same destinations with the same frequency as their neighbouring
airports and even more so as the main airport in the Member State. 
The fact that the Commission does
not have full detailed knowledge of all EU-funded projects throughout the EU
and throughout sectors does not mean that it fails to fulfil its regulatory
supervisory role. On the contrary, the Commission exercises its supervisory
role – often beyond its regulatory prerogatives – through annual reporting and
monitoring also at project-by-project level if needed, ad hoc treatment of
problematic issues and specific audits. What is more, the Commission has in the
past refused co-financing to regional airports for which the business case was
not evident and which did not seem justified from the cohesion point of view.
The Commission also notes that
Cohesion Fund projects were directly approved by it in the 2000-2006 period,
while in the 2007-2013 period they were included in the programmes and approved
individually only if they were major projects. The Commission took steps in
2007-2013 period to improve the assessment of major projects, through the
establishment of the Jaspers initiative, which provides technical assistance to
Member States, the preparation of a comprehensive CBA guide and the use of
outside expertise if needed. 
In the 2007-2013 period, the
Commission received 17 major projects applications for airports. During the
appraisal, the Commission pays significant attention to the issue of overall cost
of the project, their benefits and added value for the society. This resulted
in specific cases such as the reduction of scope of projects (e.g. Iasi airport and Wroclaw airport) or the inclusion of conditions in the approval decision
(for Gdansk airport due to construction plans for adjacent airport in Gdynia). The Commission always carefully verified the demand analysis. In some cases, the
Commission urged national authorities to abandon projects (e.g. airports in Kielce, and in Bialystok) due to insufficient demand and the Commission’s concerns linked
with the financial sustainability of those airports.
Recommendation
2
The
Commission agrees with the importance of coherent airport strategic planning as
a means to avoid misplaced capacity in the future.
The
Commission agrees with the recommendation which is addressed to the Member
States (coherent regional, national and where appropriate and possible
supranational plans for airport development). On its side, it will verify the
implementation during the negotiations on operational programmes for the period
2014-2020 through the assessment of transport plans in the framework of the
fulfilment of ex ante conditionalities. See also reply to §§68-71.
At
another level, the Commission will intensify the monitoring and assessment of
the ability of the EU air transport market to meet future challenges and
opportunities.