Airlines ordered to repay subsidies received from Austrian airport under EU State aid rules

Written on 16 Nov 2016

On 11 November 2016, the European Commission announced that certain airport services and marketing agreements concluded between an Austrian airport operator and three airlines caused illegal State aid.

An undue economic advantage?

Klagenfurt Airport is a small regional airport in Austria. The Airport has received regular capital injections from various national and local State authorities in Austria. The Commission’s State aid investigation was launched back in 2012 in response to concerns that certain discounts and payments, granted to a number of airlines by the Airport, gave those airlines an undue economic advantage over their competitors.

The Commission assessed bilateral arrangements between the Airport and five airlines. Those arrangements typically set the level of airport charges to be paid in respect of specific routes for a given period, on top of discounts available under the scheme, and in certain cases provided that the airlines would carry out marketing services for the Airport in exchange for remuneration. The Commission found that:

  • The terms of the agreements concluded between the Airport and two of the airlines would have been acceptable to a profit-driven airport manager and therefore involved no State aid.
  • On the other hand, airport services and marketing agreements concluded with the other three airlines could not, when they were concluded, have been expected to generate more revenues than additional costs. As no profit-driven airport manager would have concluded such loss-making agreements, they amount to State aid to the airlines.

Accordingly, the Commission ordered that €12.7 million aggregate must be repaid back to the Austrian State by those three airlines.

The “market economy investor principle”

This case underlines the importance of the so-called “market economy investor principle” (MEIP) when analysing compliance with EU State aid law. The investment of public money must occur in a manner that would be acceptable to a comparable private business in the same circumstances in order to avoid the reach of the State aid rules. Wider social, political and/or macro-economic factors must be distinguished.

From a private company perspective, this decision underlines that, as recipients of State aid, they may ultimately be the organisations who bear the loss – i.e. it is the private company recipients (in this case, the airlines) who must repay the illegal State aid, plus interest. Moreover, in some European countries – notably Italy, France and Germany – it is possible for a private sector competitor, who has suffered loss as a result of aid received by its rival(s), to claim damages against the State aid recipient(s) directly, which of course presents a further risk for private businesses receiving State aid.